Absent from Denver: The Gobal Economy

WASHINGTON– A somewhat disturbing feature of the Denver Democratic Convention has been the absence of a serious, in depth debate on the shifting of economic power to Asia and of the depressing effect on American wages caused by the addition to the global labor force of hundreds of millions of eager and inexpensive Asian workes who can perform the same tasks at a much lower cost. 

This new competition from Asian cheap labor is the main source of the troubles of the squeezed American middle class. Rather rapidly, American workers had to realize that they could no longer get relatively high wages, as their competitors can perform the same tasks for a fraction of what a US worker is paid. But the Denver narrative was almost entirely focused on the need to correct lack of fairness and lack of attention to the problems of the middle and lower middle class in America, as if this were a self-contained American problem, created primarily by wrong headed Republican policies. The implication of this “domestic context approach” is that fiscal policies aimed at redistributing burdens and rewards are the main instruments to be used to fix this social injustice generated by misguided domestic policies. (Needless to say, there are important problems that are truly domestic: the financial recklessness that has contributed to the current housing crisis and the aburd cost of health care, to name just two egregious ones. But it is a mistake not to appreciate that the repricing of US labor, due to the Asian competition, has created a true systemic shift that cannot be fixed with a bit of adjustment and fine tuning).   

Failing to focus on the new role of Asia, the extremely powerful external economic factors that have affected America –with a devastating impact (especially on the manufacturing sector) were not closely examined. The accepted interpretation of the sources of the plight of the middle class went as follows. Millions of jobs were lost –it was said– under George Bush. As he is the steward of the economy, this must be his fault. (Anybody who knows better is aware that no President is in control of the economy; but in politics, unlike science, anything that has a ring of truth becomes the truth). Well, George Bush does have many faults, including improvident fiscal policies; but he did not create the Asian economic rebirth and the ensuing competition caused by cheap Asian labor. Sure enough, a new president can change approach. However, fiscal and social policies alone, however well intended, unless accompanied by a serious strategy aimed at creating new sectors in which America can outrank the competition, will not cause the structural changes we badly need to create new, competitive sectors.  

The fact is that the world balance of economic power has shifted to Asia. But this fact is absent from this campaign. All players continue to debate on the basis of the outdated assumption that America is still number one and thus what happens in America and to Americans is still mostly dependent on policies devised in Washington. Well, while America is still number one in many ways, Washington is no longer in total control. 

In Denver, (as elsewhere in this protracted campaign), absent a close examination of the rise of Asia and the damage that this phenomenon has inflicted on the least competitive sectors of the US economy, the whole discussion was focused mostly on the need to reintroduce fairness in a society managed until now by Republicans portrayed as disconnected from the general population. Fairness will be achieved by redistributing resources from those who have gotten too much during the pro-business years of George Bush to those who got only a few crumbs. Hence the long list of the needy and the assistance, aid and relief that will be provided to all who are struggling.

This may be fine and, to some extent at least, justified, as the needs are real and, in some instances, urgent. But the problem is that –whatever the merits of fairness or lack thereof– the whole debate failed to take into account that the main factor negatively affecting the welfare of the large US middle class is not to be found in the exaggerated profits of Exxon; but in the impact of hundreds of millions of new, reasonably skilled and cheap Asian workers who have entered the global jobs supply, thus taking away most of the functions that used to be performed in developed countries; while putting pressure on the salaries of those lucky enough to still have a job in the West. If certain skills are in abundant supply at a low price all over the world, it is hard for an American worker to obtain more money than the new competitors, while selling those same skills. Many US corporations, if confronted with increasing  labor costs, have the option of closing down and reopening in Asia. We all know this.

Yes, low wages paid to millions of reasonably competent factory workers in China and elsewhere do have a negative impact on wages in the US. If global labor cost are down, it is hard for US workers to be the exception, unless they are employed in extremely competitive, high value sectors not affected by what happens in lower value sectors. (There are some such instances of emerging high value sectors in America; but not enough. And this is the main problem that affects the real income of tens of millions of low skilled, low paid Americans. More on this later).

The downward pressure on wages for the average worker in the developed world is the least palatable effect of globalization for those in the West who are situated at the lower levels of the value chain. As a result, we have the relative impoverishment, or at least stagnation, of the middle and lower middle class. This is an issue with a clear economic origin but with obvious social and political consequences. These millions of Americans, squeezed by international competitors, are not doing well and thus are not happy. (The parallel housing crisis and high gasoline cost certainly do not help in brightening the picture). But what is much worse for them, as they look ahead, is that there is no new “grand strategy” that would help change the economic fundamentals –in terms of larger investments in new sectors accompanied by skills upgrades–and thus improve their condition any time soon.

The fact is that for the first time in modern history we Americans are not the most sophisticated low cost producers capable of invading weaker, less efficient markets and thus causing disruption in less sophisticated productive systems. We are –and we shall be for quite a few years— on the receiving end of the globalization revolution made possible by low cost Asian labor. In this new era the lower cost of others is disrupting us! For the time being, this is mostly because Chinese workers are cheaper, not necessarily better. Should they become better, as well as cheaper, this would add another layer of pressure on the US productive systems; and the US workers would be the first to feel the brunt of it.

But did we hear much about this in Denver? Not really. It would appear that the plight of US workers, real or a bit exaggerated as it may be, is entirely due to failed domestic policies; or, worse, policies that openly favor corporate interests at the expense of the millions of workers. So, as the cause of the problems is primarily domestic, we can devise a solution based on the reshuffling of domestic factors.

But this is wrong. The real underlying problem is the cataclysmic reallocation of labor and its negative consequences on the standard of living of US workers. A constructive way to cope with this transformation and the downward pressures that it has caused on the wages and thus standards of living of the US middle and lower middle class is to put forward and discuss the best plans aimed at upgrading skills and creating new competitive areas in the US economy. This is the only long term strategy that can provide a chance to regain competitiveness.

But the global economy and its imperatives were at best distant echoes in the Democratic Convention. We heard about all this suffering and ways in which the Federal Government in the hands of the well intentioned Democrats will take care of it. Of course, right before a national election taking place when the economic pie is shrinking, the temptation to use the zero sum logic is strong. And indeed this is what we have heard in Denver: “If many do not have enough, it is because the greedy and well connected few have gotten too much. So, the issue on the table is a necessary and radical redress”.

Unfortunately, while there is some merit to this position, it is fundamentally wrong. While issues of fairness should be discussed, it is a delusion to believe that, once properly addressed, the solutions devised will take care of the systemic deficiencies of significant segments of the US economy, due to loss of competitiveness in sectors invaded and conquered by lower cost producers from developing countries –China first and foremost.

Sure, we have to agree with the Democrats that there is something fundamentally wrong when those who manipulate capital, without adding much value in the process, collect ridiculously high fees for those services. Likewise, the disconnect between the quality of services rendered by corporate leaders and their compensation should be addressed. And certainly, a dispassionate conversation about what causes a growing gap between those on top and those below would  be useful. But only to the extent as this does not become an opportunity for airing conspiratorial or populist views, whereby the rich are all greedy crooks, and the not so well off are the hard working, honest people who have been betrayed by a Government corrupted by the lavish donations of corporations. Of course, there is some truth in all this. There is greed, and there is corruption and there are resources diverted to special interests serviced by large armies of Washington based lobbyists.

But the real picture is of America as a society progressively divided into two categories: those who actively participate as authoritative protagonists in the global economy, and thus reap its rewards; and those who are the victims of global change and who see their stakes diminished as a result of the worldwide reallocation of labor and, as a result, of its rewards.

The highly educated, savvy, competent Americans are doing well. The well managed global corporations have competitive technologies, skills and (at least in general) sophisticated upper management. This upper management created in the super universities, refined through intensive on the job training around the world and polished via MBAs in the elite schools is at home in a global economy where their business operates seamlessly in Chicago, Sao Paulo or Shanghai. The world is the oyster of the Wharton or Stanford graduates. MIT welcomes change, in facts it causes it –and so do Carnegie Mellon and Caltech and so on. And the educated elites who populate the R&D centers at Cisco Systems, Microsoft, Apple, Xerox, General Electric, United Technologies, Boeing and Johnson & Johnson, or the state of the art National Laboratories of Oak Ridge, Sandia, Lawrence Livermore and Los Alamos look at the future as new horizons full of exciting of possibilities, not as an unavoidable Asian tidal wave that will obliterate them.

And the cream of the crop within these corporate elites are the people who populate the recession proof Four Seasons Hotels around the world, those who shun the chaos of overcrowded airports as they fly with their “corporate barge”. They keep the luxury goods industry in business and certainly gasoline prices are not a major factor in the upkeep of their multiple luxury vehicles. Their children have the mathematical certainty of getting placed in one of the elite private schools, the springboards to get into the best universities and thereafter the good careers.

But everybody else, the worker bees of the American economy, those who do not make the changes but who are affected by the new competitive economy in which profit margins are thinner and thinner, are not doing so well. In the glorious past in which the US was the quintessential volume manufacturer, inundating markets with relatively cheap goods, the US worker, in steel mills, auto manufacturing or machinery, did reasonably well. Quality was good, competition modest, margins high. Thus management, (often pressured by labor unions much stronger than they are today) could afford to be generous. There was enough fat for all: shareholders and labor.

But all this is in the past. With the exception of those well equipped to participate in the globalized economy, all the others are still trying to comprehend what happened to them. Why is it that the good jobs are gone? Why is it that those that are still here pay comparatively less than before? Ho much more outsourcing can we expect? There is disquiet, anxiety, some anger and quite a bit of fear about a future that appears controlled by unknown forces. 

It is a complex situation, with many drivers. The main ones (related to the modernization of significant parts of the developing world) are totally beyond our control. Nonetheless, we need a new strategy that would require taking stock of a transformed world economy in order to determine how we reposition ourselves. Unfortunately, all this is complicated. It cannot be easily framed into a catchy campaign slogan. And, in any event, as the problems are huge and systemic, realistically there can only be long term viable solutions.

Hence, in a hot political seasons in which politicians have to give the appearance of having powers that in truth go beyond their reach, the temptation on their part is to bypass the real story of the impact of globalization and to assert that all the problems are domestic and that it is possible to go for the quick fix of redistributive politics as a way to finance assistance to the needy. (Of course there is more in the plans debated than just “taking from the rich and giving to the poor”. For example, a true reform of the health care system and all the waste and run away costs caused by the present setup has merit and it should be undertaken in any case, whatever the underlying economic circumstances).

But, while politically expedient, especially at a time in which the ranks of the worried needy have swollen, relief via taxation/redistribution will have only the important but limited effect of improving the short term economic conditions of many. Unfortunately, relief alone will do nothing to make the millions of marginally competitive or non competitive Americans better steeled to face the rest of the world. But this underlying reality is not discussed in the campaign as the real source of the current distress. And this is true for both parties, Republicans and Democrats.

On the Democrats’ side, the campaign rhetoric is about the masses of those who work hard and, at the end of the day, cannot get the commensurate rewards. Thus they feel cheated by “the system”. But here we have a fundamental misconception. In this conventional wisdom, it is assumed that “working hard” is the same as “working smart”. Whereas, while working hard and being diligent is very important, the kind of work that is performed, and how any type of work is ranked in terms of value within the new global context, is far more important.

This is why one should listen with some concern to the open ended promises of “getting back home those high paying manufacturing jobs”. The same jobs? Even though those same functions can be performed at a fraction of the US cost in China? This is dreamland.

By the same token, while something was said by Barak Obama about creating education opportunities for all, the way the issue was painted it would appear that the major obstacle to a good education and thus high paying jobs is the cost of education. Sure, obstacles to access are significant factors, especially in the US where there is a growing disconnect between the overall cost of living and the incredibly high cost of higher education. But, while access is very relevant, far more important (and not at all discussed) is the quality of education that is received through this laborious and expensive process. The real test of the value of this coveted and expensive education is whether or not it gives the student and future worker a real qualitative edge which, in turn, will allow him/her to be employed in companies that can command higher prices because of the superior and competitive quality of their products and services. And here we have a serious problem.

As I have already written, the quality of US secondary education is somewhere between mediocre and horrible. And, in most instances, those who receive horrible education tend to be the poor and the struggling. Being poor and uneducated is a life sentence to marginalization in a society that needs and rewards sophisticated skills. Unless, as a nation, we repair this huge deficiency, no matter what generous subsidy programs will be created in other areas, the education gap will stay there. As a result of this gap, we shall have an even larger chunk of our work force downgraded in terms of their earning potential, as their qualifications will be no better than those of comparable unskilled workers in Asia whose employers will win new business because their labor costs are lower. And people lacking competitive skills can work as hard as they want. They will compete for the scraps and they will be paid little, no matter what.

We did not hear much of this in the policy debates within the Democratic Convention. In part this is because any objective analysis of the disastrous failures of the secondary education system would have entailed a closer examination of the role of unionized teachers who happen to be staunch Democrats.

Of course, it would be nice to go back to the days when the US was by far the leading world economy, when Pittsburgh made all the steel and Hollywood produced all the movies; when General Motors had no competitors and the general public could openly laugh at those peculiar Japanese who in the 1960s were trying to sell their ridiculous little automobiles in America. In that era Americans with little education could be trained to be assembly line workers and take home a reasonably good pay.

But that era and that world is gone –for good. Of course, this does not mean that the whole of America lost its edge and has been left behind. While a large chunk of the old economy has been destroyed, some new sectors have emerged. It is America that has created the fundamental components of the new knowledge economy. The Internet came from America and so did the first PC and the first mass produced PC operating systems. The US productivity revolution of the 1990s has been due to the massive transformations in almost all sectors of the economy due to the adoption of information technology tools developed primarily in the US.

But this edge was not permanent. The development of information technologies was just the beginning of a process. While all this began in the US, it is now a global phenomenon. If the US gave the world the first rudimentary components of the Internet, a vast innovative process with many new international players ensued. Today, Korea has faster broadband than the US. Nowadays, the global economy allows me to have my PC examined via the internet by a Dell technician in Chennai, in the south of India. The internet may be originally American and Dell is a US company, but this job is performed in India. An Indian technician is the one who gets paid.

At a different level, the spreading of knowledge at least about basic manufacturing, gave an immense edge to Asia, as its armies of new, motivated workers could start making the same products at a fraction of our cost. These new dynamics –and not mean spirited Republican policies– are at the root of the displacement of millions of US workers. (The Republicans have their large share of responsibilities; but will get to these another time).

The ideal way forward is for all of us –as a nation– to acquire the worldliness of Henry Kissinger and the creative skills of Steve Jobs. Of course, this is impossible in the short run; but not impossible in absolute terms. Yet, be that as it may, any constructive way forward has to include an urgent and honest debate about the parallel deficiencies of our obsolete economic sectors and of our secondary education system. We need strategies leading to the substantial upgrading of the quality of our schools and what children learn. They are the future players in the global economy. Any team sent out there to compete without proper training will not achieve much. And, if this happens, the coach is rightfully blamed. If we want to win, we better look at who the coach is and what kind of training is given. If we say that we cannot get a better coach because we do not have enough  money to pay for talent, then we are really in trouble, as we shall keep losing.

Education is the New American Frontier

WASHINGTON – The main theme of the Democratic Party, as we approach the November elections, is economic justice. The Republicans gave too much to the rich. Too many poor people in America. Too many middle class families struggling. It is time to recreate some balance. Fine, we understand the picture and the rationale for change. The Republicans, in turn, do not have much to say. The somewhat feeble message is to go back to the frugal ways of the past: limited government, limited taxation, obtaining thus the magic of re-energized free enterprise.

While there is definitely more in the programs of both parties, they are both surprisingly myopic in as much as they fail to see the need to create human capital as the essential precondition for more wealth creation. To the Democrats we should say that the issue is no longer about the fairness in which the pie is sliced. No doubt, there is growing inequality in America. But the real story is not about the extravagant compensation packages of CEOs; but about America’s difficulty in growing the pie. With so much focus on economic and social inequalities, we are losing sight of the fact that the country has lost steam. For the last few years we have had bogus growth founded on delusions of wealth (the supposedly never ending real estate appreciation cash cow). People spent “found money” represented by growing equity in their homes that was not real. Now, even for the relatively prudent, the equity in their homes has been cut to size and the home equity lines of credit need to be paid pack. For the reckless, of course, it is a lot worse: foreclosure, bankruptcy and all that.

While the consequences of ill advised spending favored by the housing mirage are well known, the reality of America’s diminished wealth that was hidden underneath the spending frenzy is not in full sight and thus not fully analyzed. The fact is that, overall, as a country, we are not as wealthy as we used to be.

And to restart the engine of growth it will take more than lower taxes. This is why the Republican message is also disappointing. Sure, lower taxes, on balance, are better than higher taxes. But the issue before us is more than creating the proper macroeconomic environment that will stimulate new growth. Indeed, in order to have meaningful new growth, we need to understand that the drivers of growth have changed and thus we need to retool. And this retooling should not be impossible, as Americans are more inclined to undo and redo than most other nationalities. But the urgency to redo and retool has to sink in.

The urgency is due primarily to some of the effects of globalization. Globalization has brought into the mainstream hundreds of millions of new, relatively inexpensive workers. Like it or not, they compete with our workers. Assuming equal or comparable skills, they are more competitive because they are cheaper. This is the main driver fostering the migration of labor intensive industries to developing countries, China first and foremost, but also Vietnam, Bangladesh, the Philippines and all the others. This is systemic change. Those industries and all those jobs are gone. Tax incentives and other assorted bribes will not do much to counter this transformation.

And the fact is that we have seen only the beginning of this labor force realignment. As education standards improve in developing countries, new skills will be developed and thus better educated workers in Asia will take over other sectors, to the detriment of the skilled workforce of America. In the meantime those who are not swept away by this new current will see their income stagnate, for the obvious, if unpleasant, reason that their US employers will have to keep their cost low in order to compete with the newcomers.

The days in which American industries dominated the world are over. The days in which General Motors could negotiate generous benefits packages with the labor unions are over, because there are no longer any margins, no fat profits to be shared. Today, General Motors, aware of the financial weight caused by these stupendous costs, is trying to get out of the old arrangements in the hope of surviving.

So, once again, the main economic issue is not about fairness nor is it about fiscal incentives. The fundamental issue is about human capital, or lack thereof. Simply stated, America cannot and will not remain a first class economic power with a third rate education system. Until now the failures of American education have been masked by the surprising unevenness of the education scene. In America education is local and driven by local issues; not to mention that the rich can opt out of it altogether, sending their children to private schools. So, we have at least two types of education. One for the small elites which is good or even superior; and one for everybody else which is between mediocre and horrible. Until recently, the pipeline for the elites funneled the talent that would go and populate the super universities whose human crops could be harvested by the leading corporations. But the pipeline from private or high quality high schools to prestigious universities is too narrow these days to create and maintain an internationally competitive workforce strong enough to sustain the whole country.

The innovation produced at the top level no longer generates enough surplus to give buoyancy to the rest of a society –a society that may be hard working but that is unskilled and thus uncompetitive and for this reason poorly paid. And so we have at least two economies: the competitive sectors that thrive in the new globalized environment and those who suffer from globalization because they cannot adequately compete with the new comers from the emerging economies. If we ignore this fact: an increasingly uncompetitive workforce, we can try and twist this issue of the American economy in every way it would please politicians, but we shall not improve the underlying fundamentals.

Of course it is easy for Democratic contender Barak Obama, seeking the votes of the underprivileged and of a struggling middle class, to affirm that it is all about fairness and thus the need for redistribution of what appear to be excess profits going to very few at the top. So, a little bit of Robin Hood politics should do all some good. Some of the very rich may have to pay more taxes and, who knows, may have to give up their shares of the private jet. The poor will get a little relief. Indeed. For the millions who do indeed have immediate pocket book issues, relief is appealing.

On the other side of the divide, the idea of tax relief and disciplined public spending may appeal to struggling business people who would like to grow their activities.

But, yet again, the issue is no longer about the most appropriate fiscal or macroeconomic environment. The issue here is about the very foundation of a competitive knowledge economy and that foundation rests on superior human capital. Lacking such capital, we are in trouble. We are no longer on top. We struggle and, inevitably we shall fall behind. In this context fighting for deciding who gets what may be expedient in the short term. But, long term, it does not resolve the systemic problem of declining incomes due to a progressively uncompetitive workforce.

Even Karl Marx, if I may digress, postulated a successful socialist society on a prosperous economy. Socialism, let us not forget, was not about equality, it was about a (supposedly) more rational use of all economic assets to increase the general welfare. Socialism was not about socializing poverty. It was about socializing wealth. Such wealth must be produced and today it is all about brains and very little about muscle.

If this were not enough, the education gap in America is exacerbated by the race issue. Simply stated, in Black or Latino neighborhoods, the public schools are usually at the bottom in terms of quality. So, those who need the education ladder the most in order to extricate themselves from poverty, low paying jobs, marginalization and worse are those who are treated the worst.

If the middle class accountant is in trouble as his job may soon find its way to Bangalore, the poor inner city kid who goes to a dismally dysfunctional school has even fewer chances. He may drop out and thus be illiterate or semi-illiterate. Or he may get a diploma which in the real world is almost useless, given the low quality of education that he received.

In the past, Blacks were poor because they were openly discriminated against. No access to this or that. Today Blacks and Latino are more likely to stay poor because they are without access to quality education. A lower income uneducated person has next to zero chances to improve his/her lot. Thus the underclass will stay underclass. This is the immense unfairness of a society in which we would like to think that “Access” is our motto, as everybody should have a chance. No, a ghetto kid is trapped by the circumstances of his birth. Very much like a poor person in a third world village, for him/her birth is destiny. Politicians may come along promising aid and relief. But, unless this relief comes in the form of meaningful education, it is not worth much.

If the situation and the chances of those at the very bottom of the American society is truly dire, for most of the others the prospects are not that rosy either. They will have to compete with equally educated and very eager Asians. Unless their skills improve substantially, everything else being equal, lower labor cost will prevail. Of course, eventually this cost advantage will be eroded. But this is many years in the future. In the meantime we have to appreciate the new competitive environment and retool accordingly by creating a first class workforce that will work in the high value industries of tomorrow.

For the time being, the educated elites are doing reasonably well. In the ocean liner Globalization they have the education, the skills, the knowledge and thus the first class arrangements. They run the competitive, innovative industries. They get to export to the emerging markets. They benefit from trade.

But the second and third class uneducated passengers, upon arrival, do not have the chance to improve their lot through hard work and ingenuity. They are cheap, unskilled labor, competing with illegal immigrants at home and new workers abroad. We need someone to go down to the third class with lots of books and a lot of energy. With proper training, when we get to port, the third class passengers –who happen to be mostly our minorities– may have a chance.

This is what the current political debate should be about: how to give proper education to all, so that, as a society we may stay internationally competitive and prosper. Either we get new skills for all or those who are left behind or we shall be progressively poorer. Not a good future for this Land of Opportunity.

America: Still Unserious about Energy

WASHINGTON – Amazingly enough, to this day, America does not have an energy policy even minimally related to the extraordinary crisis the country is facing. The growing global demand for oil, combined with rapidly dwindling resources at home, accompanied by completely unrestrained domestic consumption have caused a serious strategic dependence on foreign supplies; while the cost of imports –due to the higher crude prices– grows daily up to impossible levels.

This predicament is well known. And yet nobody has proclaimed that this is a national emergency requiring extraordinary action. Oil has gone from forty dollars to seventy and than doubled again in no time. So, here we are. America is still by far the world largest consumer. And yet, in a time of conflict and in a time of huge balance of payment deficits, (despite the unhappiness about high gasoline prices), we merrily continue to behave more or less in the same way as if we had a lot of cheap oil, produced in the US. Sure enough, gasoline at four dollars plus a gallon is going to force habits changes, including the types of cars that many people will choose. And this is better than nothing.

Still, we are in the midst of a presidential campaign and energy issues are featured only in a superficial, emotional way. At best, there is a search for culprits, not for solutions. Prices are too high? Well, it is the speculators, or the oil companies, or Bush and Cheney and their big oil friends. Or it is the war in Iraq, or whatever.

And the remedies proposed? From the left we hear that we should provide relief to the poor by taxing the rich and/or the oil companies and their scandalous profits. This way the burden of higher costs will be more equally shared.

The pro-growth crowd has a different but equally inane solution. Let’s drill some more at home; so that we’ll get our own oil. This idea fuels the totally mistaken fantasy that there are substantial reserves still to be exploited. If we only tried, we could get out of this mess. But it is not so. While there is more oil to be extracted at home, unless some truly gigantic new fields are discovered, new extraction would make a very small strategic difference, if anything delaying a bit the inevitable reckoning.

Given our present and projected needs, what we produce (currently about 35 per cent of our consumption), or can realistically produce, is woefully insufficient. Besides, regardless of current production, our known domestic reserves are dwindling fast, indicating even lower production in the years to come. Essentially, we have almost run out of our oil. Half a million extra barrels, or even a million or two added to daily production, even assuming that they existed, would not rebalance the long term supply needs.

And yet, despite these realities, the silly debate about drilling or not drilling some more received an inordinate amount of space, as if were a real discussion about meaningful strategic alternatives. As we continue to argue about these short term, myopic political proposals emerging now from a political campaign acquiring dangerously populist tones, we shall not get very far in creating real alternatives. We have now mostly non strategic approaches to a strategic crisis.

In order to change things, first of all, the tone has to change from emotional to serious. For the moment, while there is visible agitation and malcontent about high energy prices, this is still regarded as a major annoyance, not as a national emergency, indicating a major historic challenge.  Americans need to be told by their current and would be leaders that this country simply cannot continue to be a major economic and military power, being almost completely dependent on energy whose reliable supply it cannot guarantee; while its cost is becoming unbearably high. 

The reality that should be communicated is that, as a minimum, we need to do –right now–two very difficult things at the same time. Consumption needs to be massively curtailed; while the nation needs to embark in an all out effort to develop new technologies that will allow us to dimish and hopefully stop our dependence on oil. Consumption needs to be cut now. A dedicated effort at creating alternatives is more uncertain in terms of results, but it is likely to pay off.

The US economy is now at a historically high risk of being strangulated by any sudden supply disruption; while the cost of the oil bill at these prices is becoming too burdensome for an economy already crushed by a huge trade and balance of payment deficit. Of course, cutting consumption will have to be done in stages, so that we do not destroy the economy. But the message to be delivered is that we must do this as quickly as possible. Using less oil clearly is not a long term strategy. It is a temporary stop gap measure in the same way as cutting spending is a good policy when you are facing bankruptcy. It is not a real strategic plan; but it may create the breathing room to craft one.

But we hear nothing from the leadership of the nation about the need for drastic consumption cuts. Sure enough, current market prices will go a long way in dictating a new behavior that will result in lower consumption. But what is missing here is a serious political and policy consensus, a consensus that should provide guidance, thus helping the people define the situation and its true gravity. There is no coherent, clear message, no attempt to place the higher prices and dependance issues within their appropriate context.

Nobody from the top says to the public:

“Given all this, you have to change your habits today. Stop driving, unless it is truly necessary. Use public transport. If you must drive, ditch the SUVs and all other high consumption cars and switch now to smaller cars, including whatever is available now in the category of hybrids. Indeed, in order to impress upon you that this is a priority, we, the US Government, are going to tax high consumption vehicles and offer tax relief to all those who purchase smaller, low consumption cars. And we are going to introduce this new regime right now. If you thought of spending extra money to take a vacation this year and switch cars next year, revise your priorities. Forget about leisure. Spend the money to switch to a lower consumption vehicle now!”

By making these changes, collectively Americans could start cutting consumption today, without intolerable restrictions. It would take time. Yet just by choosing, as a nation, to drive less, while switching to more efficient compact cars, we could save millions of barrels a day. This would be significantly more than any added output coming from Alaska, should that reservoir ever come to be exploited. Of course, this would take a few years. But precisely because it is going to take time, we should start now. And it would take less time to achieve results if the public and industry received a clear message with clear policy guidance from the government.

As for positive action aimed at finding alternatives, sure enough there is activity, and these oil prices will provide significant new incentives. But again, we hear nothing from the top. Modest policy initiatives aimed at enhancing efforts here and there do not convey a political message of urgency. We spend billions every month in Iraq. Rightly or wrongly, just looking at budgets, Iraq is a policy priority. Looking at public resources expended, finding new energy sources may be considered important, but it is not a national priority.

Senator John McCain, the Republican candidate for the White House, just proposed a national competition with a 300 miilion dollar  prize to whoever would come up with a substantially improved battery that could fuel future electric cars. While this may be a good idea, he did not unveil a new Manhattan Project. 300 Million may sounds like a lot of money. But it is not really such a large sum for whoever may come up with an invention that could potentially transform the whole automotive sector worldwide. And McCain, in explaining his proposal, said that it would be only one dollar per US citizen. Not a major sacrifice –he said– for something so important. Indeed. But this is exactly what is wrong. This soft approach encourages the wishful thinking that somehow there is some kind of clever, cheap, painless way out of this.

Of course, there could be incredible technological breakthroughs just around the corner. This is possible. But, so far, we have dependence and historically high prices with no alternative in sight; while the country is involved in conflicts in the Middle East, the region of the world that holds the most significant oil reserves.

Those who propose increased domestic production affirm that America’s determination to augment supply would send a message to the markets about future declines in US demand and that this would stabilize future prices. Well, theoretically this might be true; but only assuming really huge increases to total supply resulting from massive new US extraction. A little bit more here and there, while useful, would do nothing to change the larger picture.

Whereas a credible national policy to start cutting consumption today would have an impact. America being the largest consumer, the aggregate effect of behavioral change on the part of millions as a matter of long term choices dictated by policy would send a message to the oil markets. Just by switching, as a nation, to smaller cars we could achieve lower consumption. In a few years this could amount to millions of barrels a day. Again, this is not a solution; but it would create some slack, by diminishing the tightness of this energy market.

In the meantime, it is going to take a great deal more than a glorified high school science project prize to transform our energy economy. The 300 million proposed by Senator McCain certainly beats the paltry initiatives of the Bush administration; but it is not that much for the world’s largest economy, spending now billions of dollars every month to finance the war in Iraq. America still has enormous resources. It is time that they are mobilized in order to safeguard, in fact to renew, our economic viability and chance to be meaningful participants in the future global economy.

But if the leadership does not communicate a real sense of urgency, more time will be wasted. In this as in other historic challenges inaction has a price. Beyond a certain point, there may be such a thing as being too late.

Is America Ready for President Obama?

WASHINGTON – The Democratic primaries arithmetic is clearly against Senator Hillary Clinton. It is unlikely that she will win her party’s nomination. Paradoxically, however, her persistent argument that she would be a better candidate in the general election is probably correct. As she says, if nominated, she would appeal to a broader political base. Whereas, chances are that Senator Barack Obama, whatever his popularity among Democrats revealed in his astonishing success in the primaries, in the end may not be chosen by a majority of US voters.

But why would Obama not get those votes? What is obliquely implied, although the innuendos from the Clinton camp are becoming more and more open, is that Senator Obama does not resonate enough with predominantly white middle to lower middle class, small town America. And this is not because of his ideas and his policies; but because he is black. And Senator Clinton, even leaving aside her newly minted I-am-a-small-town girl-really-just-like-you folksiness, without saying too much can point the obvious to all who can see: she is white.

Nobody really says this quite so directly. But, the existence of an enduring racial divide in America is at least implicitly asserted by various analysts. For instance, in the general commentary, it is taken for granted that Obama will do well (as he did) in North Carolina because of the large number of blacks who will vote for him as a block (as they did); and not so well in Pennsylvania because of the dominance of the middle class, more conservative, small town people (who happen to be mostly white), who will vote (as they did) for Hillary Clinton.

And Senator Hillary Clinton keeps repeating that in the general election one needs to appeal to the vast American middle and lower middle class. And a black face may just not connect with these voters as the white face of an “experienced Senator” that will do anything to help the embattled (mostly white) middle class. The unstated obvious fact that supports Clinton’s position is that there are a lot more whites than blacks in America.

Of course, this description of a still racially divided America is only partially true. From the very beginnings in Iowa it became obvious that Senator Obama developed a genuine connection with many white voters. But these are the voters who are or are inclined to be color blind. They look at Barak Obama as a different type of individual; not as the follow on of the standard bearers of black grievances.

These more enlightened white voters may be numerically significant within the context of the Democratic Party’s primaries. There may enough of them to get Obama the nomination. But, looking at the Nation as a whole, they may not be numerous enough to get him elected president. While nobody says this openly, the newly minted notion that Barak Obama is a post-racial candidate has not been universally accepted. The vote distribution in these primaries proves it. Hillary Clinton got the votes of the (mostly white) less educated skeptics. Of course, this is not the only reason why she got those votes; but a significant one.

Without saying so directly, Hillary Clinton’s powerful subliminal message is: “America in 2008 is not ready to elect a black president. I am a much safer bet”. And, even though this assertion of residual racism in America may be extremely self-serving for Senator Clinton, it may be factually correct. If this is so, she would be a better candidate.

Of course, it all started differently. The Iowa caucus appeared to be the proclamation of a new era. A black candidate won there mostly because of white voters. So, the enlightened progressives could state that henceforth the race issue is history, or so it seemed. People like Obama because he is a healer and a coalition builder. In fact, his being half white, half black symbolically would point to his ability to unite (if not entirely blend) the two races and end the enduring prejudices that poison the American society.

Besides, Obama is also a different kind of black. His father was African from Africa. So his blackness is not wrapped in the sad history of slavery and segregation. He does not carry this heavy legacy in his own being. He is not personally burdened by it; and so he does not need to proclaim it. Refreshingly, he has a different style. He is not a let-us-right-all-the-old-wrongs before we can talk about anything, old style black politician.

Or so it all seemed. For a while, the mystique of his being “New” was accepted and not seriously challenged. But then the Reverend Wright story came about. With that unhappy development we witnessed Obama’s inability to create quickly and convincingly a clear separation between himself and the wild black preacher. This was enough to deflate the idealized image of Obama as post racial this and that. Yes, he may be different. But his associations with old style, predictable, blacks are suspect, and so he may be too. As scores of commentators have said, how could he be in that Chicago church for twenty years and be unaware of at least some of the more radical views expressed by the Pastor? So, because of this unsavory association with the old style black landscape, it has been easy for many to re-label Obama as just another black politician.

This Wright association, fairly or not, allowed many to drag Obama’s candidacy back into the more familiar ground of racial contention that he had studiously avoided. With Obama’s brand of “Being New’ questioned, it became easy for many to re-label him as a black politician who invariably will bring forth the usual litany of old grievances.

From this (white) vantage point, blacks at best can be effective advocates of the historically persecuted and dispossessed minorities. At best they can be the defenders of “their own people”. But for this very reason, they are perceived as unfit to move beyond this important but hopelessly narrow space. If this is how a large chunk of the middle of the road white voters perceive Barak Obama’s candidacy, then he has no chance in the November general election.

If this is still the prevailing psychological environment, a lower middle class white voter will feel more comfortable if represented by an energetic white woman. Clinton, with solid middle class background, appears reliable. A cosmopolitan black who lived in strange and exotic places like Indonesia that “normal people” know nothing about and who was a friend of a radical black preacher would make many uncomfortable. Furthermore, according to some (admittedly contradictory) rumors, Obama may even be a Muslim, something akin to a Satan worshipper in some quarters.

And, reading between the lines, this is the essence of the self-serving message repeated daily by Senator Hillary Clinton. Of course, she does not say that Middle America will not vote for Obama because he is black. She just says that she has a proven record of attracting large numbers of these (white) voters, while Obama does not. Obama, instead, has to rely on his composite coalition of the idealistic (probably really post-racial) young, the sophisticated and educated urban whites and the blacks. And that is not a broad enough base to get elected president. And why is it that he does not connect so well with small town whites? Who knows….Well, we know why: Because he is black and thus still “alien” to them, to put it gently.

If America is still prisoner of the old logic; if, in plain English, racist prejudice is still very significant, Hillary Clinton is right. Obama may be the choice of a majority of the Democrats who vote now in the primaries. But as a candidate in the general election he is unlikely to get the votes of the millions of white centrists who, in the end, determine the winner.

If this is so, it means that we have not progressed enough. More than forty years after the civil rights movement and epochal legislation aimed at righting old wrongs, America is still conditioned by the old stereotypes.

While Obama brings a new tone, a new message and new ways, for many whites he is still viewed as another black politicians who would tend to the interests of “his people”; and thus not reliable enough to be the standard bearer of the now needy whites. The reverend Wright story, by connecting Obama with a segment of old style black ideology and mannerism, made it easy for the stereotype to take over.

Given all this, between this unproven man (who may be closer to the kind we know and do not like) and the feisty Hillary Clinton, better the feisty lady. “Better the lady. She is one of us. OK, let’s say it: At least she is white”. This is what many who are not voting now in the Democratic primaries, but who are going to vote in the general election, will think. Of course, they would not dare saying it in the open, lest they be classified as the prejudiced people they unfortunately are.

It is not uncommon for the darling of the party activists to be triumphantly nominated only to be later on soundly defeated by a majority of the voters who think otherwise. But, if Barak Obama is the Democratic Party nominee, this would be the first test of the enduring relevance of racism in America in the context of a presidential election. Of course, it would be unfair to assume that most people who would not vote for him are racist; but a large number probably are. When, before Iowa and other marvels, many politely said that America “may not be ready” for a black president, this is what they meant. Racism is still too strong. A black candidate would not get a fair hearing.

Hillary Clinton would like to convince her party, that because of all this, she is the best bet to retake the White House. Unluckily for her, while her assessment may be correct, given her party’s mood of the moment, in the end she may not be able to prevail.

America’s Decaying Standards

WASHINGTON – In the United States, the reliability of some critical public services is now questioned, owing to revelations that indicate insufficient resources, sloppy supervision and worse. In recent weeks it transpired that Southwest Airlines, otherwise known as a successful model of an inexpensive yet efficient and profitable air carrier, kept in active service many aircraft with structural flaws. According to the federal rules that regulate airlines, these planes were unsafe and should have been grounded until all repairs had been performed and inspected. So, how did this serious breach of safety standards involving several airplanes happen? Why is it that the Federal Aviation Administration (FAA) inspectors did not catch and report this problem? After all, their function is precisely to avoid situations in which the flying public is put at risk.

Well, we do not know exactly, and the issue is now under investigation. Yet, the digging prompted by the Southwest issue indicates that this is not just about one airline. It would appear that the whole FAA inspection system has –and has had for years– systemic flaws. After the negative publicity from the Southwest issue, many other airlines, including American Airlines, one of the largest carriers in the world, have suddenly come forward revealing problems –previously undetected and unreported– of potential lack of safety, grounding aircraft (with the resulting cancellation of scores of flights) and proclaiming the need to upgrade standards and procedures.

Whatever the eventual findings as a minimum it appears that the federally mandated inspection regime deteriorated to a dangerously low level. According to many testimonies, (some of them prompted by public congressional hearings), overtime, from a hand on regime in which inspectors really inspected the system slowly turned into something approaching self-certification by the airlines. The FAA inspectors did little inspecting. At least in some instances, zealous FAA employees were discouraged from being thorough with their job; in part, it would appear, because their superiors wanted to maintain a cozy relationship with the airlines they were supposed to check. The ongoing investigation in the end may come up with specific offices and/or individuals responsible of negligence or worse. But the real issue highlighted by this air safety scandal runs much deeper and is much more difficult to assess, comprehend and fix.

And the problem is this: at what point, in any given context, lower standards, ignoring rules, underperformance and cutting corners become implicitly normal and acceptable? The slippery slope of standards that slowly but progressively deteriorate is very difficult to detect as it takes place. We need a major scandal such as the Southwest Airlines issue to make people focus and understand how deep the flaw is.

Of course, perfection is not achievable. Mistakes will be made.  Incompetence or corruption cannot be eliminated. But the striving to keep reasonably high standards can be encouraged and pursued only to the extent that societies on the whole remain convinced that there is a self-evident value in upholding such standards. When, for whatever reasons, this belief is no longer ingrained, then less than good is fine. Later on, less than less is also acceptable. Lower standards progressively become the new norm and nobody really minds.

And we have ample evidence that the FAA story of relaxed attitudes about airlines inspections is not an isolated instance affecting a small slice of the federal bureaucracy. They are part of a new culture of neglect. We have recurring instances of serious contamination in the food supply. Inferior hygiene standards in hospitals, mixed with high rates of human error, make some hospitals real health hazards –reminding us of the 1800s when people literally were sent to die in a hospital, because of objectively primitive and unsanitary conditions. Imported items, (witness the cases of contaminated food, medicine and toys with excessive levels of lead made in China) are not inspected because of lack of manpower and other resources. Not to mention the gigantic Katrina disaster of 2005 and all that it revealed about lack of adequate investments to prevent the disaster and the national fiasco in handling the consequences, revealing incompetence and inadequate systems.

At a different but quite related level, we see lowered standars when America accepts the progressive decay and inadequacy of basic infrastructure as an unavoidable fact of life. Of course, the country’s infrastructure (be it electric power lines, roads and bridges, airports or public schools) is not crumbling across the board, (although some pieces are). It is just getting old, (average age of bridges: 40 years), due to systemic underinvestment. Some components are revealing dangerous signs of stress; while in some instances ports and airports cannot withstand a degree of traffic that is much greater than the one they are designed for. But the widespread attitude is that, unless we have a major disaster, we can patch pieces of the system here and there and leave more radical and expensive interventions to others at a later date.

And this is the issue at hand. Somehow, elected representatives and decision makers established (even if only implicitly) a consensus whereby deteriorating systems are alright. By the way they set priorities, they decided that insufficient, aging infrastructure –the essential hard core that determines the functionality of a modern society– is not worthy of immediate attention. By implication this means that inadequate, potentially unsafe, systems are acceptable. Less then good is the new standard. 

This attitude of denial and procrastination can be justified politically by saying that, while these investments in principle may be good, right now we are facing other problems requiring immediate attention and huge expenses. Today we have a national housing crisis, along with other economic hardships for people who need help and support. 

All true. The fact is that there are always competing needs for limited resources. However, what is tragically missed in this absorbtion in the crises of the day is the understanding that a country hobbled by inferior infrastructure and lower standards progressively loses ground. It underperforms; while it produces less at a higher cost, with less added value to be handed out to anybody.

But the strategic long term implications of progressive deterioration are ignored –precisely because they are long term– and very few pay attention. Case in point, Senators Chris Dodd, democrat of Connecticut and Chuck Hagel, republican of Nebraska, in a bipartisan effort last year introduced a bill that would institute a National Infrastructure Bank, with the objective of transforming the approach to the financing of new infrastructure with the net result of getting more funds more quickly for needed projects. 

As they indicated in a preface underscoring the true urgency of this legislative intervention:

“According to the American Society of Civil Engineers, the current condition of our nation’s major infrastructure systems earns a grade point average of D and jeopardizes the prosperity and quality of life of all Americans. (Bold added).

According to the Federal Transit Administration, $21.8 billion is needed annually over the next 20 years to maintain and improve the operational capacity of transit systems.

According to the Department of Housing and Urban Development, there are 1.2 million units of public housing with critical capital needs totaling $18 billion.

According to the Federal Highway Administration, $131.7 billion and $9.4 billion is needed respectively every year over the next 20 years to repair deficient roads and bridges. The average age of bridges is 40 years.”

“According…” Well, the list of pressing national needs and related costs enumerated as justification for the legislation creating the National Infrastructure Bank goes on and on…

So, major infrastruture in the US get a “D average” and very few really see this as a crisis. It is a sad coincidence that the legislation, targeting among other things deteriorated roads and bridges, was introduced on August 1, 2007: the very same day in which the I-35W bridge over the Mississipi collapsed in Minneapolis; causing a few fatalities and a national outcry. (“How can this happen in America?” “Is this the Third World?”). This was a sad but telling coincidence that should have prompted action. But it did not. Predictably, after the initial outcry, the Minneapolis accident was treated as an isolated event and not as an indicator of pervasive neglect and underinvestment in critical national assets.

True, there is talk in this political season about new investments in infrastructure. But, even assuming that the candidates are serious and believe that this is a national priority, in general the problem is not addressed in its proper framework. Infrastructure upgrades are sold to the voters mostly as a jobs program, as an expedient to absorb unemployment; thus obscuring that it is an urgent intervention in its own right; no matter how soon it can generate how many jobs.

Along the same lines of the proposed Senate legislation, the findings and recommendations of a blue ribbon bipartisan commission, sponsored by the Center for Strategic and International Studies, (a high profile Washington think tank), focused on infrastructure repair and upgrade have received a brief, polite hearing. Financier Felix Rohatyn and former Senator Warren Rudman, co-chairs of this panel, proposed urgent action, not that different in its essence from the Dodd-Hagel proposed legislation. But these warnings, while they received a polite hearing, have yet to stir anybody into action. 

And yet, it would be hard to find any economist or technical expert who would discount the extremely high relevance of up to date, efficient infrastructure as a vital component of a country’s overall productivity and competitiveness. Hundreds of studies have indicated how, in the context of emerging economies, China’s massive investments in infrastructure have contributed to its growth and advantage vis-à-vis India. Indeed, it is more difficult for India, lacking substantial improvements to its road and rail networks, to develop a vibrant manufacturing economy. The current system is inadequate to efficiently move supplies to producers and goods to markets. 

Of course, the US is not India. And America is still one of the most competitive economies of the world. But not forever; by some kind of divine right. Efficiency and resulting competitiveness are the outcome of continuing investments, including large investments in infrastructure –at the same time the skeleton and the circulatory system of the society and the economy. The Rohatyn Rudman panel calculated a need for additional infrastructure investments of 1.6 trillion in the next several years. They also proposed a system to facilitate the financing of these projects, so that the profit motive would counter political and bureaucratic inertia. 

We have an election coming up. And then, come January 2009, a new Congress and a new president will have to deal with the war in Iraq and other maddeningly complex and potentially explosive issues, such as health care costs and pension reform –all this in the context of a huge federal deficit. Because of this likely scenario, infrastructure upgrades will be way down in the to do list; despite the obvious fact that so much depends on its quality and that any improvement will have positive long term effects on everything else.

Unfortunately, this procrastination is in itself an expression of diminished national vitality. The financial burdens necessary to fund tomorrow’s national vitality and competitiveness appear too large. These investments with long term benefits would take away from us the limited financial resources that we want to use now. While understandable to a degree, this attitude is myopic. If it is not going to be reversed, in the long term it can only amount to decay. 

While all this appears very gloomy, there is a positive side. If indeed the decay of societal vibrancy is the result of shifting priorities and changes that determine what is important, new awareness can reverse these changes. Unlike what happens within the realm of biology, the lowering of societal standards is not an unavoidable physical aging unavoidably leading to eventual death. Now, what causes this new frame of mind is really hard to say. But it does not get established because of a law of nature. Thus, it is not preposterous to believe that new awareness and ensuing new attitudes can reverse this trend. It takes, however, the courage to look at the facts, understand their long term implications and take action.

Political campaigns should provide the perfect opportunity to discuss and determine national priorities. However, this campaign is mostly about what how to achieve a more equitable reallocation of existing resources through revitalized social programs favoring the needy. But what is missing in the current debate is the open recognition that any reallocation postulates existing (better yet, growing) resources. The problem for America in a few years will be that, because of underinvestment –including underinvestment in an aging and underperforming national capital plant– there will be fewer resources to allocate to anybody.

Asia Rises, America Distracted

WASHINGTON – Five years into the invasion of Iraq, defined by its proponents as an essential component of the ongoing War on Terror, the outside world may rightfully conclude that the conflict between the West and the Islamic terrorists and their real or assumed supporters is the defining issue of our times. But is it really?

In historical developments there never is just one narrative. There are many and they may intersect and influence each other. It is only after the fact, sometimes long after the fact, that historians may be able to detect the main theme, the theme that was or was not addressed with the awareness that, among many, “this” was the issue, the challenge that deserved priority status.

Islamic Radicalism: Important but not crucial

Without waiting for the dust to settle, I dare say that this conflict with Islamic radicals, while obviously important, is not the defining issue of our times. The defining issue of our times is the epochal shift of the global balance of power –economic power first– from West to East. This is not taking place in the form of a “conflict”; but as progressive changes that are transferring clout from the West to Asia.

The loss of western technology monopoly: opening for Asia

The West used to have a virtual monopoly on know how, innovation and capital instruments. Primacy in these areas is slowly moving to the East. Asia is progressively assembling all of the above, with the added, intangible but crucial element of the “will and determination to emerge”; while the West is mostly characterized by the “desire to preserve” positions attained by previous generations. And these different intangible psychological drives, the first one clearly stronger than the second, may very well be at the source of the rise of Asia, while the West turns to a defensive posture –a posture in which success is measured in slowing down the progress of others. (Think about headlines as: “Trade Deficit Narrower than Anticipated”. As if losing by a smaller margin were a victory).

America is still fixated on the “War on Terror”

Of course, the news of the day would indicate that, on the contrary, the unfolding conflict with al Qaeda and associates, labeled in a rather grandiose and ominous fashion the “War on Terror”, is the issue. This conflict, sparked by the outrageous 9/11 attack, defined America’s foreign policy throughout President George Bush’s two terms.

We are now on the fifth anniversary of the American invasion of Iraq that began in March of 2003. For better or worse, this is and will be president’s George Bush’s legacy. Clearly the “expanded concept” of the “War on Terror”, as he infelicitously labeled this conflict, is the defining issue of this presidency. Unrepentant as ever, the president continues to proclaim that the invasion of Iraq was the right thing to do. It was and is the necessary manifestation of America’s “duty” to spread freedom around the world.

Justifying the ongoing effort

Thus, with or without weapons of mass destruction, (WMD), in Iraq, it was proper to topple a brutal autocrat who continued to be a threat to an already unstable region. The cost may be high; but worth every penny, including the attendant human losses. And the transformation of Iraq into a democracy, while painful and costly, will usher a broader transformation of the whole Arab world from backwater to cluster of vibrant democracies, at the same time immunizing their citizens from the noxious viruses of millenarian dreams to be achieved through violence and terror.

The “democratic cure” imposed on a reluctant patient may be hard and may seem brutal at first; but “we know” that it produces wonders, as democracies are peaceful; while democratic institutions allow people to pursue their dreams of personal growth. When democracy, following the Iraq example, will flourish the Terror nightmare will be over.

The Republicans still agree that this conflict should be our priority

Senator John McCain, the presumptive republican nominee in the unfolding race for the White House, leaving aside his strong differences with the Bush administration on the manner in which the war has been conducted, has declared time and again that the issue of our times is the struggle against Islamic radicalism. For better or worse Iraq has become a key theatre in this struggle. Conceding defeat there, argues McCain, would signal America’s weakness and will give heart to all those who wish the destruction of America, thus prolonging the struggle against a mortal enemy.

The US democratic opposition maintains now as ever that Iraq was a terrible blunder that distracted us from the real War on Terror –a war that should be fought where it began, in the inhospitable mountains at the border between Afghanistan and Pakistan. However, while not declared as the defining issue of our times, the struggle against Islamic radicalism is deemed to be a significant priority for the democrats as well.

How can this fixation endure for so long?

And it is natural that, given 9/11 and other attention grabbing events, violent radicalism should be viewed as a peril. But, frankly, it is more a peril for what it could do, should some terrorist really acquire weapons of mass destruction, than for what it is capable of doing now. But, for some reason, political violence and suicide bombers, maybe because they belong to an alien political culture, fascinate and frighten us beyond reason. The alien and in many ways incomprehensible worldview of the ideologically motivated terrorist willing to die for his cause seem to endow him with endless powers and resources and the consequent ability to inflict catastrophic damage to us all.

Exaggerated perceptions aside, indeed, militant Islamic radicalism is a serious problem. We have to protect ourselves. But, while taking into full account the danger for us, radicalism and its terror methods is mostly a tragedy for the societies from which it springs, as it wastes at least some of the intellectual and human resources of a large chunk of people engaged now and in the future in a futile struggle with an imaginary enemy (us).

Understanding radicalism

Of course, the West, given its checkered colonial past and other horrible blunders, is an easily identifiable culprit for the plight of the Muslim World. But, while it has its responsibilities, the West is not the cause of the underdevelopment of the Middle East. This has to be sought in a culture (whatever the religious influence) that essentially, at some point, concluded, (even though it may not have declared this explicitly), that there were boundaries for human pursuit and achievement; thus objectively inhibiting the natural drive towards discovery and innovation that humans seem to share.

What had once arguably been the most modern, most advanced, most refined and vibrant civilization of the Mediterranean, (while Europe was still digesting the barbarian invasions, experiencing what have been called perhaps unjustly the Dark Ages), at some point stopped progressing.

How Islamic societies stopped progressing

With its self-perception of being a manifestation of religious perfection, this culture could not recognize that the Christian Infidels, the product –according to them– of an inferior religion, could possibly create something qualitatively superior. Overtime, many Western discoveries were acquired by the Islamic World; but what was not acquired in those transactions was the new western spirit of inquiry that was at their roots and that guaranteed for centuries to come an endless stream of new scientific knowledge stemming from the West.

Fast forwarding to the present, the Islamic world, with due exceptions, is not the buzzing workshop of ideas and innovation that it was when Europe was in the Dark Ages. The inner drive towards development was stopped long ago. Ossification ensued. Foreign (namely mostly Christian) books were not translated. New knowledge was not spread.

In a climate of stagnation that discouraged change, it is altogether understandable that many developed the theory that the only way to renew past glory is in reverting to the strongest conformity to the old sacred principles, attributing present decay and troubles to their betrayal.

Looking for “culprits”: the emergence of religious radicalism

Yet, while understandable, this development that yielded intolerant fundamentalism and also al Qaeda and all its offshoots is a misfortune, not just for us, the targets; but for these socities. It is a misfortune, as this retreat into an imaginary world of flawless, intransigent orthodoxy represents a gigantic escape from reality and a waste of energy; with all the accompanying sorrow brought about by completely useless, ferocious violence visited mostly on innocents, conveniently targeted as they are part of enemy nations. As in other cases of action motivated by fantastically radical ideologies, death and destruction are the most tangible fruits.

But, leaving aside the special (albeit unfortunately possible) instance of the acquisition and use of weapons of mass destruction, this threat, however significant, is not the defining issue of our times.

Asia Rising: the real systemic change that will affect everything

The defining issue of our times is the gigantic shift of the world’s propulsion center from the West to Asia. For a few centuries, the West managed to retain the technological edge, notwithstanding its own horrible wasteful blunders, (the Napoleonic Wars, World War I, World War II, to mention just the most egregious), because of its unassailable lead in new science and consequent technological applications. This edge was powered by the spirit of scientific inquiry unleashed by the European Renaissance. This gigantic lead was at the foundation of the industrial take off of Great Britain, the spreading of the industrial revolution throughout Northern Europe and North America. It also allowed for the colonial expansionism of the XIX Century, leading to the western domination of almost the whole world.

The diffusion of knowledge

But, after WWII, knowledge was no longer a monopoly. The self-perpetuation of the western unassailable lead was no longer unquestionable. Knowledge started spreading, along with political institutions less inimical to innovation and economic development. While the West retains and nurtures significant sectors of native advantages, the genie of high technology is now out of the bottle. Among other tools, the internet works as a magic transmission belt. For those who wish to take advantage, heretofore unthinkable amounts of knowledge are out there. And much of it is free.

In Asia there is now optimism about the future 

The new vistas opened up by the “democratization” of access to science and critically useful information overtime triggered the immense desire for personal betterment that clearly motivates now millions and millions of Indians and Chinese, among others. This optimism has to be compared to the widespread aspiration of coasting to a position of relaxed comfort more common in the West. The Asian drive towards achievement compared to the more conservative Western spirit, unless something changes, overtime is bound to have quantitative consequences. Not to mention the fact that there are far greater numbers of Asians. Ultimately numbers do matter.

America’s lead, no longer unquestioned

At the moment, in the United States we can still have a model that can be summarized as “Designed in Silicon Valley, Made in China”. Yet, unless we postulate the ability to retain, forever, the lead on innovation and breakthrough technologies that will continue to give the West the edge and thus fund a high standard of living based on our continuing pre-eminence in the global knowledge economy, this satisfactory division of labor –“we invent, you make”– may not work for much longer, as the maker (Asia) is developing the ability to invent.

No one has a fixed monopoly on creativity. While hard to assemble, the critical components that yield creative and innovative environments with the attendant venture capital capable of bringing innovation to market in the form of new, advanced products, by now are known. Evidence of many failures to replicate the successful American model is no sure indication that new equally formidable competitors will not sprout, at some point.

Judging purely on the basis of incentives and motivation, we see that Asian societies have created a new, catchy cultural model in which scientific education is viewed as the golden road towards higher economic and social achievements for millions who until recently could not envision being more than manual laborers.

Asia’s enduring weaknesses

Of course, to date, most of the Asian academic institutions are of inferior quality, at least compared to the elite Western ones. However, the fact that our “super” schools are still better than theirs constitutes no long term guarantee; as all this may change. Given more talent available and strong motivation, these new generations of Asian eager scientists, many of them fortified by experiences in the West, will improve upon the available assets.

True, the Indian ICT boom started with the outsourcing by western companies of the least important processes to cheap “techno-coolies”. But this was only the first step. Bangalore is not Silicon Valley. But it may become Silicon Valley. The human talent is there. The Indians and millions of other Asians are moving up the value chain. The twin blockages of cultures suspicious of change and of lack of access to information have been eroded. The internet is the great equalizer. By no means a perfect instrument, the internet keeps getting better and cheaper, in large part because the efforts of western science have reduced costs and increased speed.

For all these reasons, the main narrative of our times is the fundamental readjustment of economic relevance in the global economy. And this presents at least two large problems for the West.

What will America do?

The first one is: can America’s “We are Number One” cultural postulate adjust to a situation in which this will no longer be true? And, if so, how? Will we accept the challenge and decide to really compete in this radically new environment in which we will no longer enjoy the inherent advantage of being by far the pre-eminent economy? Or will we retreat into protectionist fantasies, blaming our lost primacy on the unfair practices of the dishonest competitors?


This is the main challenge for a civilization now so accustomed to primacy to the point of regarding it as a birthright; not as something that needs to be nurtured and reinvented in order to be kept alive and vibrant. Unfortunately, the growing protectionist sentiment, fed by a host of stories of personal misfortune of the many of who have seen their jobs outsourced, seems to indicate that many tend to appreciate mostly the negative elements of globalization; with a growing generic wish to get out of this train, as if we could really retreat into some kind of special place, magically protected from global competition.

The necessary reshaping of the international relations system

The second one is: We live in a world largely shaped by the victorious Anglo-Saxon West, after WWII. Most of the institutions (the UN, the World Bank, The IMF, the FAO, etc.) and modalities to conduct international relations and business have been influenced (if not entirely shaped) by the western conception of fairness and rationality. Will these institutions and modalities be viable in the new Asia dominated world? And, if not, what changes can we expect? It would be preposterous to assume that eager, powerful, new comers will not want to make changes to systems that were given to them at a time in which their bargaining powers were modest.

But, of course, all this, the ultimate shrinking of the West, and the rise of Asia, although there are quite visible signs now, is still largely in the future. And it may be a fairly distant future. Indeed, the last time we checked America was and is still Number One. Deep in debt, a bit battered with a devalued currency and somewhat fiscally challenged, but still Number One.

Faint hope: Asia will stumble and fall back

And there is comfort in thinking that, who knows, maybe this change will not happen. We feared being swallowed by the “Japanese Monster” in the 1980s; whereas Japan was beached by its own internal social contradictions. Thus, we can find comfort in hoping that maybe China, given the contradictions between its economy and its outdated political institutions, will go through a major crisis. Or, maybe the Chinese environmental crisis will turn into an immense catastrophe that will halt development.

Maybe the Indians will be unable to modernize their horribly messy political institutions that objectively act as enemies of progress. Maybe they will be unable to modernize their infrastructure. Indeed, all this is possible. Historical developments are generally non linear. There will be ups and downs. The trick is to grasp the basic tendencies.

My bet is that the immense desire for personal betterment shared by tens of millions, combined with the availability of the necessary practical tools (improved education, know how) in the end will prevail in Asia. It may be messy; but the unfolding of the Asian Century is not a fantasy.

But it easy not to focus on this (or any other) gradual transformation. In large part this is due to the fact that these changes, as is the case in all systemic transformations, will be gradual; perhaps punctuated by some interesting fact here and there; but gradual altogether. Probably so gradual to be unnoticed.

The Republic of Venice: a case study of progressive decline

In the XIV and XV centuries, the foundation of the power of the Republic of Venice was in its ability to act as a commercial bridge between Europe and the East. But, later on, the discovery of new sea routes to Asia, slowly but progressively eroded this economic monopoly and the ensuing strategic advantage. This and other developments overtime shrank Venice’s relevance within Europe and the larger Mediterranean. But it is hard to point to one particular event that resulted in a historic turn. (After the fact we know that, in a broad sense, Venice’s loss was accompanied by the rise of the Dutch United Provinces and later on by the affirmation of England as the pre-eminent maritime power that built an Empire founded on the felicitous combination of capitalistic enterprise and the best navy. Contrast this with the fortunes of Spain and Portugal. They had the maritime spirit; but no capitalistic spirit. Britain brought capitalism to North America. Spain and Portugal brought feudalism to South America; and the effects of these complete different cultural legacies are still here today).

The end of purpose

Venice’s decline was a slow decline. But decline it was. The maritime city state did not go under overnight. It just lost influence and power. Along the way it also lost its old courage and its famous bluster. Overtime, the descendants of the rich patrician-merchants –that leadership who did not think a minute about risking everything on the bridge of Venice’s ships– had opted instead for beautiful Palladian Villas in the countryside. Painting and art had replaced the dogged, if futile, resistance displayed by the Venetian defenders in the siege of Cyprus. Marc’Antonio Bragadin, skinned alive by the Turks after Famagosta had fallen in 1572, was “replaced”  later on as a cultural icon by Giacomo Casanova.

The last Doge

In 1797, Doge Lodovico Manin, the last one in a proud line of those rulers who, along with the “Senato Mar”, the “Senate of the Sea”, for centuries could dispatch effective naval power all over the Mediterranean, presided over the surrender of Venice to the strutting newcomer of the time, a young Corsican artillery officer named Napoleon Bonaparte. It may not be entirely accidental that Manin came from the mainland and did not descend from the seafarers and that his family had purchased at a high price accession to the city’s aristocracy. It is also tragic irony that Manin’s ceremony for his accession to the seat of Doge was recorded as the most expensive ever in the history of the Republic. In the end, the “Serenissima”, the “Most Serene” Republic, surrendered to Napoleon’s superior power without firing a shot. A history that had lasted almost a thousand years was over.

Needless to say, there is still a Venice today. But it is a large scale tourist trap that has the residual, if sad, charm of great things that have been.

How do civilizations “lose it”?

But why cite examples of long ago? Because Venice had not been just a city of fat merchants enriched by trade. It had become a political leader strengthened by its mastery of the technologies of the time. State of the art shipbuilding, of course, but also glass works, the printing press, textiles. Its government, while just an embryonic rudimentary form of democracy by our standards, was light years ahead of the often obtuse autocracies that prevailed in Europe. The Venetian Foreign Service was in a class of its own. The Venetian Ambassadors had the obligation of writing daily reports on everything that they noted wherever they were. There was genius and industry along with courage and a fierce sense of one’s own independence and place in a difficult world. A place conquered with intelligence and not just force.

Nowadays there is still a Venice. But the Venetians have been downgraded to ice cream sellers only too happy to overcharge unsophisticated tourists who associate Venice with the Carnival and the relaxed mores of the last decades of the Republic. Which is to say that “the good” does not have a life of its own. It needs to be nourished and its value passed on to those who were not materially there, “at the creation”, as it were.

Are we westerners “losing it”?

So, let us go back to where we started. What will be the narrative of the early XXI Century? The rise of Asia, most definitely. But it is worrisome to note that, while many young Asians enthusiastically go and fill the ranks of tomorrow’s technocrats, we are not taking stock of this and what it will mean for us. Bill Gates of Microsoft goes to Capitol Hill asking for the relaxation of visa rules for highly educated foreigners needed to fill the ranks of American industries, because the American education system does not produce enough of them. Microsoft, as well as most other US high tech companies, needs them.

And we need foreigners by default, because, as Gates had already noted, the once coveted US education system is both too small and outmoded. Below the few elite universities, the American schools are not so good; while Americans just do not go and study science and technology in sufficient numbers.

We are in a “crisis”, but nobody is saying it

In and as of itself, to the extent that this facts indicate a systemic trend, this is a crisis, as it tells us that we are lacking today and we shall lack tomorrow the foot soldiers and the officers necessary to fill the ranks and compete in the global economy. But who defines this trend as “a crisis”? Where are the headlines, the grassroots movements of concerned citizens taking action in order to reverse all this?

The current version of the American Dream is for more consumption without too much regard for the means necessary to finance it. The recent real estate bubble, with all the public policy responsibilities that allowed it, was the perfect excuse for continuing a level of consumption not justified by income. The dream for a while was that ever increasing real estate values would allow people to use their growing equity as an endless ATM machine. What made this worse is that this new real estate equity, this “found money”, was rarely used for productive investments. It was more often utilized to finance a life style otherwise not affordable. Hence the growing chasm between static income and excessive consumption, temporarily masked by the illusion of new real estate created wealth.

Pipedreams of an easy life without producing wealth replaced by misplaced goals of wealth redistribution

Now the whole dream of an easy life funded by the magic of ever growing real estate equity has vanished. But now, as we are in the midst of untried rescue operations aimed at preventing this disaster from engulfing the whole economy, the political discourse in this electoral campaign is about redistribution of wealth and the offering of new services to those who did not enjoy the bonanza of the last few years.

Nothing wrong with advocating improved conditions for those who struggle. But there is fuzziness in describing how all this will be paid for. And publicly funded relief is unfortunately not the most appropriate policy message, without confronting head on the fact that we are no longer in an era of plenty.

There is much less wealth available for redistribution these days. Individual savings rate: zero on average. We have significant private debt; significant public debt; significant and ever growing balance of payments deficit. And also two costly wars underway.

More equity is a nice idea, but you need excess wealth to be shared

Equity and fairness should have a place in a democracy. But first we need to agree that, in this new, fiercely competitive global environment, collectively we need to produce more wealth by being more competitive. At the same we have to acknowledge that, while the modern armies of young Asian technocrats grow, we have difficulties forming and recruiting our own. Likewise, while Asia saves more, we spend more. And as we do not have enough money, we go into debt. Redistributive public policy by itself, while well meaning, will do nothing to change this lack of ability to produce more resources.

We are not finished, yet

Of course, the picture is not entirely bleak. In truth, America has many world class, truly competitive, multinationals. But this is less the national asset that one might think it is. Nowadays, US multinationals, precisely because they operate on a global chessboard, regard America as one of their markets. Their objective is their own growth and competitiveness, not necessarily America’s. As the US economy slows down, the multinationals increase their efforts in other markets. And they build their subsidiaries and R & D centers where convenient.

Indeed, just by looking at investment decisions by US multinationals one could detect the underlying systemic transformation discussed so far. When General Electric or Caterpillar state that they are beginning to invest more abroad than in the US and that they expect a larger and larger share of their sales and profits to come from foreign markets, this is an indication. Of course, these trends may change and multinationals have the flexibility to adapt. But will they change?

Looking at all this, the sad conclusion is that while a systemic shift is taking place whereby Asia is destined to affirm at all levels its new self-confidence, the leading power of the West is almost entirely focused on fighting Islamic radicalism, while the dream of the opposition is to re-direct the funds used for the military to finance new social programs to benefit their political base. 

We should focus on competitiveness issues 

The discourse in this political season is framed in a myopic introverted context in which our position vis-à-vis the outside world is rarely seriously discussed. It looks as if America is self-contained and affected by the world only in a negative way, due to the alleged stupidity or greed of misguided leaders who have caused unnecessary suffering through ill conceived free trade policies that serve the interest of the elites at the expense of the people. In this type of inward directed political debate, very little is said by all about the need to dramatically foster US competitiveness, the only real source of future prosperity and the essential precondition that determines our ability to do anything, including funding improved education for all or universal health care.

While we obsessively debate Barak Obama’s credentials as a true post-racial leader capable of healing old racial wounds, larger numbers of Asian youth go to school and get engineering degrees in a new world in which for them birth is no longer destiny, while a solid higher education is a proven key to success. The Asian Century is upon us and we are not ready.


In America, Politics as Self-Renewal

WASHINGTON – The paradox of American politics is this odd mixture between pragmatism and grandiose wishful thinking. Hillary Clinton studied for president for decades. She keeps reminding her audiences about all her accomplishments; or at least sophisticated knowledge about the issues that touch Americans today.

Then, out of nowhere, comes about a new entity, a new type of politicians who says: “What you know does not mean much; unless you create a new system that engages people to work together for a shared and just solution”.

Well, this changes the framework of the conversation. Clinton says: “I really know the issues”. Obama says: “Knowing the issues may be a good thing. But if you cannot create the new environment that invites genuine cooperation, we will not be able to make much progress”.

And here we are. Clinton keeps insisting on her field-earned qualifications. Beyond that, she is a woman. The really first, fully qualified female who can be a credible president. But this is not enough. Obama, also a first, as the first African American with a real shot at the highest national political office, keeps saying that he “has” the magic formula that will transform wishful thinking into tangible reality for the many, especially the many who feel taken for granted and routinely left out.

Obama’s message has had and has a tremendous echo. I have written already about the dangers of politics as some kind of spiritual re-invention. Yet, the fact that a man who is different, so different, in his “being”, in as much as his being is the personification of what can happen when black and white ethnic elements are mixed, can create so much good will is quite interesting. Who are Obama’s most enthusiastic followers? The young. Those who are generally not in the political process, as they find it –in its current status– reflexively dull and untrue.

Whatever can be said about Obama’s appeal, whereby “his” pronunciation of a yearning for “change” sounds true, probably because he believes in it, this appeal is in large part the reflection of a yearning for a quasi-religious sense of commitment to something “higher” in this land of New Things.

Let us remember that this Republic, at least in terms of a collective Dream that has been passed on to us, is an experiment about the possibilities of human ingenuity combined with industry. Obama’s reminder that, unless we change our ways, not much will be transformed in policies, has had a tremendously strong echo. What is most strange is that, beyond his own personal stated commitment to make this happen, we are all entirely clueless as to the means that he will/can adopt to get us into the New Promised Land of virtuous cooperation. But an (apparently) sincere desire to radically transform a system of half truths and institutionalized trench warfare, dominated by localized self-interests; a system in which it is a lot easier to stop something then to make it happen, seems to be enough for millions who have clustered around Barak Obama, this new biracial symbol of America’s perpetual self-regeneration.

Of course, descending into the boring practical world, the trick would be in really knowing how to marry in some meaningful fashion the lofty goals of self-renewal with the practical tools of government that we have available. But this is never discussed in any detail.

Despite that, even taking for granted Obama’s truthfulness and goals, how is he going to accomplish the goal-dream so much wanted by millions who would like to look at politics as the decent way to create fairness, openness and opportunity for most, in an equitable and bias-free fashion? While I do not know for sure, I guess that many would want America to be true to its slogan: “Real opportunity for all those who are willing to work hard, within a fair system that has no racial or class favorites, to achieve whatever they want to”.

This is the dream like vision of the non partisan intellectuals of the XVIII Century who really wanted a world free of bigotry, prejudice and intolerance. A world in which the enthusiastic pursuit of education would be the guiding force towards higher achievements. Education was thus pushed forward by the likes of Benjamin Franklin and Thomas Jefferson. And education, in their worldview at least, was not partisan. It was about creating on Earth “The Age of Light”.

So, back to the present; why Barak Obama? Because, in the current landscape, he is focusing on a different perspective. A message of Unity, even though he does not say how this Unity will come about, within the present institutional and political framework. We need Unity, says the Man who –at least symbolically– unites in his person two races in conflict. We should build bridges with all and focus on the way we pursue goals, as opposed to the goals themselves. If the way we pursue our goals is partisan and belligerent, well, we may be losing something important, so important as to devalue any meaning from whatever accomplishment.

Sure, if we dream a moment, let us think of someone who can indeed be trusted to be sincere, moved by a desire to promote the common good, as opposed to some special interest, would it not be wonderful to select this person as our steady leader? Yes, of course it would be.

But here, forgive me, we go back to the need to examine a fundamental premise: what is it that makes a republic a viable republic? Obama tells us what we are not, what we are lacking. Fine. And he is probably right. However, a successful modern republic is not about every now and then a great disinterested leader coming about. It is really about the premise of maturity of most citizens (and not just of One Leader) and their ability to engage in meaningful dialogue aimed at solving issues. If we need a Savior who will –who knows how really—help us out of the swamps in which we got ourselves because we do not have the rooted maturity upon which a modern republic is predicated, then the issue is not about Him; however sincere his argument; but, once again, about  us. If we cannot have a meaningful, mature polity constituted of reasonably mature people, then, as last reort, we need Obama, or, in the future, another Obama-like character who will come about to remind us of how low we have fallen.

But the hard solution, the really hard solution, is not in selecting Him as our Savior; but in understanding that the complicated issue is in how we should grow out of this nasty predicament created by our immature understanding of politics. A well functioning political process should be predicated on attained maturity on the part of the participants. Maturity, in turn, should give us a mature discussion as to how, collectively, we can advance the best type of common good for ourselves and the world we live in. If politics is about the advancement of a particular ideology that needs to see its political triumph, well, we have re-created another Monster. Little Monster, Big Monster, depending on the circumstances. 

However, Obama’s song “about new ways”and the surprisingly wide national echo it has created, should not be lost, as it tells us a lot of where we are. He is telling us that, no matter how smart some of us are, the issue is about more “mature attitudes” towards the policy process. The instinctive exceptional echo that his call to seriousness in our hearts has created is an important sign as to the need for reformulating the basic fundamentals of what is needed to advance the policy process.

Unfortunately, the issue is that, in a few months, after all this primary avalanche will be done and over with, the canary song –the Obama phenomenon– that tells us that there is gas in the mine shaft may be lost and easily forgotten.

Obama’s echo among the young, the instinctive outpouring of sympathy, and the cascade of millions towards this (apparently) different man trying to articulate a new way of looking at the political process, should tell us a great deal as to where the work should take place. In a sense, he appears to be what most people would like to see among elected leaders. Vision, passion, poise, good will, without the devilish element of ideological bias.

(Of course, Hillary Clinton, his opponent in this primary season has desperately tried to affirm that Obama is all appearance and no substance. Nice but empty speeches. The words may resonate; but there is no articulation of a political strategy and of believable policies to take care of actual issues. Not to mention that the man has no real experience. So Hillary Clinton appeals more to middle aged “practical” women. But Obama is the candidate of the young and of the intellectually sophisticated who collectively have thrown an avalanche of money into his campaign coffers, while he is appealing to the independent who may think that they may have finally found their champion,as Obama speaks a “different” language.)

What do I take from this Obama phenomenon? it indicates a real yearning; but it cannot possibly provide the solution to the problems that he points out. The “solution” to the collective soul searching that would like to find a magic cure by electing a “different” leader is escapism.

The real “solution”? Educate young people. Teach them about the ideologically free values of republican ideas; focused on: broadening opportunity as much as possible; and allowing people to take their rightful place within an unbiased society in which birth is not destiny. It is difficult, of course for most of us to realize that only by adopting these values and “ground rules” we can be the more co-operative citizens Obama talks about. Very difficult. But true.

Unfortunately, as always, we are rushing. We are rushing fast to determine who is going to be the nominee for the Democrats. Difficult to pause and reflect on the peculiar call for something radically “different” coming from around the nation triggered by the Obama phenomenon.

And what is the call about? The desire for declaring that we are now in a a post-racial America in which all ethnic issues have been resolved. The very fact that millions of whites do not have any problems in having faith in this biracial Man should tell us a great deal as to what unbiased human beings may be able to do. However, while noting all this, the problem is that we do not know anything about the depth of these feelings. Are they just fantasies or deeply thought through convictions? And when “Obama the Uniter” will call upon the many to work on behalf of the worse off what will the response be?

America Longing for Moses

WASHINGTON – Whatever the eventual outcome of the democratic party primaries, we have a Barack Obama phenomenon that is more then just a momentary blip. Whether he will eventually prevail or not against Senator Hillary Clinton, Obama’s staying power, in fact growing profile, in terms of widespread support across races and age groups and his ability to attract massive financial contributions to his campaign demonstrates that, yet again, at least a sizable portion of the American electorate is transfixed by the idea that a “New Type of Leader” will get us on “The Right Path”.

This large segment of the electorate seems to conceive the political process as an exercise in spiritual self-renewal, as opposed to a process aimed at selecting a competent chief executive. What is held against Obama by the traditionalists –lack of experience—is indeed a virtue for his supporters. He is not tainted by the process. Barack Obama is new; indeed extra new. A junior Senator from Illinois with a negligible political record (at least compared to many more seasoned politicians). He is different not for what he is (who knows really…) but for what he seems to symbolize.

Among other things there is an assumption regarding his purported ability to make us finally heal and thus transcend the race issue through his very physical being as a biracial man. All this is mixed with an ideal blend of youthful vigor and principled, ecumenical idealism, finally pasteurized by an enlightened and wise pragmatism of post-partisan politics. “The Man with two Races” represents himself as the Uniter. The One who can lift us beyond petty politics by disclosing a “Vision” that sets all of us onto a “Higher Purpose”.

We have serious problems –he tells us– and we should confront them with the appropriate gravitas blended, though, with the “can-doism” of a reawakened American Pragmatism. And here we go again. We really want to listen to someone who tells us that if we only put our minds to it, the sky is the limit. We are Americans. United behind a Genuine Leader who will tirelessly exhort us to be the best that we can be –the New Coach of Team America– we shall regain our sense of purpose and be once again an unstoppable force for good.

Back in 1995 we had another African American whom we flirted with: General Colin Powell. After Powell had retired from being the first soldier, the Chairman of the Joint Chiefs, there was intense speculation that he would run for president. So, we were told by U.S. News & World Report ,(Cover story August 21, 1995), that Colin Powell is “The Man to Watch”. But what did Powell have that made him so attractive?

He was an ex soldier with no recognizable political base or clear political program. Well, that was precisely the point. He was unknown and thus he could make us dream whatever we wanted to dream. This deep fascination with the “good outsider”, now renewed through the Barack Obama phenomenon, reveals a great deal as to what many Americans unconsciously expect from a president.

At least for some Americans, and the young first and foremost, the qualities desired in a elected public officer are not primarily intelligence, common sense and steadfast pursuit of a goal until it is accomplished.

No. We want “Leadership”, “Vision”. We may not say it openly, yet we are usually bored when we hear from a would be president about what his administration will do about energy, taxes or infrastructure spending. We want to sit, riveted in front of the TV, transfixed by the eloquence of a Man who introduces us to His Vision. We want to hear stirring rhetoric about our “Unique Destiny” as Americans; our Nation’s “Bright Future”.

This, of course, does not mean that we like to give unchecked, dictatorial powers to the presidents. No Mussolini, Hitler or Peron for America.

Yet, we want to be seduced. We want to be inspired. Deep in our hearts we want a Prophet in the White House. We want a man whose vision surpasses all others, a man who will touch our spirits, a man who will energize us to accomplish great deeds.

The attention given to General Colin Powell months after his retirement was based on the fact that we could believe that he had these qualities, while Bill Clinton, the incumbent president at the time, did not seem to.

Of course nowadays Bill Clinton has been reconstructed as the inspired good president who gave us peace and the roaring ‘90s. But, at the time, he did not appear so inspiring. The crushing defeat of his party in the Congressional lections of 1994 attested to that. Deep in our hearts, in the elections of 1992, we wanted a champion; and instead we got a policy wonk of questionable moral character. Bill Clinton extolled the merit of “Reinventing Government”. He pushed government-business alliances to produce a new generation of cars. He wanted a comprehensive health reform but in the end he could not explain it. For a time, he forced many journalists to understand and explain to a confused public what a “BTU” (British Thermal Unit) is.

But he had not defined for us a “Heroic Journey”, a “Manifest Destiny”. There was no “New Deal” to be struck. No “New Frontier” ahead of us. No “Great Society” to be built.

Further, at the time there did not seem to be real dragons to slay across the Oceans. America was the Superpower, but we could not congratulate ourselves anymore for being the “Leader of the Free World”. The few attempts aimed at defining something new in foreign policy, such as humanitarian intervention in Bosnia, democracy building in Somalia or drawing the line on human rights in China excited very few people.

While we contemplated unenthusiastically the political horizons, fate had it that a new suitor with all the right credentials seemed to be coming along. Powell had all the qualities to become the object of our next infatuation. He had an impeccable resume. He was (is) a self-made American, a product of the military meritocracy which tempered his character. He led the military during the Gulf War. A black man universally respected by whites. Serious, witty and humble. Even better, he was politically untested. He never held elected office, so he has no record to defend or to distance himself from.

Hence the flurry of speculation. What was Powell going to do? Would he really be running for president in 1996? Was he a Democrat or a Republican ? As a General turned politician, was he going to be more like an Eisenhower or a Washington; a Jackson or a Grant ?

But the real (even though not fully articulated) question was: “Is this self-assured, competent soldier the hero who will lead this disoriented tribe away from the swamps of uncertainty and doubt and into the Promised Land of Prosperity and Security?”. Will a president Powell succeed in the task where all the other false prophets (President Bill Clinton included) failed us? Will he finally “fix” America for us?

While the context and the cast of characters have changed somewhat since the 1990s, the dynamics and the emotional drivers behind the Barak Obama phenomenon are pretty much the same. So, the hope of his many supporters is that Obama, with his exotic resume, his gravitas, his beautiful voice, seriousness and appeal to our moral principles will fix America for us. Unfortunately this is not just the proverbial wrong issue. The fact that an issue can be framed in these terms in the context of an election in a modern democracy reveals profound misgivings on the part of the public, as well as the opinion leaders who fuel these debates, on what the political process in a democracy should be about.

Would Colin Powell have made a good president? Of course, we’ll never know that. He snuffed the dream by taking himself out of the picture. But, had he decided to stay in and become president he probably would not have been worse than average.

As for Obama……who knows? Maybe what he lacks in experience he can make up with good instincts. But the real problem which reveals a profound misgiving about the nature of the political process is that the enthusiasm for his candidacy does not reside on the political plane. It resides on a semi-transcendental plane. It has to do with Faith and Belief rather than with the mundane bricks and mortar of the public policy pitfalls that should consist in the wise allocation of limited resources. Obama is not about policies; but about our need to be inspired by “Leadership-and-Vision, Moral-Character-and-Conviction-of-One-Man”.

But if this is the reason for the appeal of an individual who is running to be the head of what, after all, we call an “administration”, then we have a misunderstanding about the role of the political process in a democracy.

Let us make this clear: Nobody, nobody can “fix” America relying on his own inspirational abilities. Most of all, nobody will be able to fix it within the four years of a presidential mandate (or even within eight years –should he be reelected). America’s problems, like those of any complex, modern society, are systemic and as such they can be seriously addressed only over a long period of time.

“So what –one might say– even if we need long term solutions, let’s put someone in charge who will put us on the right track to begin with. That surely beats doing nothing or having another half-witted character in the Oval Office”.

Here is another fallacy. A president may identify problems and even suggest the right cures; but he cannot transform the soul of a nation. Not even if he is another Ronald Reagan-style “Great Communicator”, a politician who can rally diverse constituencies behind controversial programs. And the obstacles on the way to the implementation of Grand Designs, (taking for granted that sensible policies are indeed contained in them) are neither “congressional gridlock” nor the entrenched “interest groups”, nor the “bureaucracy” –and not even outside dangers such as Al Qaeda, or emerging rivals such as China.

The obstacle is us. All this yearning for inspirational leadership indicates that we have forgotten that an effective democratic government is premised not on the extraordinary qualities of a few; but on the deep and reasoned understanding of our condition and our real (as opposed to imaginary) choices on the part of the many. Further, democracy can function well only if the many do understand what can be addressed by us collectively, through the political process; and what has to be addressed instead by the people, individually, or in association with one another, on their own. Put it differently, the vaunted concept of the “Bully Pulpit” –the opportunity of a principled president to literally force the country on the way of wisdom, is a myth. At times it is a dangerous myth; as it creates expectations of a renewal engineered from above that routinely go unfulfilled. In an ideal republic, Good Government is the product of a healthy society. It is not the result of choosing the Superior Man as President.

Those individuals whom we reverently call our Founding Fathers grappled from the very beginning of the Republic with these issues. They found no final answers; but they certainly agreed that a democratic form of government requires a great deal of reason on the part of the people who make up the Republic. Indeed, democracy is premised on abundant reason. And reason, here, is to be understood as a clear sense of individual responsibility and self-reliance accompanied by a shared sense of justice and human decency that will prevent prevarication and abuses at the expenses of few or many. It also means a pragmatic understanding of what it takes to get something meaningful done in terms of time, effort and money.

But the record shows that, at least when we consider the highest elective office in the nation, many of us use little or no reason as the criteria to assess potential candidates. We crave someone “who will put things in order”. This person must look and sound persuasive. He must look good on TV. His positions on the issues are far less important than his rhetoric. He does not have to be right. He just has to sound right. Mesmerizing speech is far more important than content.

This state of affairs indicates a peculiar dichotomy in the American Collective Psyche.

On the one hand, we have a tradition that looks at government in a skeptical and somewhat suspicious way. And thus we sing the praise of a system of checks and balances which was designed to prevent any individual, faction or interest to entirely dominate the system. Indeed, as James Madison wisely put it long ago, men are not angels. So we must have a system of government which will create some healthy protection, a hedge against the power-hungry, the silly or the incompetents who are bound to be among our political leaders. Thus, a simple idea: do not give too much power to anybody. In fact, create a healthy competition among the key institutions of the Republic.

Make sure that no sweeping plan will be adopted too quickly. Let the Congress be in the way of the president, let the Courts check on the laws, let the president veto imprudent legislation, and so on and so forth. The marvelous result of a rather weak government will be that the citizens will not be hindered in their own private pursuits for whose protection, (remember the Declaration?), governments were created.

On the other hand, to this commonsensical, realistic, pragmatic approach enshrined in our Constitution, we juxtapose a romanticized view of government. We look at politicians –and presidents in particular– not just as chief executives, as the heads of what is still called, (after all) an “administration” but as the equivalent of Biblical leaders. Deep down, we do not want an “administrator” in the White House. Deep down we are on the lookout for a Moses who will lead us from the wilderness of confusion (economic, social, national, international, ecological –you name it) into the Promised land of Self- Assurance, Hope and Prosperity.

So, we are really torn between two opposite ideas about the political process. We have the world of the harsh everyday reality that makes us suspicious of any politician and skeptical about any and all of their claims. And then we have another world in which we invite politicians to tell us that they will fix everything. We want them to tell us that, if only we will vote them into office, nothing less than the Full Restoration of the American Dream will be bestowed upon us alongside with Justice and Dignity for All.

Is there a way out of this confusion? Of course there is: but it is complicated, as it summons our personal sense of responsibility. We need to rediscover what we have forgotten. We need to learn again that the premise for a successful democratic government consists in an informed, politically and policy literate citizenry which understands issues and can formulate reasonable opinions about them. Such a literate populace will tend to choose from within its midst elected leaders who will be (hopefully in most cases) at least not below average in their understanding of the needs for the common good.

This rather mundane truth is the simple secret of successful democratic government. Success lies in the nurturing of civic virtues and at least basic knowledge about issues on the parts of the citizens. The same citizens will also understand that it is impossible to ask government to fix problems –such as drug addiction and crime– which are deeply embedded in stratified bad personal habits for thousands and thousands of people. No doubt, well conceived public policy measures can help, but only if the rest of society agrees and changes its behavior.

But we do not want to bother with this simple yet harsh reality. A reality which summons our sense of personal responsibility. And we harbor instead a dream. We want to believe that somewhere, somehow there is a “Moses in waiting”. Just let him come along and He will sort out the mess.

The fact that a sizable percentage of Americans is prone to believe in these simplifications explains our infatuations. The Barak Obama phenomenon is largely a manifestation of this wishful thinking. While at the local and state level our political process is about the representation and the protection of vested interests, (taxes, zoning, infrastructures, basic services), at the national level it is a sequel of love affairs and disappointments with various politicians who carried “messages” that had very little to do with public administration.

How could all this happen in our Republic? Difficult to say. But, for sure, overtime we have lost the original sense of democratic government. Overtime we turned significant moments of our democratic life (such as party conventions) into rituals (at time solemn, at times ridiculous), which seem to celebrate extraordinary people. We seem to have forgotten that democracies can thrive only when everybody –governors and governed alike– display more virtues than vices.

Furthermore, probably unconsciously, we created physical symbols that seem to corroborate our distorted views. The Founding Fathers met on several historic occasions in a Hall in Philadelphia that is anything but grand. But we, the posterity, in order to celebrate them, have built shrines. Just go around the city of Washington and you will see not just monuments erected to eminent and worthy Americans. You will see Temples honoring Demigods whose lives and deeds are wrapped in the mist of legend. George Washington, Thomas Jefferson, Abraham Lincoln are not represented as men –however eminent. They are Heroes, Visionaries, Saviors. They are our “American Holy Trinity”. God the Father (Washington), God the Son (Lincoln, both Savior and Martyr) and God the Holy Ghost (Jefferson, worshipped for having inspired the birth of the Nation). Indeed, if we look up in the Capitol Rotunda, what do we see? A God-like George Washington looking at us from the Heavens.

Parts of the city of Washington are the functional equivalent of the Vatican for the Catholics or Mecca for the Muslims. Places of worship where perhaps we are also reminded of the lessons of democracy; but where we especially celebrate the “Mystery of American Renewal” (Bill Clinton’s words during his inaugural address) –as if it were a myth of Death and Resurrection.

So, if America is a “mystery” it is not part of the conscious experience. It is a miracle; an act of God. And the president must be a mix of a Biblical Prophet and the Roman Pontifex Maximus. As Prophet he leads. As Pontifex he celebrates, invokes and blesses.

Only in America, among the modern industrial democracies, do we find in the speeches of presidents so many invocations to God and his blessings. Imagine the French President routinely concluding a speech with the formula “God bless you and God bless France”. It would be odd, if not bizarre.

But not in America. We do have a special relationship with the Almighty who –as we can read on our dollar bills– “Annuit Coeptis“, (“Smiled on our Undertakings”) and it is “In God [that] We Trust”. From this vantage point, America is a mystical, rather than a political creation. This is not a state. For many at least, it is the New Jerusalem. As the Jews of old, we have a special Covenant with God and He will not let us down. In the hour of Great Peril he will send to us another Great Man. And this Hero may sacrifice himself in order to give us a better future. Thus Lincoln, and thus John and Bob Kennedy.

But the peculiar thing is that the celebrated heroes of our past certainly did not regard themselves as Gods. They were concerned members on their communities who acted to promote ideas which had gained wide currency among the educated elites of the late XVIII century. The concepts of individual freedom, representative government, tolerance and free expression were not conceived in America. America is unique in as much as these ideas managed to take firm roots here, while they never found sufficiently fertile ground where they have been produced –that is in the Old Continent.

Most fundamentally, the George Washingtons of the time understood that the fortunes of democratic government did not and do not rest on the extraordinary leadership capabilities of some philosopher-president; but in the mature civic spirit of the majority of the people whose thoughtful involvement in public affairs is the life blood of a republic. Indeed, a successful democracy is premised on responsible and thoughtful citizenry; citizens who first and foremost want to and can manage their own lives; citizens who are responsible members of their families and of their communities. The Founding Fathers understood that restraint and common sense were precious commodities, not to be taken for granted but absolutely necessary. Hence the healthy skepticism expressed by Publius in the celebrated Federalist Paper Number 51.

We instead seem to misunderstand a great deal about our history as a successful democracy. We attribute our glorious past to all-knowing demigods and our not so brilliant present to their absence from the scene. We have totally unrealistic ideas about what national leaders can do and thus we feel entitled to be constantly disappointed. We have silly love affairs with candidates and presidents only to discard them like yesterday’s newspaper because somehow they failed to make us dream as long as we wanted them to.

So, the political debate is disproportionately devoted to the symbolism of government rather than the substance and the consequences of governmental action. Electoral campaigns are circuses dominated by pollsters and image consultants with a silly chorus of a sensationalist media.

Ronald Reagan said that “It is morning in America” and America believed him; not because, upon careful consideration, we concluded that what he said was true; but because he said it well and with the right intonation and with the occasional tear in his eye which added credibility to his delivery.

All those who knew better were silenced by the chorus of silly adoration. Thus it was in bad taste to make an issue about the fact that president Reagan understood little about issues and that his misguided economic prejudices were contributing to the destabilization of our national finances. The people liked their Great Communicator and nobody seriously tried to tell them the truth.

George Bush Senior instead spoke with convoluted syntax, appeared uncertain about “the economy” and we fired him because we were told by the pundits that he lacked “vision”. Never mind that he won the Gulf War. The problem is that the economic recovery that was supposed to follow our victory did not materialize in time for the November 1992 elections. Never mind that every reasonable person knows that a president can do very little to control economic cycles. America felt very uncomfortable about its economy (later findings proved that the situation was not so horrible after all) and felt unhappy with a president who, when asked as to his plans, could only look embarrassed and mutter vague hopes that things somehow would adjust themselves. Since things did not get any better soon enough, (we are an impatient people, you know), we decided that we should try a different cure.

So, a crucial percentage of the American people, this bastion of rugged free enterprise, historically suspicious of government cures for economic ills, was sold in a matter of minutes to the idea that we, as a nation, were failing because we were the only major country lacking an “economic strategy”. Remember “the Economy- Stupid”? This was Bill Clinton’s main ammunition during the presidential campaign and the real winning point. All successful nations –explained super policy expert Bill Clinton– succeed because they have a “strategy”. Under the mindless and intellectually obtuse Republicans –added Professor Clinton– we failed to develop one, hence the lingering recession. Elect Clinton, implement the Bold New Strategy and everything will be fine.

Ipso facto.

Out went Bush, in came Clinton “The Leader with the Strategy”. At that time, nobody bothered to examine closely the premise laid out by Clinton: i.e. that centrally planned economic “strategies” are successful. Well, the record shows that most nations that tried to implement economic strategies (from the heavy duty Soviet style ones to the more modest “dirigiste” models like the French) failed miserably. West European Social Democracy, the well intentioned economic and social model of the 1960s and the 1970s, is now regarded as a monumental strategic failure which sapped the energies of European societies. But we never bother to look these facts up. As a nation, we become so absorbed with the latest slogan –as long as it is propounded with sincere conviction by the latest would-be Moses– that we do not bother to check the facts and the real experience of the others.

And so we live in ignorance of what government can do and what to expect from presidents. What is worse, many among the experts, the analysts, the pundits are unconscious victims of the same ignorance. Of course, at least some of them know better. But why be spoilers? No. The game has to continue. We cannot say that the Emperor has no Clothes. And, in this case, the Emperor is not the president. The Unclothed Emperor is a fickle people whose pulse we are constantly taking, with the help of the most sophisticated pollsters in the world. And yet we know very well that on most issues the opinions expressed in various polls are just epidermic moods of moody people; responses of the moment to the fad of the moment.

We are constantly asking Americans how they judge the performance of a president and then we sometimes see how the results of these polls become self-fulfilling prophecies. Yet, whenever we test the substantive knowledge of the same people about the actual actions of the administration –that is to say the facts on which they base their ratings on the president’s performance—quite often we discover significant ignorance. So, The People actually know little; yet somehow they have the gift that makes them able to discern a good president from a bad one. And the TV anchors who announce the results of these polls assume a grave intonation, as if they were reporting on the careful deliberations of the village elders, as opposed to the epidermic emotions of not so deeply informed people.

But the issue here is not who is to blame. The issue is that these attitudes about democratic government and our elected representatives show how dysfunctional our society is becoming. I say our “society” and not our “political system”, for the political system is the expression of the society and its level of maturity.

That having been said, what is to be done? There is no simple solution. The long term cure is education, education, education. And education goes beyond “information”. Civic Education involves, as a minimum, a basic grasp of where the healthy boundary between the personal and the public sphere in a democratic society should be. If most Americans understood this, and acted accordingly, we would see many of our “problems” in a far better perspective. We would then be self-guided as individuals. From government we would expect no miracles; only fairness aimed at giving everybody a good chance to participate and good administration.

Of course, this is a portrait of an ideal society in an ideal world. Still, this is the direction that we should aim for. Continuing to lull ourselves in our misguided fantasies about Saviors and Rescuers –Barak Obama being only the latest manifestation of this syndrome– will not improve our condition a bit.

“The Decline of America” Revisited

WASHINGTON – Remember Yale historian Paul Kennedy and his 1987 tome on “The Rise and Fall of the Great Powers”? At that time there was a lot of interest in this fairly comprehensive narrative focusing on how all major western powers, primarily because of the huge cost of maintaining their Empires, suffered progressive economic decline and eventual decay. Thus Spain –in Kennedy’s argument– thus Great Britain and thus – inevitably– the US. The book sparked a spirited debate about the future of the US as the leading power of the century. The combination of a sputtering economy, strong Japanese competition and raising security expenditures necessary to maintain the American Empire would lead to bankruptcy and thus to the inevitable –if sad—retreat from global ambitions. Kennedy’s work contributed to a new self-reflective atmosphere that gave rise, among other things, to efforts aimed at investigating the soundness of the main pillars that sustain the edifice of America’s might. Think tanks, the Congress, and the Federal Government launched studies, initiatives and task forces on “US Competitiveness” –or lack thereof. The newly formed bipartisan Concord Coalition started warning Americans as to the structural damage caused by runaway deficits due in large part to the unstoppable growth of spending on entitlement programs.

So, according to the conventional wisdom of the late 1980s, we were overstretched militarily because of the Cold War security commitments highlighted by the 300,000 troops permanently stationed in Europe, as our most visible contribution to NATO and by the questionable idea of spending billions of dollars on the Star Wars program, that is space based ballistic missile defenses. We had lost our edge in economic innovation. We were assaulted by the Japanese bulldozer from the East. This was the time, we should remember, in which the trade deficit was about Japan; while Japanese concerns had started a buying spree in America that, according to many, even serious, observers, had all the markings of a progressive take over of our economy. Meanwhile the “Europe 1992” agenda, the solemn commitment on the part of the then European Community to pull down residual internal barriers and create a brand new, vibrant market, seemed to foretell a new era of economic primacy for the Old Continent, engineered behind the walls of a “Fortress Europe” that –it was feared– would exclude Americans. Here at home, because of misguided fiscal policies and unhealthy personal spending habits, we –the Government and the individual citizens– were slowly but surely drowning in debt. That was the picture then. It was the widely shared notion that the economy was on the verge of collapse, especially after the mild recession of 1991 that propelled technocratic Bill Clinton and his panoply of new, original economic ideas (never really implemented, by the way) to the White House.

But, in the meantime, the unexpected happened –on many fronts. 1989 did not give us just the promise of German reunification. It was the first shock wave that signaled the collapse of the Soviet Empire and thus the end of the major threat to US security. The final demise of the biggest existential threat was the justification to significantly cut defense spending and international commitments in the 1990s. This dramatic change, combined with a resurgent faith in small government, especially after the republican revolution of 1994 masterminded by Newt Ginrich, meant that runaway federal spending could be contained.

At the same time, without the support of any particular blueprint devised in Washington, the information revolution was unfolding. Rather than creating a new economy, the massive adoption of IT by all businesses meant a massive leap forward in the competitiveness of the US economy. We had spectacular growth year after year, record low unemployment and high tax receipts that gave us for the first time in decades a federal budget surplus. At the same time, without the US lifting a finger, Japan, because of its internal social, rather than economic, contradictions, fizzled, while the predictions of the rise of a robust, innovative and economically powerful Europe proved to be quite wrong. And so, we had the roaring ‘90s: a prolonged period of American unchallenged economic primacy. The US was first in everything: innovation in high tech, creation of new employment, record productivity increases.

But it all seemed to have ended somewhat ignominiously with the beginning of the new millennium. We have had the dot.com bust, accompanied by the Enron, WorldCom, Adelphia and other well known corporate scandals which ushered the Wall Street contraction and the ensuing long bear market. The 9/11 attacks, occurring during this downward spiral certainly did not help.

And now, where are we now? There are disturbing signs that would indicate that Paul Kennedy and other were after all right in predicting decline. Only they were incorrect as to how close it was and what would cause it. The root cause is not “Imperial Overstretch”, but the erosion of US competitiveness due to lack of investments in both human capital and needed infrastructure, accompanied by the unstoppable growth of entitlement programs. Sure enough, at this time we also have a war. The prolonged Iraqi campaign has become stupendously expensive. But, regardless as to one’s own political opinion about the war, this commitment, in an as of itself, is economically affordable.

While a war and an increased Pentagon budget are a drain on public finances at the expense of productive investments, the real problems are in the same factors that were identified 20 years ago, at the time of the “competitiveness debate”, by most sensible analysts: a more and more expensive welfare state that cannot sustain itself financially, and the progressive erosion of the education advantage that made America the principal player in the knowledge economy. If we continue to follow the notion that large segments of the American society, mostly the elderly and the retirees, have an inherent right to subsidized benefits that represent an excessive drainage of national resources, the federal government, even assuming the ability to finance these obligations, will have nothing left for productive investments. The secondary public education system, in turn, provides mediocre graduates, while minorities, on balance, do a lot worse than the already low average. It is impossible to sustain this increasingly complex economy without a dramatic improvement in the quality of the labor force.

The fantastic explosion of the trade deficit is the manifestation of eroded competitiveness. The 40 billion dollar deficits that scared us about Japan in the 1980s are pocket change compared to the 220 plus billion that we have nowadays with China alone, (not to mention the increased cost of our energy habits: at 300 billion in 2006, higher than the cost of imports from China). 

Unfortunately, the argument on how to best rebalance our trade accounts has been successfully framed by a strange medley of simplistic romantics and demagogues who point the finger at the combined perils of free trade and outsourcing. By opening ourselves to foreign producers –so the refrain goes– we allow cheaper goods to come in. This means that US companies that have much higher costs go out of business or move overseas. Good American jobs go abroad because greedy corporations want to save money by having cheaper foreigners perform jobs previously held by higher paid Americans. The solutions advocated? Essentially close our borders, so that the jobs stay in and the foreign goods out. In this new era of global and irreversible interdependencies, the notion that this way we shall be able to regain, maintain and for ever keep our supposedly God given infinite prosperity is bizarre; but, nonetheless, it has strong emotional appeal.

However, if it is clearly futile to try and close our borders to keep cheap goods out or to prevent businesses from outsourcing, we still have a huge problem which is indeed caused by globalization. But not the globalization demonized by the protectionists. It is caused by the global spreading of the knowledge economy model developed first in America whose successful exploitation gave the US the edge for a number of years.

We have to come to terms with the fact that the genie of IT innovation has been out of the Silicon Valley bottle for a long, long time. We cannot restrict inventiveness and entrepreneurship –the key components of the American success story– to the American soil. The main ingredients of a knowledge based economy are transferable and so (despite copy cat failures and other clumsy attempts) they are transferred elsewhere today and more so in the intervening years.

True, the 1990s triumph of America’s reacquired competitiveness was due to a complex mix of factors that cannot all be easily reproduced. The lively, free wheeling, chaotic mixture of entrepreneurs, academics, venture capitalists and their interactions with established corporate entities that buy, absorb, invest in new ventures, as yet, has no equivalent elsewhere around the world, in terms of depth and scope.But some of its elements can be replicated. No doubt, by trial and error in time others will manage to produce adequately funded innovative clusters that will be able to quickly direct new discoveries to a hungry global marketplace.

The celebrated Bangalore example in India is illustrative. Leaving aside all other considerations, the Indians have managed to create and aggregate in productive clusters world class human capital (scientists, engineers, software programmers) and to harness it effectively in competitive IT enterprises. To keep things in perspective, we should remind ourselves that Bangalore is still mostly about outsourcing and not about innovation. Moreover, the whole Indian high tech phenomenon is only a small speck within a still primitive Indian economy which is constrained by inefficient administration and crumbling infrastructures. India has an enormous population that is still largely poor or very poor. So, the days of Indian supremacy are still in the distant future.

But Bangalore and other such examples around the world will multiply, as more and more people gain access to higher education, IT literacy and mundane computer and business skills that cannot be kept within the West and America. The very information revolution unleashed by the American genius becomes the vessel that greatly expedites the transfer of knowledge that will create new centers of excellence where none existed before. Furthermore, the Indian example proves that we do not need an economy that is overall highly developed to create islands of modernity that can compete on practically any level with counterparts in advanced economies. Indeed, centers of competitive high tech can be established even without the fertile ground of an already developed economy that has already successfully dealt with  macroeconomic issues.

These new enterprises, especially those established in business friendly developing countries where the cost of professional for many years to come will continue to be much lower than America’s, are bound to gain world market share, inevitably at our expense. If even a small fraction (as a percentage of the total population) of Indians and Chinese become good scientists, their absolute numbers will be sufficient to tip the balance. Our only hope to stay competitive is in continuing to invest in new technologies and new ideas so that superior innovative products and services will continue to be created in America.

But here we have a serious problem. Americans are so used to primacy that they do not believe that the ingredients that make this primacy possible need to be nurtured, refined and upgraded, especially now that we are confronted with new, capable competitors that have the added edge of a lower cost structure. (For instance, it has taken 20 years to the slow moving, no pun intended, automobile industry to have just recently what appears to be a collective awakening, with the active participation of the unions representing its thousands of workers. But it seems that only the specter of demise convinced the main players that dramatic cost cutting–be it salaries or health care benefits– is imperative in order to have a chance to compete. But, even if successfully implemented, these strategies are clearly not enough to get Detroit out of the woods. In the next few years we shall see whether the bitter cost cutting medicine will be accompanied by a new wave of creativity that is the real hope for recreating a competitive edge for this ailing sector). 

While discussions about the international economy abound, for the time being, we have not framed the debate in a way that will foster real progress. Unfortunately, to the extent that the general public has been brought into the conversation, it is fed gross distortions and oversimplifications pointing at the consequences of lost competitiveness, such as job losses. The conversation is mostly on allegedly bad trade policies and greedy corporations. If we could only change Washington’s direction on trade, all will be well. Indeed, the debate is mostly about identifying culprits and quick fixes. So, according to these critics, beyond the international trade policy incompetence (close to treasonous behavior), the enemies are the Asians, (yesterday Japan, today China) who do not play by the rules and the illegal immigrants who steal domestic jobs while depressing wages. This sort of populism may work with many constituencies in uncertain economic times; but it explains nothing about the causes of our ailments and its remedies would cure nothing.

The reality is that we have structural, systemic problems that need to be addressed now, so that we can begin to change course and hopefully improve our conditions for the long term. While the misbehavior of others is real (think of Chinese disregard for intellectual property rights and the ensuing flood of pirated software and counterfeit goods; think of the Mexican government actively encouraging the emigration to America of the country’s surplus labor), there are inherently domestic structural deficiences that slow down America and that have eroded its ability to compete. To name a few critical ones: a deteriorating education system, the unsustainable cost of the welfare state and the lack of a serious energy strategy.

Clearly the soft underbelly of America is a mediocre to bad education system right at the time when new, world class centers of higher learning are sprouting around the world. America for a long time nurtured domestic talent while, by design or by default, (think about the intellectual migration to America from Nazi occupied Europe), it was able to attract first class minds from around the world. After all, Albert Einstein, Enrico Fermi and Edward Teller were not Americans. But they were welcomed in America and the American intellectual and scientific environment was able to absorb this talent and greatly benefit from it. In more recent years there has been a significant influx of gifted Asians. But now the pull of America is not as compelling as it used to be in the light of the fact that good opportunities exist elsewhere.

At the same time, it is now apparent that the American public education system, the incubator that should nurture the future scientists, engineers and entrepreneurs is at best mediocre, deeply flawed in its worst components and certainly inadequate to create the world class work force that will have to compete on quality, as costs already work against us. The existence of several world class universities is not sufficient to guarantee that the broader US workforce will be able to compete with increasingly more sophisticated foreigners. A sub par worke force will make it difficult to compete, let alone strengthen, our positions in high value added strategic areas.

While it is hard to admit it, a huge chunk of the old manufacturing base of America is either gone or going. We lost a lot of steel, machine tools; we lost footwear, apparel; we have disturbing signs that we cannot keep up in automobiles. We have a battle unfolding in aerospace. Still, American success stories in valuable, technologically complex industries (think of GE, 3M, United Technologies, Boeing among many others) show that, despite higher labor cost, superior quality, when it can be reinforced by constant refinement, still counts.

By the same token, we still have an edge in services. But this is entirely dependent on the continuous waves of IT innovation. If we are no longer on the forefront of IT, because we can no longer compete with increasingly more competent but much cheaper Indians and Chinese, we have lost the competitiveness contest.

Much has been said about the increased welfare costs due to the demographic changes that America is experiencing, along with most other developed countries. The question is whether it is smart, in the long run, to have a central government whose main function is to distribute benefits at the cost of everything else. Even now, while immediate solvency is not an issue, the federal government devotes relatively smaller portions of its resources to productive investments, given the weight of the entitlement obligations. As we all know, in the future this is only going to get worse. It is understood that taking something away from people who believe that they have earned a partially subsidized old age is extremely hard. But there is an opportunity cost in spending most of our revenues on welfare and little on competitiveness enhancing investments. Unfortunately few people enumerate the thousand of research projects or new infrastructure that could be financed by the federal government, assuming a reduction in entitlement programs.

The energy picture is dismal. We have excessive consumption, little and declining production and increased dependence on imports that is financially burdensome, while it creates a serious strategic vulnerability. What we need is not just the tinkering provided by this or that pork laden energy bill; but a bold new energy strategy that would set realistic goals regarding alternatives to hydrocarbons, while actively discouraging consumption through revenue neutral gasoline taxes. In doing so, America would free itself from this straightjacket, while possibly becoming the world leader in all new technologies related to alternative energy.

But in all these areas: education, welfare reform and energy, while there is a debate and many have offered sensible solutions, we are far from having reached the deep understanding that is the prelude to decisive action. While many are worried, most believe that things are more or less fine and that we have enough slack to muddle through.

In hindsight, similar historic circumstances characterized by a passive attitude that in effects allows the sliding into decay (and here we go back to Paul Kennedy) are recognized as due to a state of mind of myopic denial and complacency of people who have lost their way. But usually this is the verdict of historians. And when they pronounce it, it is too late to change anything.

Modern Cost Effective Public Policy for America

By Paolo von Schirach

September 28, 2007

WASHINGTON – I was really hoping that former House Speaker Newt Gingrich would have entered the race for the Republican nomination and that he may have had a shot at the presidency. Apparently he decided otherwise. This was not an ideologically motivated, partisan wish for conservative leadership. This was and is about the hope that a credible public figure (Gingrich or someone with a similar approach) who has articulated and would push an agenda for the modernization of the state, for the introduction of viable technologies and cost effectiveness in public policy may bring fresh air in stale debates long on abstract ideological posturing and short on the need to drastically upgrade the effectiveness of the government’s tools. The tools (in terms of both institutions and technologies) are low quality and often obsolete. Without good tools we cannot implement anything meaningful.

Good government is about sound principles, of course. But, in the end, it is about the timely, cost effective, delivery of needed services. Whereas, amazingly, America is sorely deficient when it comes to modern tools necessary to plan and deliver basic public services. Whatever the reasons, two years after Katrina we still have not built adequate levees in New Orleans. We have collapsed bridges in Minnesota for lack of a system that would guarantee appropriate levels of care and repair of basic infrastructure. The Washington DC public school system not only fails to educate the children, but it does not even have the basic logistics to deliver badly needed pencils and books from a central warehouse to the classrooms.

In the country renowned for its innovative genius and technological advances –innovations that have led to a productivity revolution in all fields– the tools of public policy are horrendously outdated. Thus the ability to deliver high quality services is hampered. At the same time, because of consolidated, systemic inefficiencies, expectations of effectiveness on the part of the public have become surprisingly low. As people are used to public inefficiency, they have come to accept it as normal.

Here is a glaring example of inefficiency that could be easily remedied, assuming focus, will and better organization. Consider air traffic congestion and the reality of constant disruptions, more and more delays and mounting frustrations for the public that has emerged as a major national issue in recent months. President Bush, at a recent White House meeting aimed at addressing possible solutions, said, among other things, that, due to this mess, passengers are not treated fairly. This might suggest a focus on issues of improved customer relations for the airlines; such as providing timely information to customers about delays or compensating them adequately in case of severe travel disruptions.

While all this may help, this has little to do with the cause of the problem. The real issue is a stupendously obsolete air traffic control system incapable of coping with more and more flights. Why is it that we had to reach this unprecedented level of air gridlock to put forward a plan aimed at phasing in a new, more efficient space based system for air traffic control? And how long is it going to take to fully implement it? If the federal bureaucracy is expected to lead the phasing in of these new systems, it will be decades. Air traffic control management is a complex and delicate matter, but well within the technological know how of the United States of America.

And, equally important, why is it that we are unable to look at how to meet the needs of the traveling public in a broader context? The current problem is posited as: “More and more people are flying. How can we create a system that can accommodate these ever increasing volumes”? This is a good question. But it is incomplete, as we leave out of the equation other cost effective modalities of transportation that may be good in their own right, while they would help relieve at least some of the air congestion. In other words, flying is not the only good option.

Whatever the reasons, it is inconceivable that one of the most technologically advanced countries of the world has not managed to introduce high speed trains as a real cost effective alternative to air travel between relatively close large urban centers. For example, in this context of growing congestion in the air, especially in the North East, we have two airlines (Delta and US Air) that offer regular shuttle service between New York and Washington and between New York and Boston. The shuttle theoretically should be a convenient one hour flight. But we know that this is not so when we add the time to get to and from airports, security screenings and, most importantly these days, additional time wasted due to traffic congestion that delays departing and landing flights.

The existing, relatively fast, Acela trains between Washington and New York already cut down travel time to a level that is comparable to flight time plus airport transfers. Of course, significant investments would be necessary to build new tracks that would allow true high speed in the New York Washington corridor and increased passenger loads. But, even now, the case could be made that, as a matter of public policy, flights such as those between Washington and New York should be strongly discouraged, when good alternatives based on reasonably fast trains are available. It may not be much, but transferring the shuttle travelers to trains would help reduce congestion in the overcrowded air space of the New York area; while it would foster a more cost effective, more environmentally friendly, not to mention more pleasant, way to travel.

Further down the line, let us imagine a future in which most of the travel between the large urban centers of the North East, or along the coast of California, would take place via a network of high speed trains. This would significantly curtail congestion in the air, allowing airplanes to fulfill their true mission, that is, to take people to faraway places or to places that cannot be reached reasonably fast, in a cost effective way, through other means.

Of course, all this is complicated and quite expensive. Building new tracks in densely populated states would require significant up front capital investments; not to mention the legal complexities involved in the need to acquire the necessary tracts of land. But, however complicated, this is not an impossible idea and certainly not beyond the means of the world’s largest economy.

Yet, before even starting to think about efficient new modalities that could be made available to the traveling public, the current crop of policy-makers, faced with the task of confronting the probable resistance to change from organized lobbies, interest groups and bureaucratic inertia, have already given up, because leading on such  complex issues is just too hard.

This is why in this political season we would have needed someone like former Speaker Gingrich (no idea as to what his thinking may be on the specific issue of high speed trains) who seems to be willing to challenge the way we organize and deliver public services and rally the public behind the notion that, if we try, it is entirely possible to shake an outmoded, clumsy and inefficient way to conceive and conduct public policy.

Government “for the people”, beyond slogans and idealistic pronouncements aimed at stirring voters’ emotions at election time, in the end is quite simply about the delivery of high quality services and/or about creating a regulatory environment that induces the private sector to step in and do what is cost effective for the delivery of services useful for the society. The people of one of the most technologically advanced nations on earth are entitled to demand and get more value for their tax dollars.