Beyond The “Fiscal Cliff” Artificial Melodrama, There Is The Serious Business Of Real Fiscal Reform And The Need To Improve US Long Term Economic Competitiveness – This Will Require Leadership And Political Courage

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By Paolo von Schirach

November 30, 2012

WASHINGTON – No way to know how the unfolding “Fiscal Cliff” drama about the need to have a short term fix for US federal spending and revenue will end up. May be a last minute compromise (before December 31) will be hatched. Or perhaps not.

“Fiscal Cliff” is a distraction

Still, while all this is significant, the man-made element of urgency attached to this crisis may allow a misperception as to what America’s long term fiscal and economic predicament really is.

Right now we are all focused on the negotiations between the Obama White House and the House Republicans. Will they come to a compromise about immediate spending cuts and revenue increases? And, if so, who will benefit politically?

This is good Beltway melodrama, providing good fodder for the 24/7 cable TV programs that treat political news as entertainment. But, as all entertainment, it is ultimately a distraction. Even if Washington eventually managed to avoid the dreaded “Fiscal Cliff”, we can rest assured that that any deal will not take care of the slow deterioration of our national finances. And it certainly would not fix America’s systemic competitiveness crisis resulting in a less productive economy that generates a lower tax revenue.

The real issues: social policies

Let’s look at America’s predicament. Social policies first. Just like other advanced industrial democracies, over time America built up its social safety net with the policy goal of improving the living conditions of the elderly. Larger and more generous social programs in the aggregate mean more revenue devoted to more expensive social programs benefiting mostly retirees. Over time, just as in other Western countries, Washington discovered that these costly programs, designed in different times for a completely different society, no longer pay for themselves. And this is mostly due to new and negative demographic trends.

The social programs were designed to be be self-sustaining. Active people would pay into the system and the funds collected from them would be used to pay benefits to retirees. Good idea. Except that now, due to much lower US fertility rates, we have relatively fewer active people paying into the system, while we have more seniors living longer who receive inflated benefits.

Unaffordable safety net

Add to this negative demographic trend the peculiar American feature of out of control health care costs, and you have the making of a crisis, a slow moving crisis, but a crisis nonetheless. To put it simply, the systems making up the “safety net” are now financially unsustainable, unless we want to increase taxation in order to make up the difference between national revenue and what will have to be paid out to current and future retirees. If you consider that already today about 60% of total federal revenue goes to cover the cost of social programs, you get an idea of the horrendous dimensions of this problem.

Washington does not invest any more

An often overlooked but terribly important corollary of increased social spending is reduced federal investments in education, basic science, technology, medical research, infrastructure, space exploration, you name it. In a constrained fiscal environment characterized by permanent high deficits, as social spending goes up the percentage of federal outlays going to what is generally called “non defense discretionary spending” keeps going down, (to about 15% today), as it is crowded out by more politically sensitive social programs.

Impossible to calculate the long term damage caused by a government that, contrary to past performance, is now unable to contribute to the national innovation machine, since it has become essentially a giant transfer payments agency. But systemic government under investment is bound to have negative consequences.

The real issues: competitiveness

Looking at US long term competitiveness, we should consider public education reform, our rate of technological innovation and targeted immigration policies. It is no secret that America’s public education has been in a slow moving crisis for decades. Whatever the efforts, we are still far from a meaningful trend reversal. Put it simply, today’s under educated young Americans will be tomorrow’s under qualified workers. America’s superior economy was built on the basis of a good public education system. Impossible to stay competitive in a global knowledge economy with ignorant workers.

Furthermore, America needs to encourage innovation. One way to do this is to make it easier for average people to start a business. Lower corporate taxes in the context of a broad based tax reform that would lower rates while eliminating preferential treatment, (the so called “tax expenditures”), would help business formation, at the same time promoting innovation.

By the same token, encouraging talented immigrant (many already here because of their studies) to set up shop in the US would help economic activities, business formation, employment and innovation.

It can be done

Can Washington reform social spending, overhaul the tax system and at the same time create a more pro-business policy environment? Of course it can. All of this is complicated, but not impossible.

However, results are predicated on large amounts of political courage and true leadership. We can only hope that, once we have gotten beyond this artificial “Fiscal Cliff” melodrama, serious people will get to the serious business of fixing public spending and restoring the fundamentals of healthy economic growth. The more Washington waits, the more difficult it gets.

A Horrible Fire In A Bangladesh Garment Factory Places The Spotlight On Labor Standards In Emerging Markets – The Western Brands Imposed Stringent Rules On Their Suppliers – But What About Compliance?

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By Paolo von Schirach

November 27, 2012

WASHINGTON – Just a few days ago, a horrible fire in a garment factory in Dhaka, Bangladesh caused the death of more than 100 women workers. This tragedy could have been avoided or at least mitigated had their been fire escapes. But there were none and so the poor women could not leave the building on fire. They were trapped inside and died. Walmart immediately issued a statement indicating that it no longer used this factory as a supplier.

The supply chain

This tragedy and the Walmart damage limitation effort placed the spotlight once again on the rather difficult and opaque issue of the supply chains that provide the garments that eventually are bought by Western customers in inexpensive department stores such as Walmart.

Indeed the poor women workers in Bangladesh in a sense are the key factor that allows Walmart to charge very low prices for its jeans and T shirts. Yes, it all starts with cheap labor provided by illiterate workers who are paid almost nothing for their efforts. Like it or not, this is the sad face of globalization. It is relatively easy and inexpensive to source labor intensive goods in low wage countries like Bangladesh.

Let’s make it clear that Walmart, Polo, Benetton or Calvin Klein usually do not own any garment factories in Bangladesh, Vietnam, Cambodia or Nicaragua. They source from these factories and/or from intermediaries who in turn place orders with the factories. Therefore, technically speaking, the Western brands and/or major retailers bear no direct responsibility for the (usually inadequate, sometimes appalling) working conditions in these modern sweat shops.

Moral responsibility

But they do bear moral responsibility. Because of media campaigns fed by NGOs, Western consumers are becoming aware of the long supply chains that originate in poor countries. People are beginning to realize that what they buy in Chicago or Frankfurt has been made by poor, underpaid and usually exploited women in Bangladesh or India. And, yes, at last some Western consumers do care about lack of living wages, unpaid over time and bad workplace conditions in far away countries.

Labor standards

For these reasons the big Western brands and major retailers decided a few years ago that it was in their business interest to be seen as proactive on labor conditions in the countries where they source their garments. And so they started pushing their suppliers to improve work place conditions and wages for their workers.

Whether they really meant it or not, it is good PR to be seen on the side of the struggling workers as opposed to be viewed as complicit with the exploitative sweat shops owners.

Over time, because of media attention fueled by a variety of NGOs that forced the brands to act there have been improvements regarding work place conditions in factories located in emerging markets that supply the Western brands.

In many cases, the factory owners have to abide by certain work place and labor standards in order to qualify and retain their qualification as suppliers. The brands conduct routine inspections to verify compliance. Sometimes specialized NGOs participate in the monitoring process, in order to verify real compliance.

Improved conditions?

The end result should be improved working conditions for those low wage emerging markets workers (mostly women) who make it possible for us Western shoppers to buy really inexpensive socks or underwear.

But obviously the system is not really working as it should. The fire in the Dhaka factory is evidence of non compliance with elementary safety rules. And we can rest assured that, beyond glaring issues such as lack of fire escapes, most of these factories have inadequate ventilation or sanitation facilities. We can bet that women workers are routinely intimidated, threatened, fired or worse just for asking bathroom breaks. We can bet that many of them have to survive on ridiculously low wages, while they are not fully paid for their overtime.

Hidden cost of low prices

There is no doubt that the efforts promoted by NGOs and other activists helped a lot. If nothing else the Western brands felt compelled to demand compliance with new, decent standards and to issue yearly reports on working conditions in the factories operated by their main suppliers. That said, this Bangladesh avoidable tragedy shows that we are still far from a world in which all workers are treated fairly. Sadly, this is the hidden cost of your low priced jeans.

Major News Stories About China’s Economic Challenges Fail To Point Out That The Country Is Not A Democracy – Self-Appointed Leaders Lack True Legitimacy

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By Paolo von Schirach

November 25, 2012

WASHINGTON – Bloomberg Businessweek provides a good summary of the economic challenges that the new Chinese leaders have to confront, (The Man with a Plan to Revive Chinese Growth, Nov. 26 – Dec. 2, 2012). Indeed, China has to deal with slower growth, the flow of rural people into cities, the need to diversify into services sectors and a lot more. The article profiles China’s new Prime Minister, Li Kequiang, trying to determine whether or not he may have a successful strategy that will enable China to resume its high rate of growth.

No democracy in China

All very interesting and informative. Except for one detail. This article, as so many others in Western media, treats China’s new leaders as the incoming new managers of a large multinational corporations concerned with growth, market share, competitiveness, when to roll out new products, and so on.

In other words, this self-appointed, autocratic leadership selected in total secrecy by a small group of party bosses is discussed as if they were seasoned CEOs and COOs of IBM or General Electric: well meaning technocrats doing their best to keep the corporation profitable, this way providing good value to their shareholders.

Disservice to readers

This way of covering China is unreal and a true disservice to the readers. China is not a corporation. It s a country of 1.3 billion people who have zero representation and no say in who governs them. Somehow this central fact is omitted from stories about China that focus mostly on the economic challenges confronting its autocratic, unelected leaders .

Indeed, whatever the economic challenges ahead, (and there are many), China’s most profound shortcoming is political. Its leadership lacks the elementary legitimacy derived from truly contested free elections.

Even if we give the current lot, headed by incoming Party Secretary and President Xi Jinping, the benefit of the doubt, even if we assume that they really mean well in trying to promote balanced growth and more broad based prosperity, their policies will not enjoy the strength that comes from a freely expressed popular mandate.

One day a democratic China?

We should all wish China well. It would be wonderful if China found its own way to transition away from one party rule into some form of basic democracy. A truly democratic China would be more stable and most likely a more responsible member of the international community.

Political legitimacy is not just detail

But let us start from reality. China is not there yet, nor is there any indication that its current leaders have any intention to move the country towards democracy. Treating China’s leaders as if somehow that had the same political legitimacy of their Western counterparts, (or, worse yet, treating them as legitimate because, after all, a democratic mandate does not matter that much), provides a false picture. This coverage blurs reality and it encourages readers to believe that in the end we are only concerned about economic performance –the rest is only detail.

America is prosperous because it is free

Democracy just detail? Would anybody accept the notion that democratic institutions are just a mere appendix of America Inc.? We have always been told the opposite. We have been told that it is because of democratic institutions created to protect individual rights that a free American society could unleash the talent of its people. In other words, we believe that we became prosperous because we are free. Does this fundamental principle apply only to the USA?

Many Muslim Societies Are Prisoners Of Intolerant Orthodoxy – It Will Take A Long Time For Them To Embrace Tolerance And Secular Government

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By Paolo von Schirach

November 24, 2012

WASHINGTON – The stealthy coup just engineered by Egyptian President Mohammed Morsi is further evidence of a Muslim ruler incapable to understand, let alone embrace, what liberal democracy is about.

From Mubarak to the Muslim Brotherhood

Just a year ago Egypt had its remarkably successful revolution against Hosni Mubarak, a mostly secular old military dictator. But, when given a chance to express themselves, a majority of the Egyptian people chose to be ruled by the once persecuted Muslim Brotherhood, a truly conservative, (if not radical and anti-Western), Islam-inspired faction whose values and principles are at the very least inimical to most modern concepts of secular government and democratic capitalism.

Islamic revival

And Egypt is not alone. Think of Tunisia and to a lesser degree Turkey. The sad reality is that the Muslim world, with the exception of Indonesia and a few other places, is going through an ill timed phase of Islamic revival. The notion of theocratic, or at least faith-inspired, rule is back in fashion. Large segments of Muslim societies are now devoted to the implementation of abstract and totally unworkable models of government based on strict religious orthodoxy.

A corollary of the pious aspiring to impose their righteous principles on all the others is the inevitable re-emergence of clashing versions of what the true religion is. And so you have the virulent flaring up of sectarian, destructive struggles: Sunni versus Shia, and so on. Just look at Pakistan and Iraq. Look at the Taliban in Afghanistan fighting against other Muslims.

The inability to embrace true liberal democracy, (whose key foundation is accountable civilian rule, religious tolerance and a strict separation between religion and state), will condemn Muslim societies to waste a few more decades in useless faith-inspired fights that will absorb scarce resources, while further delaying modernization and economic progress.

Christianity had its religious wars

Of course, Christianity centuries ago went through a very similar course of long and bloody religious wars that included the violent persecution of heretics by the self-appointed defenders of the “True Christian Faith”. These bloody and awfully destructive struggles went on and on. They included Martin Luther and the Reformation, the Catholic Counter Reformation, Calvinism, the “30 Years War”, Cromwell in England, and a lot more. America’s early beginnings are linked to European religious minorities seeking freedom of worship in a new land where there would be no persecution. But then it all ended. May be it was just because of exhaustion. But it finally ended.

Secular religions

Sure enough, there was still anti-semitism which tragically culminated in the Nazi-led Holocaust. More broadly, there was the relatively brief period, which caused however horrendous damage, of ideological struggles. (The ideologies were in fact secular religions). Europe had to suffer enormous losses because of Marxism, Leninism, Fascism and Nazism. But today the general principle, if not the strict practice, of secular government equally protecting all citizens is almost universally accepted, at least in the West.

Muslim societies are far behind

Unfortunately, the Muslim World is still far behind. Religion is still the main reference for millions. And religion inspires struggles and religious wars. There are still attempts to create secular governments ruled by religious orthodoxy. In these societies intolerance is virtue, the violent persecution of the infidels is duty.

Of course, we know that not all citizens in Muslim societies are religious fanatics. But it is a fact that at least at present political movements inspired by faith are better organized, and so they prevail, as in the case of the Muslim Brotherhood in Egypt.

The West can lead by example

In all this the West can only lead by example. In the long run it should be able to prove its superiority by showing that tolerant liberal democracies in which all religions are respected and protected (with the proviso that religious worship remains a private matter) in the end work out much better.

But it is impossible to predict how long it will take for Muslim societies to go beyond this phase of unproductive fanaticism and intolerance as they seek their own path to modernity after decades of dictatorship. They will have to see for themselves that religion based government and forced orthodoxy is a really bad idea.

The price of orthodoxy

In the meantime, dealing with these societies is going to be very hard. In principle they do not like our Western civilization and its values. Therefore forget about American and Western influence in the Middle East. Forget about rapid economic modernization fostered by Western investments, technology transfer and enhanced commerce. Unfortunately, the orthodox would rather be pure and poor than tolerant and prosperous.

Romney Condemned By Fellow Republicans For Stating That The Democrats Won Because They Give Stuff To Voters – Yes, Politicians Should Be More Tactful; But The Fact Is That America Has Become An Entitlement Society

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By Paolo von Schirach

November 19, 2012

WASHINGTON – In the make believe world of politics in which telling the truth is a silly (in fact outrageous) idea Romney’s post-election commentary to his supporters is yet another inexcusable gaffe. Imagine that: Romney stated that he lost to President Obama because the Democrat had the irresistible electoral appeal of delivering free stuff to voters.

A horrible thing to say

What a horrible things to say. Think of that: Romney had the audacity to suggest that notoriously fair minded American voters would rather elect a President who promised to keep the gravy train running than an opponent who promised to reduce benefits because they are bankrupting the Nation. How could he even suggest that voters rather like getting benefits.

And now it is clear: Romney really means it. His most recent analysis simply reconfirms what he had already said about the “47%” who feel entitled to get favors, money, subsidies and what not.

Do not offend voters

While candidate Romney’s first gaffe was explained away by other Republicans during the campaign, now that he is dead meat the latest one inspired righteous (and let me add totally fake) outrage. You just do not go around offending the voters, intoned wise men like Louisiana Governor Bobby Jindal. You do not tell half the American electorate that they are just a bunch of leeches. This is really stupid, etc. etc.

Truth is: US has become an entitlement society

Fine, we get it. If you are in politics, you want votes and so you have to be nice to voters. Still, even if we agree that what Romney said was totally tactless and politically dumb, (showing that he never was a natural politician), the simple fact is that what he said is mostly true.

Just like Western Europe, America has become an entitlement society. So much so that entitlement spending is now about 60% of total federal outlays. Contrary to popular beliefs, willfully reinforced by the Democrats, Social Security and Medicare recipients do not get back in benefits what they contributed in payments during their active years. It is an open secret that these mega programs do not pay for themselves. They are subsidized.

Add to them the steep increase in the number of disability pensions recipients, Medicaid, food stamps, expanded unemployment benefits and what not and you see how a large and growing percentage of Americans have become somewhat dependent on Washington’s largess. And, yes, those who get stuff are more likely to vote for the candidates who offer it than for those who argue that, unless the programs are reduced, they become unaffordable.

Obama re-elected because he promised to protect social spending

And the Obama camp message during the campaign was based on this simple understanding of voters sentiments. They successfully painted Romney-Ryan as the crazy –in fact bloody minded– ideologues bent on destroying fully deserved entitlement programs, while Obama-Biden would protect them. And the Democrats clearly won the political argument.

Now, I fully agree with Governor Jindal and other Republicans that this basic fact cannot be the only foundation of any appealing, revamped Republican political message.

Populists only?

That said, if politics is only about blandishing voters, while consciously avoiding any discussion of the hard issues, including the fact that this Nation is about to be crushed by unsustainable debt caused mostly by unaffordable social spending, then the political process is destined to be the exclusive territory of clever populists totally comfortable with the simple notion that in order to get votes you hide the truth.

While the populists get the votes, witness Obama’s success, America’s serious problems are not dealt with today, and this signals bigger troubles ahead. We may not like to hear the truth about unaffordable social spending, but the deficits and debt they generate will come back to bite us.

China Losing Its Low Labor Cost Edge, While Systemic Inefficiencies Become More Obvious – Conservative Leaders Probably Unable To Promote Needed Reforms – Difficult Times Ahead

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By Paolo von Schirach

November 16, 2012

WASHINGTON – China has had a fantastic 30 year ride. It managed to transform itself from a sclerotic and hopelessly inefficient collectivist society into a quasi-modern, profit driven manufacturing economy with an almost invincible low cost edge in foreign markets.

Fantastic ride now about to end

Rather skillfully, the Communist Party managed to arrange and drive this historic shift away from orthodox Marxism, this way re-legitimizing itself as the steward of economic growth and more broad based prosperity. That’s the good news.

The bad news is that all is probably over. Even worse, it is unlikely that this Communist Party governance system based on secret arrangements among top leaders will be able to adjust to a new environment in which the economy needs to be truly competitive, while an emerging Chinese middle class demands accountability, transparency and the end of privilege (think of the almost dynastic rule of the “Princelings”) and corruption.

Reforms ahead?

The recent changes at the top in Beijing, with the elevation of Xi Jinping to the top post, have invited speculation as to whether the “reformists” will now gain the upper hand and steer China towards greater efficiency in economic matters and a more pluralistic, tolerant system in political matters.

I doubt that Xi jinping and the other new leaders can do any of the above. The Chinese Communist Party is a complicated and rather delicate machinery. It has managed to ensure bloodless changes at the top only by fostering sameness.

It is unlikely that anybody with novel, truly reformist ideas will be allowed to rise to the top. Being a status quo conservative is a lot safer for any party fonctionnaire aspiring to higher leadership positions. Besides, this is still in large part management by committee. And this formula based on collective decision-making usually favors continuity over change. It is normally easier to agree on doing more of the same, then to move into uncharted territory, as this would require flexibility and adjustment.

China needs structural reforms

That said, it is obvious that the Chinese one party rule political system is an inadequate instrument to push forward and then successfully manage China’s needed changes. The mismatch is really huge.

In order to have a chance to become a truly modern society China needs more economic freedom and higher governance standards. But this would imply genuine (as opposed to only partial) economic liberalization and accountable elected leaders. It is unlikely that these instinctively conservative leaders will contemplate any of this, for the simple reasons that they do not want to set in motion the process that would most likely lead to their demise. Nobody in Beijing wants to be China’s Gorbachev.

From cheap labor to quality products

If this is so, then expect turbulence ahead. China’s economic miracle has run its course. it was based on a workable formula of large public and private investments in manufacturing, (aided by an efficient new logistics infrastructure that allowed to move goods at a high speed and low cost), and dirt cheap labor costs.

This combination was the delight of large western retailers who could source consumer products from China at a fraction of what it would cost them to buy the same goods from domestic producers. So, while American and European manufacturers suffered, Western consumers and Chinese corporations did well. At the same time millions of rural poor move to China’s factories, this way improving their income levels.

The problem is that this ride is almost over. China’s rising standard of living also means higher wages. As salaries go higher, the cheap labor-cheap goods advantage has progressively been eroded. Soon enough it will disappear.

Many inefficiencies

When that happens, China’s systemic dysfunctions will be fully exposed. Indeed, China’s fantastic growth masked the inherent inefficiencies of a still preponderant state run economic sector. Chinese state owned enterprises are run largely as tools of political patronage. Many of them lose money, while they still get easy financing from state owned banks.

The private sector, with few exceptions could thrive mostly because of its lower costs advantages in export markets. There are very few Chinese firms that are internationally competitive because of superior quality and technological leadership. In other words, Walmart and Target buy Chinese products for their megastores not because they are superior but because they are cheap. Whereas Western consumers by German made BMWs because of superior German engineering, regardless of price.

Conservative leaders unlikely to promote reforms

I very much doubt that a mostly top-down, still largely statist Chinese economy will be able to transform itself and become super competitive. The Western experience teaches us that competitiveness takes place in a highly decentralized eco-system made out of a myriad of start ups, research universities, eager venture capitalists, abundant R&D spending, both private and public and reasonably regulated capital markets in which investors can gather information on what is actually going on. China is light years behind in developing a comparable eco-system.

Political unrest

Finally, the emerging Chinese middle class is fed up with super polluted cities and increasingly scarce clean water. Likewise, it is fed up with the land grabs at the source of the construction boom. Indeed, until now much of Chinese growth came from cheap land resold at a high price to developers who would build luxury condos and shopping malls counting on eager investors. The insiders-only system made a lot of people rich. But it also created a real estate bubble, while it angered many people at the local level who see local officials and developers getting rich at their expense.

Turbulence ahead

Combine all these inefficiencies with widespread graft, corruption and lack of accountability and you have a rather unpleasant mix. The notion that a slow moving, inherently cautious newly installed leadership will be able to steer China out of this swamp and into real modernity is rather optimistic. As I said, brace yourself for turbulent times ahead.

Defeated Republicans Need To Fashion A New, Vibrant Message Of Inclusiveness And Opportunity – Lower Taxes And Deregulation Not Enough To Win Over The Poor And The Disadvantaged – Education Reform Should Become A Core Issue

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By Paolo von Schirach

November 15, 2012

WASHINGTON – The Romney campaign post-mortem analysis on the unhappy ending of their campaign is that they could not win against Obama, a Democratic candidate offering a lot of free “stuff” –benefits, subsidies, cash handouts– to its large and growing constituencies of self-described “needy people”. People want free stuff, lament the Republicans, and they more likely to vote for a candidate promising it, than for a candidate pointing out that much of it is unaffordable, and deep down bad for you because you become dependent, this way losing your ability to take care of yourself with your own resources.

Insufficient Republican message

There is some truth to this, but only some. Indeed, it is hard to be the party that advocates self-reliance and austerity –meaning spending cuts, thrift and fiscal responsibility in order to get out of the hole of a horrible national debt– and be also popular.

That said, the historic challenge for the Republicans is to elaborate a credible platform that is not just about lower taxes and spending cuts as the golden road to broad based prosperity. This message is terribly insufficient because it is based on the false premise that most Americans are eager would-be self-starters, budding entrepreneurs who just want to be unshackled and free to start their own business. Well, some are; and most of them voted for Romney. But the majority is made out of those who are not that self-confident, plus all the others, (intellectuals, NGOs, academics, media people, wealthy and socially minded celebrities), who sympathize with them.

Rethinking is necessary

This state of affairs requires deep rethinking, unless the Republicans want to be a perpetual minority party. If we go back to the shop worn but still valid metaphor of “the fish”, we see where the Republican deep deficiency is. The old saying is that “ If you give a man a fish, you feed him for a day. If you teach him how to fish, he’ll feed himself and his family for life”.

New message: How to create opportunity

The Democrats have become the leading experts at doling out fish, even though all this well intended charity over time plunged the country into a huge debt hole that will eventually undermine the entire system.

But the Republicans assume that, if you just do away with all the free fish programs, all recipients will start fishing on their own, because they already know how to fish. Well, guess what, some know how to fish on their own, or are at least willing to give it a try. But millions of Americans do not; and they are afraid of the Republicans who want to take away their free fish allowance.

And here is the issue. It is indeed true that open ended welfare creates dependence. But cutting welfare while telling people to fend for themselves is a rather cruel remedy. Millions just do not know how.

If the Republicans want to become appealing to those who receive the aid that is indeed ultimately bad for them on top of being unaffordable, they have to illustrate how they will teach people how to become expert fishermen. In other words, telling people “You are now free to start your own business because we have cut taxes and eliminated all the red tape” is not enough for people who do not know how to start their own business because thy lack the background, the education and the training.

Land of Opportunity?

The challenge for the Republicans is to credibly refashion the old and still valid notion of America as “Land of Opportunity” by explaining in a convincing manner how they intend to broaden real opportunity. For instance, a key element to build an Opportunity Society from the ground up is to give real, quality public education to all Americans. Right now this is not the case. The children of the poor (and the poor are often minorities) start badly in life because they do not have access to a good education. In fact they get almost no education worth the name.

Public education reform should become a top priority

The Republicans should make public education reform a top priority, simply because uneducated people are condemned to stay at the bottom of society, as they lack the tools to fully participate in the economy. No education, no opportunity. In a perverse way, the same people who are betrayed by a public education system that gives them nothing become the obvious constituency for the welfare programs doled out by the Democrats.

Let’s get this straight: economic liberalization, deregulation and lower taxes are great for those who are already in the game; but they are essentially irrelevant for the millions who do not believe they have a prayer of getting in. These disadvantaged millions, by default if nothing else, will opt for the free fish programs, and they will vote for the candidates offering them.

Jeb Bush gets it

It may not be entirely accidental that former Florida Governor Jeb Bush is focusing so much on public education reform. His effort is also an attempt to rebrand the Republican Party as a political force promoting positive social change . In other words, “he gets it”; and we can only wish him an his associates success.

The Republicans Lost Because They Are Out Of Step With Women Voters, As The Todd Akin And Richard Mourdock “Abortion Disasters” Show Us

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By Paolo von Schirach

Related story:

November 10, 2012

WASHINGTON – Last August, when GOP Missouri senatorial candidate Todd Akin came up with his incredibly stupid and ignorant comments about raped women shutting off their bodies so that they could avoid pregnancy, (see link to related story above), I argued that this was a real disaster for Mitt Romney and Paul Ryan because Akin would be portrayed by the Democrats as the real embodiment of the Republican Party core values: anti-women and hopelessly out of step with main stream America on social issues.

Akin’s disaster

I argued at that time that the Akin debacle could be big enough to decide the elections against Romney. I wrote that it was not good enough for Romney and Ryan to distance themselves from Akin who –by the way– in his dogged stupidity decided that it was alright for him to stay in the race against incumbent Democrat Claire McCaskill, even after his incredible bungle.

Kick him out

I wrote then that the Republican Party should have kicked Akin out of its ranks, that it should have tried its utmost to make it clear to America –and in particular to all women voters– that Akin is an isolated aberration and that the Republicans are in fact modern, open minded and tolerant. Sure enough, many among them do hold religious and moral principles about the sanctity of life; but this does not mean that they would prevent all women from making independent choices about having or not having a pregnancy.

It did not happen

Well, none of this happened. The national GOP made all the appropriate noises about distancing itself from Akin; but Akin stayed in the race that he ultimately lost to incumbent McCaskill –an incumbent who (before this rape and abortion disaster) was deemed to be weak and beatable. The enormous damage done to the Missouri Senatoral race and to the Romney bid for the White House could not be fixed.

Add to this story the similar tale coming from the equally stupid utterances on abortion coming from Richard Mourdock, the Republican Senate candidate from Indiana who also ended up losing his race, and you get the picture of a Republican Party hopelessly out of step with the sentiments of a majority of women voters and Americans in general.

Damage big enough to tilt the balance

Back in August I observed that in an election that appeared to be so close every vote was to be considered precious. As Romney was already significantly behind Obama in terms of support from women, this Republican Party self inflicted wound would make things much worse. And so it did.

Still, I fear that no lesson has been learnt. The GOP true believers are undaunted. They do not care to be in step with the majority. They only care to be “right”.

Have the Republicans learnt anything?

If so, here is the question: is the Republican Party a church or a political force drawing support from different segments of the American society with the goal of governing responsibly? A church is not concerned about forging majorities. It only cares about holding to its principles.

A political force is about workable policies that, while based on core principles, are attuned to the society in which it wants to operate. I fear that a significant chunk of the Republicans rank and file think of their Party as a church that should be hospitable only to true believers. If this is so, then the national GOP will soon be just a cultural aberration, with no chance to forge broad based majorities.

Republicans so unpopular that they cannot win against weak incumbents

The very fact that Mitt Romney could not win against Obama, a weak incumbent burdened by a feeble economy and historically high unemployment, underscores this point. Compared to his 2008 triumph, Obama did not score big in these 2012 elections. But he won against Romney, convincingly. So, here is the upshot: America may no longer be deeply in love with the Democrats; but it likes Republicans and their medieval beliefs even less.

With The Elections Now Behind US, What Will The US Do About Serious Fiscal Reform? Obama Did Not Produce Any Clear Plan During The Campaign – Bending The Spending Curve Requires Spending Cuts That The President Promised He Would Fight Against

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By Paolo von Schirach

November 9, 2012

WASHINGTON – President Obama got re-elected in large part because of his reassurance to those who rely more on government programs (low income people, minorities, young voters) that he would take care of them by protecting those programs. He successfully portrayed Mitt Romney and his running mate Paul Ryan, the Republican Party leading fiscal expert, as heartless radicals who would immediately destroy the social safety nets on which millions of Americans depend. The message worked. President Obama got his second mandate, with a decent margin.

Unsustainable debt

But now comes the hard part. There is the immediate issue of the “Fiscal Cliff”, a horrible scenario of draconian and unrealistic mandatory spending tax and tax increases that, if implemented, would cause a recession in 2013.

More broadly –and this is the real issue– there is an unsustainable federal fiscal imbalance (with trillion dollar deficits, year after year) caused mostly, although not exclusively, by the out of control cost of the very social programs President Obama just promised to defend against the insane attacks of the crazy Republicans.

Demonizing the Republicans worked well as a campaign message

Whatever the Democratic Party campaign messages, there is no way that the US fiscal imbalance can be fixed, for good –meaning with a true, long term bending of the spending curve– just by raising taxes on the rich and by some cosmetic budget cuts here and there.

The Democrats successfully demonized Paul Ryan’s plans to radically reform Medicare and Medicaid, the two worst offenders in terms of out of control cost growth. Not at all clear what they would propose as a better, fiscally credible alternative. President Obama carefully avoided getting into any federal spending policy specifics in his bid for re-election.

Avoiding the immediate ”Fiscal Cliff” nightmare is not that difficult. Democrats and Republicans can fudge something between now and the end of 2012. But this would be another instance of “kicking the can down the road”. That is to say, this would provide only a temporary respite.

No road map leading to serious fiscal reform

Warren Buffett, commenting on the out of control European debt crisis several monts ago, famously said that the Europeans could no longer kick the can down the road “simply because there is no road left“. America is not there, yet. It still has some road, therefore some margin; due mostly to good luck.

Indeed, as the country that issues the world major reserve currency, in a context in which bond markets lost confidence in the debt of many EU countries, the US Treasury can still borrow money at ridiculously low interest rates; this way piling up more and more debt without any immediate negative financial consequences. But this debt increase cannot go on forever.

In others words, America is also getting to the end of the road, while the clear winners of this elections –President Obama and the Democrats in the Senate–so far have produced no realistic plan for effective, long term deficit and debt reduction.

Just like Southern Europe?

In the end, it may turn out that Obama won the elections by making spending promises to his base that he cannot keep. Alternatively, by sticking to his campaign pledges to protect unaffordable social programs, the President will hasten America’s trip along the path that leads to a fate similar to Greece, Portugal, Italy, Spain and France. And this is called financial exhaustion and eventually economic decline.

Republicans Punished Because They Lack A Truly Inclusive Message Of Opportunity – Lucky Obama Won Largely By Default – Governing Will Be Difficult

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By Paolo von Schirach

November 7, 2012

WASHINGTON – Romney’s failure, although not of catastrophic proportions, is a clear indication that the Republican party does not know how to blend a pro-business agenda with a credible, truly inclusive vision of an “Opportunity Society” that all Americans, including low income people and minorities can embrace with conviction. The Republicans need to convey to America that they do not propose social Darwinism. They need to come up with an optimistic vision in which public policy provides a genuine ladder –as opposed to just more subsidies– that will allow all citizens to aim at a better future. Romney sort of tried to convey something like that in the final weeks of the campaign, but it was too late. His position on immigration is a disaster. The rest of his social agenda looks too conservative to most lower income people. Nothing there appealing to Blacks or Asians.

And do consider that Romney was the best within the initial field of mediocre to appalling Republican contenders that included retreads like Newt Gingrich, impossible, even weird characters like Herman Cain or Michele Bachmann and sentimental conservatives like Rick Santorum. If this is the best the GOP has to offer going forward, the Republicans are in big trouble.

From this perspective, lucky Obama won largely by default, even though one has to recognize that his campaign message that boiled down to: “Watch out America: Romney is much worse than I am” worked surprisingly well. Still, looking at the numbers, while Obama’s 2008 coalition held together, it did so with reduced margins. He gets to keep his job; but with no real mandate. No “Hope and Change” this time around.

As the Republicans keep the House, we could be back to more gridlock. America is facing enormous challenges. It needs radical fiscal and tax reform. It needs to reduce a catastrophic national debt. It needs to invest in education, infrastructure. It needs to restore competitiveness. How all this will be done with a President inclined to believe that government provides optimal solutions and a confused and angry Republican opposition, God only knows.