US Foreign Policy in The Age of Penury

By Paolo von Schirach

August 29, 2009

WASHINGTON – Afghanistan is a huge mess. According to most informed experts, America, after its successful 2001 campaign that ousted the Taliban government, wasted more than six years doing almost nothing constructive over there; thus allowing the situation in a country terribly poor, terribly under resourced and chronically disorganized to fester and progressively deteriorate into real chaos. Opposition forces, Taliban and non Taliban, regrouped and became more aggressive. War Lords resurfaced. The opium cultivation and trade flourishes. The weak central government in Kabul lost control of at least forty per cent of the territory. Now, the resurgent Taliban and affiliates dominate in various provinces.

US-led reconstruction efforts have been misguided, poorly directed, and, on balance, ineffective in “winning hearts and minds”. The most recent Afghan presidential elections have been a messy affair. Whoever will win, the victory will appear suspect, given massive fraud, low turn out and the violence and intimidation that successfully prevented many people from voting in several provinces.

Of course, there is now a new US strategy, a renewed effort led by a credible counterinsurgency professional, General Stanley McChrystal, while former UN Ambassador Richard Holbrooke is now a high profile special envoy to the region. And finally, President Barack Obama himself clearly indicated in policy speeches that America will not let go.

More troops have been deployed to Afghanistan, with more to come. The civilian side of the operation will also be both radically overhauled and enhanced. USAID is now engaged in massive recruiting, in order to have a “civilian surge” that will add badly needed expertise on the ground.

So, can America finally get it right and “fix Afghanistan”? Well, the intention appears to be there. Actions have been taken and they seem credible –for now. So, reviewing these policy shifts, can we say that now, finally, everything is under control? Can we safely blame the Bush administration for these years of almost criminal neglect that allowed such a dangerous deterioration at every level?

Yes and no. It is a tricky situation. While the will may be there, in plain language there is no real money to pay for any of this. More broadly,  Afghanistan will give us the measure of America’s ability to conduct a major, multi-faceted international security and reconstruction effort in this new and in many ways unprecedented era of deep fiscal distress. All we are doing or planning to do in Afghanistan will have to rely on borrowed funds, just as most other governmental operations. Is this sustainable? And, if so, for how long? Of course, there is nothing new in financing a war through public debt. What is new here is that we are financing “everything” through debt and thus foreign military operations may soon be viewed as luxuries that we can no longer afford.

Regarding Afghanistan, the willingness to carry on seems to be there. But America’s long term staying power is another matter altogether, as it is contingent on two resources: one uncertain (will) and the other (cash) in short supply. The first one is subjective. It has to do with the actual resolve and willingness to see this through. Bloody counterinsurgency in a primitive and instinctively hostile country is difficult business any day. “Victory”, even in the most modest definition of the term, will require several years. While experts declare confidently that America’s resolve will carry into 2010, as Obama and the Democratic Party will need to show a united front on this “war of necessity” before the mid-term elections, it is quite obvious that we need a lot more than one year to fix this. Will the political resolve last beyond November 2010? Who knows….

And political resolve in front of uncertainty and mounting casualties will be affected by the other issue not at all directly connected to the war effort but very likely to affect it and indeed determine its long term viability. And the issue is financial resources –or lack thereof.

To put it simply: will the continuing US fiscal crisis –that is our huge and growing public debt– dampen America’s ability to conduct protracted foreign operations –operations that, important as they may be, have not been presented as existential threats?

At some point, when there is no money, something has to fall off the table. Foreign policy interests, and Afghanistan is a key one right now, are vulnerable; unless, as I said above, there is a consensus that this war is of vital importance to America’s survival. Of course, the Obama administration has correctly pointed out that a resurgent Taliban may once again offer sanctuary to Islamic fundamentalists who may use this base as a training ground and as a launching pad for more attacks against the US –just like 9/11. But, although the 2001 connection between the Taliban, Osama bin Laden and the Twin Towers is established; it is also getting old and, in the case of many people, probably stale if not altogether forgotten. So, a “Beware of another 9/11” war cry may not stiffen many spines at a time in which public opinion and law makers are concerned with foreclosures, unemployment and cuts in basic domestic services.

So, the question is: beyond the mid-term elections of 2010, will this administration have the ability to carry public opinion behind a war that is going to be long, bloody and costly; while America has to deal with this immense fiscal hole? The optimists assert that the cost of the war effort in Afghanistan, in dollar terms, amounts almost to a small rounding error, if compared to the size of the overall budget deficit. They say that, being in the hole for a trillion and a half or for a trillion and 600 billion are not that different; and so lack of money should not constitute an impediment to continuing operations. This may very well be true in the short term. This is a very fluid environment in which the Democrats solidly control power; while the Republican opposition is disorganized and unfocused and certainly at this point reluctant to attack the president on national security issues. But what will happen in a few years is anybody’s guess.

The simple point is that history shows that a Great Power experiencing terminal loss of economic might simply ceases to be e Great Power. Insolvency means that ambitions need to be scaled back. All sorts of face saving rationalizations may be devised to justify retreat; but retreat it will be, as lack of money, in the end is the most critical variable affecting the ability to project power and influence.

In the American Century, America did many things abroad. Many of them wrong or ill advised. But defeat, when it came, was political; not economic. We did not leave Viet Nam because we were poor. We left because the war was poorly conceived, horribly executed and extremely unpopular at home.

From now on, unless the relative impoverishment of America can be reversed, money increasingly will become an issue. On top of “Can we win this one?” others will add “Can we afford this one?” And this is new for America. Whether the issue on the table will be Afghanistan –and if are serious about it, it will have to be—or something else, the ability to fund military and other foreign operation on the scale we are used to will become a subject for increasingly heated debate.

Politics is always about the allocation of scarce resources. But, as the already scarce resources shrink significantly, the fight for a piece of them will become more intense and the strongest constituencies will win. Foreign and security policies, lacking a direct attack against the US, will be shortchanged. The open question is “how much”. In the case of Afghanistan it is easy enough for politicians to redefine success down.

The “De Luxe” outcome (whatever time it takes) would be Afghanistan as a successful democracy well on its way to economic development, with education and jobs available for most. Whereas, the “Low Budget” definition of victory is the acceptance of a weak and corrupt central government; cutting deals with local war lords; paying them off so that they will do the dirty work of keeping the Taliban away and poppy fields down to a more tolerable level.

Afghanistan this way will stay poor and messy, but our minimal goal of sanctuary denial to the Taliban may have been achieved, at least for a while. And if the Taliban will not give up? Well, in this case we shall revisit all this when this may happen. And guess what: uneasiness about an open ended long term commitment to Afghanistan (pointing to the “Low Budget” scenario as the direction we may be headed to) is already surfacing. Russ Feingold, a liberal Democratic Senator from Wisconsin, expressed concerns in an editorial in The Wall Street Journal, (“The Road Home from Afghanistan”, August 29-30, 2009). Depending on how things go, concerns can morph into outcries and vocal opposition.

So, depending on how much political will and how much money we have in hand, we may have to redefine our goals. My prediction is that, just like in the case of Britain and France after WWII, we shall redefine down “the national interest” so that it will be commensurate to how much cash is actually in the register.

And this de facto America retreat may be a real problem, not just for America; but for the world. As clumsy and misguided as America may have been in the conduct of its foreign and security policies, it is hard to believe that there are better under studies ready to take over and do better.

But how bad is the economic and consequently fiscal picture, the picture on which our future as a Super Power, including the conduct of our military and civilian operations in Afghanistan, depends so heavily?

So far the energies of the Obama administration have been focused mostly on containing the damage of the domestic economic crisis and on the complex battle to get some sort of health care reform passed.  But, as economists discuss all this, the real focus of Government action has been, not so much on investments in new growth, but on measures aimed at alleviating the pain. And these transfer payments, while important in supplementing depleted family finances, cost money, thus adding to our debt, as we wait for the recovery to take hold. While the Government clearly wants a stronger economy, a Democratic president and a Democratic Congress right now are bent on spending more money to help those mostly in need. So, the focus is on aid to the poor, unemployment compensation and, of course, extending health care coverage, among other things.

And almost all the other measures have consisted in spending massive amounts of money with the aim of fixing and stabilizing sectors in crisis. The banking sector is no longer sinking but it is still taking in water; as evidenced by the rapid depletion of the FDIC bank deposits insurance funds dedicated to guaranteeing depositors in case their bank goes under. Well, plenty of banks have gone under and many more are likely to follow. So, although we may not have more epic disasters like another Lehman Brothers or the danger of Citi requiring another major capital injection, things are still dicey. Then we have, of course, the gigantic auto rescue plan. And it will take years to see what will be the viability of the re-born General Motors.

All in all, the economic news is no longer dramatic; but the picture is hardly inspiring. There are cheerleaders who proclaim that we have touched bottom and that things are looking good, witness the nice performance of the stock market in the last few months. But a more realistic assessment would tell us that, while we may have indeed successfully averted disaster and a real depression, we are still sick, very sick. The recovery will be slow, with lots of uncertainties; while the bill for this gigantic rescue effort is massive. Of course, when you just managed to avoid death, the cost of care may not be your primary concern. But, as soon as life will get back to something resembling normalcy, the financial and fiscal picture will come to the fore. How are we going to pay for all this?

In the meantime, and this is the basic proposition I am making here, as we are trying to fix the mess and as we lick our wounds, nobody has really tried to gauge the impact of this epochal economic disaster on America’s future standing in the world.

Until the financial tsunami hit us in 2007 and 2008 we were “the” Superpower. Not just militarily but also financially and economically. While there were worrisome trends, such as a chronic trade and balance of payment deficit, America’s policies were backed by the incredible size of the economy and by the almost unsurpassed ability of American firms to reinvent themselves, to innovate and add value. America’s might was about aircraft carriers and air born troops, yes. But behind these assets stood Wall Street, Silicon Valley, a vast and world dominant information ad communication technology sector, 3M, General Electric, United Technologies, Pfizer, Du Pont, AIG and, once upon a time, mighty Detroit. America had most of “everything”: Olympic medals, record numbers of patents, Nobel Prize winners, billionaires, state of the art technologies, substantial investments in R&D.

Now we still have the largest military in the world, but neither we nor the rest of the world can be too sure of the size and strength of the economy that stands behind them. And, whatever the assessment of the current situation may be, nobody knows if our predicament is temporary or the inception of a terminal illness. Clearly, longer term, America’s place in the world will be determined precisely by such a trend. If we are on our way down economically, there is no way that we shall be able to sustain foreign policy commitments and the assets and the hardware needed to secure them –and that includes whatever we may wish to do in Afghanistan.

It was cheerfully said at the very beginning of the Obama administration that, while everybody agreed that America needed a drastic Government cash injection, the same sharp stewards of the economy were fully aware that they needed to put together very soon a credible plan that would show the determination to reduce public spending and the federal deficit in the long term. In other words: shock therapy now; followed however by fiscal sobriety later on, in order to prove to the international financial markets that America is not Mexico or Argentina.

And these statements regarding future policies were very wise. As a superpower we should really care about safeguarding the international perception of our ability to continue to be an economic powerhouse; because our ability to project power rests on the resources provided by a large and dynamic economy. So, this was the public relations pitch at the time:

“Listen up, World. OK, we had a bad patch; a very bad patch….But, hey, we are Americans. True to form, we shall pull ourselves together and we shall do whatever we need to do, not only to get back on our feet, but to beat expectations in doing so, showing you, the World, once more, that one should never underestimate American ingenuity, fortitude and resilience”.

Alright, this is what they said; and we believed it. The trouble is that this is not going to happen as announced. At least not within the initially envisaged time frame. As always, things turned out to be more complex and more difficult than initially estimated. Deep, deep trouble with the financial system. Tight credit conditions for many businesses still delay new investments. A deep housing crisis. Worse than imagined unemployment. And, worst of all, millions of consumers in tatters. Millions are unemployed. Many more millions have no cash left. Thus they cannot make the economic wheels turn. No cash equals not many purchases and thus anemic businesses.

Gigantic Government spending thus far has prevented collapse –and there is wide agreement that swift and massive action was necessary. The issue now is how much more do we need to throw into the pot and for how long more. Clearly no one wants to pull the plug too soon, lest the whole recovery would melt and we would have to start all over. But the Washington insiders along with Wall Street and international markets are also fully aware that the more we spend, the more debt we pile up and the longer it will take later on to reverse course and engineer a credible debt reduction strategy that will prove that America is both willing and capable to become once more fiscally and financially sound.

And with fiscal soundness, as we said, we regain flexibility and options in matters that are important, even though not immediately threatening, such as insurgencies in faraway places like Afghanistan. But in the meantime, at least for now, this obvious correlation between cash in hand and ability to conduct costly operations is virtually ignored. Nobody is commenting on the impact of our dire fiscal picture on the conduct of US foreign and security policies. In other words, given our concentration on the domestic agenda, nobody has put forward the following difficult question: “With what kind of resources can a superpower horribly in debt continue pursuing interests that may be vital and there again may not be, depending on how we look at them”? Can you exert power when everybody knows that, yes, you have the biggest war machine in the world, but financed with borrowed money? They can see your hardware and your marines. But at least some of them will start calculating how many more years of this you can afford, given the size of your fiscal burden.

As I said, at the moment, this issue is still under the radar. And, reviewing the international political scenario, there are not that many candidates who, contemplating America’s implosion, can credibly assert the mantle of international leadership. Certainly not Europe which does not have the inclination. Japan is not doing so well either. A vastly diminished Russia may have the desire; but not the matching capabilities. Emerging and more confident China is another matter, of course. But it will take a while, assuming its ability to sustain growth and social cohesion going forward.

Any dispassionate observer should conclude that America’s pre-eminence, despite many failures, on balance is a good thing. The problem is that we do not know if it will be possible to emerge from this horrendous economic disaster with genuine new strength and confidence. The world should hope that we will, as any aspiring world leaders are unlikely to do better than the clumsy –at times both presumptuous and naïve– but basically good United States of America.

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