The World Is Not “Flat” – ICT Created Global Connectivity, But Regulatory Restrictions And Red Tape Reveal That The Old Mind Set Focused On Barriers Still Prevails – We Are Not That Smart Yet

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By Paolo von Schirach

October 30, 2012

WASHINGTON – Contrary to what you have been told, the “World is not Flat”; at least not yet as flat as it could get. The expression “Flat World” implies a vast web of constructive, self-sustaining horizontal connections, within countries and especially among countries. Because of ICT, super fast and now super cheap fiber optic connections, we can have hours of conversations free of charge with our friends in Shanghai or in Johannesburg. We can set up new business relationships, create new ventures all over the world, almost at no cost. This is of course amazing and altogether good.

No global mind set

That said, we still have to create the mind set, the shared values and the shared language that will allow us to take full advantage of all this inexpensive connectivity. While some of this exists, the evidence is that there is a long, long way to go, not just internationally; but even within countries before we reallyget to a “Flat World”. The point is that the tools may be there, but the mind set is not, across boundaries and even within countries.

No service oriented public administration

For example, in the immediate aftermath of Hurricane Sandy, president Obama stated that he directed all federal agencies to act fast in their relief efforts. Given the severity of the situation, he said, federal bureaucrats should not invoke rules, regulations or procedures to stand in the way of aid delivery to those in need. The Government must cut through the red tape and get things done.

I have no qualms with what the President stated. Delivering help should be the paramount concern. However, this decision to cut through the bureaucratic red tape in this instance invites a major question. Why acting swiftly is warranted only in an emergency and not all the time? By stating that this time we shall make an exception, President Obama implicitly recognized that most of the time red tape hinders effective government action. If it is so, why doesn’t this problem that for sure costs a lot in terms of delays and wasted resources get fixed? America is the home of some of the best information technology companies in the world. We do not lack resources. So, why doesn’t this become a top priority?

Trade is complicated

Farther afield, a recent WSJ news story explains how the Los Angeles Port organizes workshops aimed at teaching people how to become exporters. Again, this also runs against the assumption that being an exporter these days must be easy. You have a product, you identify foreign buyers via an internet search, get in touch with them, find agreement on prices and quantities and ship your stuff to them.

Well, not so. If you want to sell to Russians you have to learn and then follow all sorts of specific and horribly complicated norms aimed at satisfying not your customers, but Russian customs authorities. You make mistakes filling the forms the way they want them and your shipment does not get approved. No approval, no business. Assuming that you already have a customer, what is the point of public authorities creating all these additional barriers?

Voluntary compliance not credible?

Look, in international commerce, there should be certain standards observed by all. But there should be few of them and they should be enforced by all nations that want to trade. For instance, it is obvious that no country wants to import unsafe animal or agriculture products. Hence safety controls. But it would be relatively simple to create a world standard (for example) for slaughterhouse safety and make sure that all such facilities among countries trading with one another meet that standard. The national authorities would issue the certification, and this should suffice to satisfy the authorities of the importing country.

But we are not there. There are issues about agreeing what the standards should be, and issues of trust. If a slaughterhouse in country that does not meet the standards X gets a certification because of a bribe to a government official, then their products may be unsafe. Since not all countries adhere to the same standards, we do not trust one another (in some cases with cause) and so the “World is not Flat”.

Self-defeating welfare programs

Last example. The WSJ reports that welfare recipients in Minnesota have to keep an exactingly accurate log that records all their activities and interactions aimed at finding work in order to retain their eligibility for their welfare check. Paradoxically, doing one’s best to stay in compliance is so complicated that it becomes itself a “job”. It is so complex and time consuming that welfare recipients require counseling from the welfare authorities in order to learn how to stay in compliance with welfare rules. Because all this, welfare recipients, instead of looking for work, worry about keeping their log in good order, so that they can get more welfare. This defies the goal of welfare as a safety net that will provide temporarty assistance.

Mind set focused on procedures, not outcomes

There you have it. The US President says that “this time”, because we are dealing with a hurricane emergency, it is alright to forget about red tape. But this means that all the other times thinking about ways in which government should provide services in a simple and user friendly fashion is not a priority. And why is good service delivery not the top item on the to do list? Because the main concern in the minds of public officials is not to deliver the best services but to stay out of trouble. Many rules and strict compliance with them supposedly lets the bureaucrat off the hook. In case something bad happens, he/she can claim to have acted “by the book”. At the state level, same story. Welfare programs are far less effective than they could be because they are also wrapped in red tape.

And globally free trade is a noble aspiration, not a reality. Trade exists, and it is easier today to execute transactions than it used to be. But arcane regulations and arbitrary restrictions still dominate in many countries; and so trade is only for the hardened pro, not for the small scale would-be international businessman.

No shared values complicate transactions

The internet and super fast fiber optic cables are great; but making the “World” truly “Flat” will require profound changes in human psychology leading to the creation of shared values. Technology may have given us the tools, but we cannot use them fully, because we do not trust one another enough to really open up all systems.




Indebted Western Countries Need To “Bend The Spending Curve” – The Pace Of Austerity Does Not Matter, As Long As Bond Markets Believe That It Is A Real Long Term Policy

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By Paolo von Schirach

October 29, 2012

WASHINGTON – Austerity, yes or no? Too much, too little? Does it do any good? Does in fact make things worse? Ask the average Greek, you get a negative answer. Ask the average German, you get another.

Too much public spending

The odd thing is that we are even debating this so much. Austerity really means frugality, doing with less public spending. And why the need? Well, because we spent too much. And this not about one crazy binge.

This is about systemic overspending justified in the name of providing needed social services. In other words, elected officials put their countries on a path of unsustainable social spending, (pensions, health care, unemployment benefits, disability programs, subsidies), in order to please the voters, giving the impression that the financing of this fiscal insanity was actually possible for an indefinite future. As simple as that.

But it was of course impossible. And finally bond markets got the idea and shunned the debt of overextended countries and/or started demanding punitive interest rates that would make it impossible for them to keep borrowing, given the higher cost of debt service.

In Europe, bail-outs with the promise of spending cuts

In Europe the debt crisis has been dealt with via extraordinary new lending to the semi-bankrupt countries –yes, we are talking about Club Med– with the proviso that they would reform public spending, and this means mostly social spending cuts now and in the future, so that total government spending will be realigned with actual revenue.

Nobody can object to this formula. This is like your uncle saying that he will pay for your long and expensive detox treatment, as long as you promise that henceforth you will stop drinking and doing drugs. Otherwise, the detox therapy, (the bail out money, in Europe’s case), is just money down the drain.

How much austerity?

If we establish this, then the only issue that needs to be settled is the pace of austerity implementation. And here it gets tricky, because we do not have a one size fits all template. Ideally, policy makers want to convey to the bond markets that they will “bend the spending curve“. The speed of spending cuts does not matter that much, once markets are convinced you are actually going to do this (bending the curve) and once they really believe that there will be no change of heart somewhere along the line.

If public spending is indeed on a steady downward path, then the peril of insolvency leading to bankruptcy fades away, and investors will reduce their demands for higher interest rates in order to buy your bonds.

Of course, we need to consider other factors. If the overall economic conditions are very weak, then there is no sense in having too much austerity, all at once. Too much austerity means a sudden aggregate demand drop . And this is recessionary. Some austerity will be enough, as long as the overall plan of bending the spending curve remains credible as a long term strategy.

Hopeless cases?

That said, for all this to work, we need a patient with more than just a pulse. To go back to the guy in detox, what if he is too damaged? What if he can never get healthy again? Well, in this case it is all in vain. The expensive detox treatment serves no purpose. And I fear that this is Greece. Likewise, if the patient has no intention of giving up the bottle after detox, he’ll get in trouble again, and we are back to square one. And this is Italy, I am afraid.

America still in denial

America is in a different place. It really needs to bend the entitlement cost curve, just like the Club Med countries. But there is less pressure to do so, because for the moment it is relatively easy to finance a gigantic US national debt, ($ 16 trillion, and counting), at a very low cost. But this gravity defying act can last only so much time. What is unsustainable will not be sustained, as economist Herbert Stein used to remind us.

Just like a functioning alcoholic

Still, for the moment America behaves like the functioning alcoholic who, no matter how much booze he drinks, can still get up in the morning and go to work. We know that he is an alcoholic who will eventually fall on his face; but he does not grasp this, or pretends not to know.

After he does fall on his face, the only issue is how badly injured he will be. It could be that the damage he inflicted to himself is in fact crippling.




“The Economist” Hopes That Xi Jinping Will Lead A Process Of Radical Political Reforms In China – Great Idea, But This Looks Highly Unlikely

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By Paolo von Schirach

October 27, 2012

WASHINGTON – Autocrats would rarely initiate by their own free will a process leading to their demise. And yet this is essentially what The Economist hopes Xi Jinping, the anointed new President of China, will do for the good of the country. This is wishful thinking carried to such an extreme that it is almost laughable. The very conclusion of the Leader titled “The man who must change China” shows a dangerous detachment from reality. After having made its case as to why Xi should engage in an unprecedented process of radical reforms, the article suggests that this would be a good way to reaffirm the Communist Party as a positive force in China: “ Bold reform would create a surge of popular goodwill towards the party from ordinary Chinese people”.

Change anyone?

In theory this may be true. The people managing an autocracy who voluntarily relinquish power may indeed get some more support. However, history shows very few cases of such orderly transitions; and Mr. Xi and his colleagues know this as well as we do. Indeed, it is far more likely that, as soon as the grips on society are loosened, the whole regime will fall apart, because the party would lose control and therefore will be unable, even if it wanted to, to lead the transition in an orderly and peaceful manner.

Very few orderly transitions

I can think of few examples of orderly transitions. One would be South Africa in 1994. But the circumstances there were quite unique and there was luckily a common plan genuinely shared by the White minority and the emerging Black majority wisely led by Nelson Mandela, a man of rare and truly special talent. I can think of the worn out Franco dictatorship in Spain in 1975. As the old general was in his death bed, Adolfo Suarez, the head of the National Movement, Franco’s party, concluded wisely that he had to start a process leading to democracy. Suarez, working with the young King Juan Carlos, managed this feat remarkably well. But do keep in mind that Franco’s Spain, although an autocracy, was a rather bland one in 1975.

Reforming the Soviet Union did not work out well

More recently, we had Michail Gorbachev in the Soviet Union. His well meaning efforts at reform ignited a process that he could not control. The regime imploded and he was gone. I suspect that China’s leaders remember this rather significant precedent.

It is true, as The Economist stated, that China’s future no longer looks rosy. There is a bad combination of economic slowdown due in part to built- in inefficiencies, growing and more open popular discontent about land grabs, rampant corruption, environmental disasters, public health failures, and a lot more. Repressing all this may be indeed a losing proposition.

A tall agenda for China

That said, the idea that the Communist Party can open up the system, institute genuine democratic controls via free elections, allow a free press, establish an independent judiciary that will prosecute many of its members, privatize state controlled enterprises that are used largely as political tools –the very idea that the party can do all this and retain power sounds rather fanciful.

Improbable leaders

Of course, in such complicated matters of reform timing is everything. If the pace of reform is right, things may turn out fine. But this is difficult and extremely risky. The idea that party bureaucrats who have advanced only because of their tactical abilities at avoiding troubles and traps will be able to morph into men of change looks improbable. The idea that the Communist Party will be re-legitimized on account of all this looks even less credible.




Romney Finally Showing That He Is a Highly Competent, Affable Man – Obama Now Looks Lost and Angry – Is This Enough To Determine The Election?

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By Paolo von Schirach

October 26, 2012

WASHINGTON – Months and months of carefully orchestrated and diligently planned Romney character assassination (“super rich, vulture capitalist”) went up in smoke during the first presidential Denver debate on October 3. With 70 million Americans watching, Obama was flat and despondent, Romney engaged and pleasant. The Obama strategy to win by default because of the successful demonization of challenger Romney has failed.

The impact of the debates

The effect of this debate performance has been extremely powerful. Obama’s consistent lead in the polls vanished. Romney is now a possible winner, something considered almost a dream before Detroit.

True enough, the American electorate is split almost 50-50. Still, while rock solid partisan voters will vote for their man no matter what, some with less intense feelings may be swayed. And in this context “likability” becomes a critical factor. Up to Detroit the unanimous consensus was that Romney was wooden, not comfortable in his own skin and therefore not projecting any personal warmth.

Well, now this perception has changed. Obama was lost in Denver, angry and patronizing in the subsequent two debates. Romney has his flaws too, of course. But he came out of these highly publicized events as a far more credible would-be president.

Who has the most appealing personality?

In the end, while a policy agenda matching the needs of the country does matter, Americans want to fall in love with their President. And now at least some who thought Obama was their man are seriously considering Romney as an alternative because he looks the part, while Obama in their eyes no longer does.

If we believe Bob Woodward’s new book, “The Price of Politics“, what we saw in Denver and afterwards is the real Obama: a man of perhaps above average intelligence who is however way out of his depth in the White House. He hectors and lectures but he does not know how to lead.

True leadership needed

In America true leadership is about bringing the other side to the table in order to hammer a decent compromise that carries the country forward, all this without making the other side look like a loser. Obama lacks this quality. He is described by many as haughty and patronizing, when he should be affable and engaging.

The personality difference between Obama and Romney emerged clearly during the debates because they were not scripted events. Under pressure Romney could still be engaging and relatively relaxed; while Obama was either lost or angry.

Obama could not bring the other side to the table

All this is of course largely speculation. Still, the record of the last four years shows that Obama could not lead when America needed grand bargains on fiscal and tax reform, with special focus on Medicare and Social Security. He had a great opportunity when the Bowles-Simpson Debt Commission issued its Report in December 2010, and he let that one go. Likewise, Obama could not lead on new pro-growth policies that would inspire confidence (and therefore stimulate new investments) among business leaders.

Of course, the other side has its responsibilities. There is now a strident and frankly irresposible fringe within the Republican Party (Tea Party and all their friends) that will say “No” to any and all compromises with this White House as a matter of principle. This is very bad. But Congressmen, however numerous and misguided, are not national leaders. The President is the national leader. His voice counts a lot more.

Reagan had a good touch

President Ronald Reagan was demonized by the Left as a trigger happy, hopelessly far right and unintelligent lunatic. And yet Reagan was a genuinely affable man. He had a personal touch that made it possible for him to bring the Democrats to the table and achieve tangible results such as Social Security reform and the 1986 major tax reform.

The next President will have to lead

Personality does matter in US politics. Should Romney get elected, for the sake of America’s future let’s hope that what we saw in the debates is the real thing: a man whit good ideas who can credibly bring all parties to the table and strike honorable compromises that will help the country emerge out of this funk.




China’s Economic Slow Down Will Have Political Consequences – Critics Argue That The Vast System Of State Owned Enterprises Is Wasteful – Reforms Ahead?

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By Paolo von Schirach

October 20, 2012

WASHINGTON – China is facing a major economic problem wrapped in a political problem. The emerging evidence is that the reformed, Deng Xiaoping vintage, economic model is not working so well anymore. The impressive impetus towards economic liberalization that began in the 1980s unleashed the creativity and ingenuity of tens of millions of entrepreneurial Chinese. Once it was established that making money was not inconsistent with a still dominant Communist political structure, China was on a roll.

China’s model

For decades China did extremely well because of the optimized combination of several factors: massive public investments in infrastructure that allowed manufacturer to deliver goods to foreign customers in record time, cheap labor, an under valued currency that favored exports and an almost perennial construction boom that enriched local officials and developers, while employing tens of millions. The entire growth strategy was financed through cheap capital provided by a state banking monopoly that could attract all private savings at almost zero cost.

As the economy grew at a fantastic rate of 10%, year after year, the Chinese Communist Party re-legitimized its political monopoly by transforming itself into a supercharged Chamber of Commerce, relentlessly pursuing economic growth.

The Chinese are masters at changing content while leaving the old labels intact. Mao is still on all the Chinese bank notes, even though this is no longer Mao’s China. Likewise, it does not matter that the Communist Party is no longer pursuing Marxist orthodoxy. What matters is that the Communist Party is still in power, retaining just as before an absolute political monopoly.

That said, there are signs that this ideal union between an ever growing economy and political control may not work any more. Let’s see why.

Not working so well now

First of all, China’s construction boom cannot continue at the same pace. There is just too much unneeded stuff. Too many empty office towers and even empty planned cities (such as Ordos, in inner Mongolia). There is brand new but underutilized infrastructure that creates no value. You cannot just keep adding more to it, simply to show higher GDP numbers.

Secondly, the vast price advantage provided by China’s cheap labor has been eroded. Chinese labor costs are growing, and so its exports can no longer be super cheap. Going forward, one can expect that they will reach parity with the West. At that point China will have to compete on quality rather than price. How many consumers in the West buy a product because of the superior quality of Chinese brands? They buy it because it is cheap.

Chinese economist argue against SOEs

Less construction and slower exports translate into slower growth. As all this is unfolding, some Chinese economist question the Keynesian model of more stimulus to be provided by more public spending. (See AP story: China’ New Leaders Face Tough Economic Choices, October 21, 2012). They argue, quite correctly, that in the long run this is terribly inefficient and wasteful. They point out that the still vast system of China’s State Owned Enterprises (SOEs) consumes wealth, while providing in the aggregate negative returns. (Some have estimated an average return on equity of minus 6%). The World Bank, working in conjunction with a Chinese think tank, recommended in March that China would undertake a major reform of its SOEs in order to regain economic efficiency.

Other Chinese intellectuals, (see many articles published in the magazine Caixin), have squarely accused the SOEs sector of being mostly a series of wasteful monopolies controlled by the politically connected to further their own power interests, as opposed to being wealth producing entities.

Politics and economics

That said, the very notion of reforming half or more of the Chinese economy, the half that is controlled by the state, is an almost impossible task from a political standpoint. And this is because the SOEs system is totally intertwined with the power structure. And the Chinese power structure, now determined by a system based on cooptation that favors continuity, is singularly unsuited to launch bold reforms.

The leaders who rise to the top in China are not reformers; they are skilled survivors who managed to avoid major problems on their way up. On top of that, the huge number of people who run the SOEs and benefit from them, whatever the inefficiencies of the system, have no interest whatsoever in any reform. In fact they will oppose any effort in this direction because for them this is a matter of personal political and econ0mic survival.

Unsustainable model?

Taking all this into account, without serious pro-market reforms, it is most likely that China’s incredible economic rise will end soon. This does not mean economic disaster, of course, only going back to “normal” growth. Still, much slower economic growth will allow Chinese critics of the current, inefficient set up to voice their discontent. (On October 13-14, the WSJ published an interesting interview with one of them, Zhan Wiying of Peking University). And since in China economic policy criticism implies some degree of political dissent, we may very well be on the verge of something quite dramatic.

Market economies and autocracy

In the end, what China did was incredible and unprecedented: several decades of sustained economic growth successfully managed by an autocratic regime.

Still, history shows that we can have sustained economic growth and we can have autocracy. However, in the long run the two are mutually exclusive. Post-Stalinist Russia failed. Semi-reformed China has done a lot better, but it may be close to running out of steam.




America Must Invest $ 2 Trillion Just To Maintain Existing Infrastructure – We Have Decrepit Roads And Bridges Because Of Decades Of Neglect

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By Paolo von Schirach

October 19, 2012

WASHINGTON – Historian Walter Russell Mead argues in a WSJ op-ed piece that in America we are anchored to yesterday’s thinking when it comes to investing in infrastructure. There is an old fashioned, unimaginative and therefore mistaken approach about doing more of the same, he writes.

Moving information, not goods

In the past we used to think in terms of more roads, bridges and rail systems. And now we want to build more highways and possibly high speed rail systems, even when the estimated costs do not justify them. This is a strategic error, he maintains, a huge misallocation of resources because the future is about moving information and data and not goods or people. Telecommuting will replace commuting and ever more sophisticated video-conferencing will replace business travel.

Only at the end of his essay Mead concedes that America may need to spend a little on maintaining our existing infrastructure: “Yes, our existing roads, bridges and highways should be maintained, and in some cases enhanced. Even so, more physical infrastructure isn’t our main need at this point“.

It sounds sensible. Yes, maintain what we have; but readjust national priorities so that we understand that moving data will be more important than moving goods or people.

$ 2 trillion just to fix the infrastructure we have

All good, except for one detail. Do you know what the estimated bill for maintaing our “existing infrastructure” is? Well, because of decades of under investment, the best estimates vary between $ 2.2 trillion and $ 2 trillion. (See a 2011 study produced by Urban Land Institute, and a report by the American Society of Civil Engineers, among others). Yes, that is 2 “trillion”, not billion. In a country with a total GDP of $ 16 trillion, $ 2 trillion just for fixing what we have, without adding anything new, is a staggering figure. This is more than half the amount of the entire annual federal budget, ($ 3.67 trillion projected for FY 2013).

More physical infrastructure may not be the wave of the future, but unless we focus on fixing the decrepit infrastructure we have, it is certain that America will be severely penalized by the global economy.

China thrives because of modern infrastructure

China thrives as a manufacturing hub because it has gigantic factories and cheap labor. But also because it has first class infrastructure that allows manufactures to have one of the best supply chains in the world. They can guarantee deliveries in record time. And this is because the Chinese made massive investments in the physical infrastructure a modern manufacturing economy needs in order to be competitive.

India did not invest in infrastructure. As a result, India’s manufactures are severely penalized by their inability to move parts and finished goods in a fast, cost effective and reliable way. Same story for Africa. You cannot have a modern economy without state of the art infrastructure.

America used to have great infrastructure. However, decades of neglect and chronic under investment created a problem now close to a crisis that hurts our entire economy.

We still need to move goods and people

It is all well and good to say that data may become more relevant than goods in the future. But millions will still drive to work, to grocery stores and department stores. Trains and trucks will deliver needed iron ore, cement, copper wire, grain, ice cream, video games and refrigerators. Even if we assume that all shopping will move entirely on line, Amazon and all the others will still rely on FedEx and UPS to deliver the goods people ordered on line. And these logistics companies cannot exist without modern airports and highways. And if you want to visit Los Angeles or your sister in Ohio, you have to get there somehow.

America needs state of the art physical infrastructure

Doing all these things we take for granted reliably and effectively is not a given. We do need state of the art, modern infrastructure. To achieve this rather modest goal, (at least by the standards of all advanced economies), as a Nation we must decide to pony up and start investing now the $ 2 trillion we need to spend just to keep what we have in working order. We are talking basics here. This spending has nothing to do with fancy high speed rail projects in California or elsewhere. Still, if we cannot even agree on doing the basics, we are well on our way to becoming a Third World country.




Benghazi Attack Fiasco Is Now Just A Political Issue – From Day One Obama Tried To Obfuscate, Romney Attacked – Ugly Mess Shows Deep Divisions On Fundamental Issues – America Looks Weak

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By Paolo von Schirach

October 18, 2012

WASHINGTON – The planned attack against the US Consulate in Benghazi, resulting in the first killing of a US Ambassador in 30 years, unfortunately shows how botched policies now get routinely mixed with political calculations. The result is an ugly mess showing Washington at its very worst. In the final stages of a positively ugly campaign, the Republicans jumped at this foreign affairs screw up with the intention of using it as evidence of a totally flawed US foreign policy under the leadership of an incompetent President Obama.

A political issue?

The Obama administration people, fearful that this terror attack would make them politically vulnerable, only a few weeks before the elections, from day one treated the incident as a political rather than a policy issue. They did their best to prove that this tragedy was not the outcome of any mistakes. This was all about (understandable) Arab anger against the now famous anti-Muslim “video” unfortunately produced in the United States.

Well, this attempt to deflect accusations of serious errors of judgment in leaving key US diplomatic facilities in an unstable Arab country essentially unprotected backfired.

Still, as this is now mostly a campaign issue, the Obama administration wrapped itself in the flag, stating that they have done nothing wrong and that it is “offensive” to imply that their behavior in explaining what happened in Benghazi is anything less than totally transparent. This may work with some voters but it is totally disingenuous.

Once upon a time a united front on foreign policy issues

During the Cold War, the implicit pact between Republicans and Democrats was that politics would stop at the water’s edge. In the global fight against Communism there would be only one America, steadfast and united.

Well, this is no longer. And it really hurts us. Foreign observers looking in see a country deeply divided on almost anything.

Mistakes in Benghazi

Look, the Benghazi tragedy from what we know so far is a sad but not that complicated affair. The State Department failed to follow the advice of security specialists on the ground. As a result the US Consulate in Benghazi was left almost unprotected. Libyan radicals saw this as an opportunity to launch an attack with tragic consequences.

In a better country, Hillary Clinton, the US Secretary of State, would have come forward the next day and would have taken responsibility for this policy error, while ordering a review of other security arrangements especially in turbulent countries, to make sure that there would not be similar vulnerabilities elsewhere.

The country would have nodded. One mistake, however big, does not indict the entire foreign policy of the United States. Nobody would have tried to use this incident to score political points.

Now it is only about politics

But it did not go this way. The administration, sensing trouble ahead, tried to obfuscate, showing that their primary objective was not to shed light on the tragedy but to minimize their responsibilities in order to win the elections. The Republicans, smelling blood, launched an all out offensive in order to gain politically.

The result is what you see: a sorry mess and a diminished America publicly displaying to the whole world that we carry on an ugly political fight over the dead bodies of killed Americans who were trying their best to serve their country. We can and should do better.




The Fiscal Crisis In Southern Europe Is A Consequence Of Corruption, Illegality And Lack Of Morals – Scandals In Italy, While The Greeks Are Forced To Work By Chinese Bosses

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By Paolo von Schirach

October 11, 2012

WASHINGTON – During the recent US Republican Party primaries, former Pennsylvania Senator Rick Santorum emerged from nowhere as a national leader on the basis of one key message: values shape societies and therefore their performance. This is undoubtedly true.

Values and politics

What is less clear is up to what point is it the task of elected officials to preach values, as opposed to dealing with the policy issues at hand. This is a very difficult question for which there is no good answer. It is nonetheless true that, if a society loses its moral compass, then even the best and most enlightened leaders will fail to carry out meaningful policy changes. Modern democratic societies are based on voluntary action, not coercion. Leaders can say all the right things, but if the people are unwilling to listen and follow, then it will all be for nothing.

Italy: not just a fiscal crisis

And this is precisely the case in Italy. As the country was facing an impending fiscal disaster in November 2011, in a rather unorthodox fashion the Italian President Giorgio Napolitano, (bear in mind that the duty of the presidency in Italy are largely ceremonial), forced then Prime Minister Silvio Berlusconi out and appointed Mario Monti, an economist with no political affiliation and impeccable personal credentials, to be the new Prime Minister at the head of a “technocratic government” whose task was to save Italy. Everybody agreed that this was a smart move. And indeed the Monti team moved in and managed to pass austerity measures that at least shored up the country’s finances.

Widespread corruption

That said, the Monti technocratic government soon discovered that it had and still has to deal with a lot more than a serious fiscal shortfall and a stalled Italian economy. The country is mired in corruption scandals, themselves tell tale signs of a deeper problem of widespread lack of morals. Recent headlines, from Rome to Milan to Reggio Calabria in the deep south are about scores of corrupt public officials, abuse of power, kickbacks and strong ties between elected officials and organized crime. (Mafia, Camorra and ‘Ndrangheta).

Half the country goes in the opposite direction

In other words, while an honest and capable Prime Minister preaches austerity, belt tightening, higher taxes and sacrifices, half the country –all the established political elites leading the way– goes in the opposite direction.

They want to keep the old system going, just as if nothing had happened. Forget about the need to save public funds. Forget about productive investments. As the old Italian adagio says referring to politicians: “We steal so that we can rule, and we rule so that we can steal”. Italy is a country in which unethical behavior is the norm and illegality quite common.

Values matter

So, here we are back to Rick Santorum and his efforts to demonstrate that no policy will succeed in a society that lost its sense of ethics. Mario Monti has just introduced fresh anti-corruption legislation. But there is already deep skepticism about its possible impact. And this is because the law targets precisely the same political elites whose votes are necessary to pass it. New laws may be passed. Serious implementation is another matter.

The Greek example

Similar picture in Greece, in fact worse, as the Greeks have a surprising proclivity for (often violent) denial. It is now painfully obvious that the Greek catastrophe is the result of bad policies sustained by lack of ethics. The Greeks had become accustomed to a system in which most people wanted government jobs that required minimal performance, a system in which bribes were needed to get anything done, a system in which public accounts were falsified and endless borrowing was the only strategy.

One might have hoped that, being finally faced with bankruptcy, Greek society would wake up and sober up. No, just the opposite happened. Indeed, as Greece’s imminent demise and the consequent need for an urgent EU-IMF bailout became evident in 2010, the people kept protesting often violently against the austerity measures deemed necessary to cut down the deficit. Workers protested, teachers protested and even taxi drivers went on strike.

Blaming others

In simple words, in a country led to bankruptcy by the outlandish mismatch between the cost of public programs and revenues, while an unproductive economy produces little of value, when the whole thing blew up nobody wanted to take responsibility. And, to date, they still do not. Prime Minister Antonis Samaras applauded a recent official visit by German Chancellor Angela Merkel as a political endorsement by the most powerful European Union country, as a gesture of solidarity with embattled Greece by the country that funds its rescue.

Well, the Greeks used the opportunity for a violent demonstration against the rescuer. “Do you want to know the truth? Germany is the cause of all our troubles. In a mean spirited way, reminiscent of the Nazi occupation, the Germans want to colonize Greece by imposing on us draconian austerity”. This popular “interpretation” of the roots of the crisis is bizarre, itself evidence of people living in a fantasy world in which there is no personal accountability. Whatever the problem, it is someone else’s fault.

When the Chinese run the show

Want another example? The Chinese conglomerate Cosco took over half of the Port of Piraeus, near Athens. The outcome is so stark that it is almost comical. On the side of the port operation run by the Chinese, salaries have been slashed while discipline is strictly enforced. As a result, productivity is sharply up on the Chinese side, while it is the same on the Greek side. For instance, on the Greek side union rules prescribe a crew of 9 to work a gantry crane, on the Chinese side they use a crew of 4. That is a 50% saving in manpower to perform exactly the same job.

Different standards

The Chinese managers expect excellent performance, their Greek counterparts do not. Of course, there are plenty of disgruntled Greek workers who have complaints about the Chinese. Some filed lawsuits, arguing that labor laws have been broken, while safety standards are ignored by the Chinese. May be so. But now under serious, no nonsense Chinese management we have half a port that performs up to world standards. The side under Greek management does not. Values do matter.




Biden’s Constant Laughs During The Debate With Ryan: An Explanation For This Unusual Behavior From The Ancient Romans, Good Students Of Human Character

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By Paolo von Schirach

October 13, 2012

WASHINGTON – Much has been said about the almost compulsive laughs and smirks exhibited by incumbent Vice President Joe Biden during his feisty debate with Congressman Paul Ryan, the man who would take his place as Vice President in case of a Romney victory in November.

Deliberately offensive behavior

The Romney Ryan camp and their supporters, starting with Fox News commentators like Chris Wallace, called this unprecedented behavior deliberately offensive, condescending, patronizing, dismissive. In their interpretation, the elder statesman (Biden) wanted to prove his superiority through his open lack of civility. And so he laughed and smirked to drive home the point that the junior wannabe (Ryan) was making only silly and preposterous assertions.

Nothing to it

Of course, the Democrats and their supporters would dismiss the whole thing, and say that nothing special was meant with all those laughs and that this is just Biden’s style. In any event, they argue, the Vice President won the debate not on style but on substance, because of the obvious superiority of his well presented and cogent points.

Still, whatever your preference, the fact is that there does not seem any precedent of a nationally televised political debate of this caliber, that is right before a presidential election, in which when one contender talks, the other laughs and smirks, not once or twice, but constantly.

The ancient Romans had a saying about too much laughter

Beyond what the pundits have already said, is there any good explanation for this highly unusual behavior? Here is a suggestion. The ancient Romans, good students of human character, used to say: Risus abundat in ore stultorum“, “Laughs are plentiful in the mouth of the foolish“, which is to say that excessive laughter is out of place, and it is a synonym of lack of intelligence.




The Attack Against The US Consulate In Benghazi Has Become A Political Issue – Still, It Is Clear That There Was Bad Security Planning Resulting In Inadequate Protection – America Can And Should Do Better

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By Paolo von Schirach

October 10, 2012

WASHINGTON – It is unfortunate that the attack against the US Consulate in Benghazi, resulting in the destruction of the buildings and the killing of four Americans, including Ambassador Chris Stevens, has become now a pretext for political theatre. By holding hearings on this incident, the House Republicans clearly want to use this tragedy as an illustration of a failed Obama foreign policy towards the Arab world. This is a stretch, and it is an unfair charge.

Administration run for cover

However, the Republicans are not alone in playing politics with this incident. Right after the news of the Benghazi attack, the Obama administration’s immediate instinct, clearly dictated by political considerations, was to run for cover, dispatching Ambassador to the UN Susan Rice to state on all the TV talk shows that all the anti-American riots that occurred in several Arab countries had been caused by a video of a movie denigrating the Prophet Muhammad. In other words, the first reaction was not to take responsibility, while deliberately trying to create a smoke screen.

It was a planned attack

It was only when it became obvious to all that this attack had been planned and orchestrated that the White House had to admit that it was a terrorist incident, not random violence. This admission, of course, invited questions about threat assessment and the security arrangements in Tripoli and elsewhere.

That said, the administration is still trying to deny any wrongdoing. The notion emerging from some testimonies given by public officials during the House hearing that an attack of this magnitude could not be foreseen and therefore, no matter what the countermeasures in place, could not be dealt with, is totally ludicrous.

Libya is a messy country

The United States of America, the world superpower, can do better than leaving a key diplomatic post in an unstable Arab country (on the eve of a 9/11 anniversary) in the hands of half a dozen security guards. We are talking about a high profile American diplomatic post in Libya here, not in peaceful Switzerland or Canada. Libya is a messy country where the new post-Gaddafi government is still unable to enforce law and order and in which all sorts of weapons, including military hardware, are still in the hands of civilians. On top of that, it is well known that there are at least some radical groups in Libya, along with al Qaeda sympathizers.

While it would not be fair to issue a blanket indictment covering US diplomatic security worldwide, it is obvious that the US Consulate in Benghazi was inadequately protected. Better protection might have saved the lives of Ambassador Stevens and of the other three Americans.

Instead of running for cover, the Obama administration, starting with Secretary of State Hillary Clinton, (remember that her people got killed), should come forward, admit errors and take swift action to correct them.

Beef up diplomatic security

It is true that the Republicans are playing politics with this issue, and this is bad. The killing of an American Ambassador in the line of duty is a national tragedy and it should not be exploited for partisan gain.

But it is also true that the administration has not been honest and candid about what caused this tragedy. While an investigation will provide all the details, it is fairly clear that it was all about bad planning resulting in inadequate protection. The Obama administration is in charge, and it is at fault. They cannot blame George W. Bush for this one.

America can do better

This is America, not some poor developing country. If we can still afford super carriers sailing the oceans and state of the art fighter jets, for sure we still have enough cash to fund better protection for US foreign missions most likely to be targeted. Let’s do that, now.