Normative Narratives

Monthly Archives: June 2013


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Conflict Watch: In Africa, Preventative Peacebuilding Has It’s Day (Years? Decades?)

A While back, I wrote about the potential benefits of scaling up preventative peacebuilding programs globally. Rooted in protracted social conflict (PSC) theory, preventative peacebuilding aims at addressing the root causes of the majority of intrastate conflict, by addressing human rights violations that lead to violence before a conflict emerges. While this approach obviously has certain limitations, foremost of which is that it is completely ineffective in resolving an ongoing conflict (such as the Syrian Civil War), it has considerable benefits in situations where tensions are escalating but large-scale violent conflict has not yet enveloped the country (think present day Egypt).

A bit of background on PSC: Most new wars can be explained by Edward Azar’s theory of Protracted Social Conflict (PSC). According to Azar,”deprivation of human needs is the underlying source of PSC“. The sources, and therefore solutions to PSC often lay within a state, rather than across state borders, although this is not always the case, particularly in the context of regional insecurity. PSC also shifted some of the focus away from overtly violent conflicts, towards identifying potential future conflict zones based on underlying humanitarian grievances.

PSC theory applied in another context connects human rights violations, conflict, and terrorism. Human rights violations lead to conflict as PSC presumes. When the government is unable to provide basic services and security to it citizens (or in some situations itself perpetuates human rights violations and insecurity), well funded extremist groups can fill this void, providing security, goods and services in exchange for goodwill, legitimacy, and cover (this is essentially how the Syrian Civil War has evolved). By empowering people and building resilient nations (a little UNDP plug), conflicts can be avoided and the breeding grounds for terrorism salted.

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It seems as if world leaders have been convinced by PSC theory, and are willing to try putting money into preventative peacebuilding operations in Africa–ground-zero for human rights violations and intrastate conflict (Original article):

“This fall, the United States and Niger will bring together in that West African nation police officers, customs inspectors and other authorities from a half-dozen countries in the region to hone their collective skills in securing lightly guarded borders against heavily armed traffickers and terrorists.”

“Denmark has already forged a partnership with Burkina Faso to combat violent extremism, and backed it up with a war chest of $22 million over five years aimed at stifling the root causes of terrorism before they can bloom.”

“The two-day meeting here in this seaside city was organized by the Global Counterterrorism Forum, an organization of 29 countries and the European Union created two years ago with the State Department’s support to act as a clearinghouse of ideas and actions for civilian counterterrorism specialists.

One of the forum’s five areas of focus is the Sahel, with wealthier Western, Middle Eastern and Asian nations partnering with some of the continent’s poorest countries to address a range of issues. In this week’s closed meetings, officials discussed border surveillance, enhanced intelligence and police cooperation, the rule of law, arms trafficking and undercutting terrorists’ financial networks, according to a conference agenda and interviews with more than a dozen participants.

‘What’s encouraging is that the regional countries here recognize what kind of assistance they need and are able to define that’ said Michele Coduri, chief of the Swiss Foreign Ministry’s international security section. ‘That’s not always been the case.’

“A senior Malian official told the delegates that the Malian authorities had seized many suspected jihadists in the recent fighting. But he said the Malian military and police were not practiced in collecting evidence for criminal court proceedings, according to participants. As a result, only a handful of extremists have been prosecuted, he said.

‘These states need to build counterterrorism policies within legal frameworks,’ said Justin H. Siberell, a State Department counterterrorism specialist who led the American delegation. ‘Still, people feel a sense of urgency that these kind of things have to start happening.'”

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It is heartening to see the developing and developed world working together to tackle the problem of terrorism and its underlying causes, as global security is the definition of a global public good (everyone benefits from it, therefore rife with “free-rider problems“, which seem to have been partially averted due to the seriousness and immediate impacts of the issues at hand, as opposed to say climate change which is a serious concern but not as immediate a threat). Conflict undermines the Rule of law and democracy, and inhibits economic and human development. Peace is a necessary precondition for sustainable human development.

It seems that the concept of “common but differentiated responsibilities” is starting to catch-on in fields other than climate change. Western powers, realizing that foreign intervention is extremely costly and only incites further anti-Western sentiments (essentially adding fuel to the jihad fire), and that the results are unsustainable. By having regional forces fighting extremist factions, backed by Western intelligence, weaponry, and technical assistance, a more sustainable and inclusive global security balance emerges. Since everyone will have an important role to play in global security initiatives, a less imperialistic and more democratic decision making process should also follow this approach. Coordinated military operations could also help build the relationships needed for greater economic and social policy coherence at the international level.

It will ultimately be difficult to assess the effects of this program for a number of reasons. For one, the stated goals are long term and preventative–on a certain level it is impossible to say whether conflict did / didn’t occur due to these programs, as there are so many variables at play. Therefore, in order to test the efficacy of this project, I think we will ultimately have to look past just the security outcomes in Africa (while also still considering these as well). How this project affects overall standard of living, freedoms, and happiness in the region will ultimately be the yardstick by which we should judge this program. While this project is designed as a military endeavor, it is in reality a human development initiative.

I can’t help but think that this is the type of news that, while somewhat off the mainstream radar now, will in the future be credited with drastically changing the world for the better. I sure hope I’m right…

 

 


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Economic Outlook: European Youth Unemployment, Public-Private Partnerships and the “Magic” of Fiscal Stimulus

Indepensible Taxing and Spending

Original Articles:

Reuters

“European leaders agreed on new steps to fight youth unemployment and promote lending to credit-starved small business on Thursday after deals on banking resolution and the long-term EU budget gave their summit a much needed lift.

The 27 leaders resolved to spend 6 billion euros over the next two years to support job creation, training and apprenticeships for young people, and to raid unspent EU budget funds to keep the effort going thereafter.

Critics say the money is a drop in the ocean with more than 19 million people unemployed in the EU, and more than half of all young people under 25 without a job in Spain and Greece.”

“Separately, negotiators for the European Parliament, the European Commission and EU member governments clinched a deal on a 960 billion euro ($1.25 trillion) seven-year budget for the bloc for the period 2014-20, ending months of squabbling.”

“The leaders unanimously endorsed the agreement, EU Council President Herman Van Rompuy said, overcoming a last minute snag over Britain’s rebate, which will remain intact. The European Parliament must approve the deal next month so the new budget can take effect next January.

The banking resolution agreement designed to shield European taxpayers from having to foot the bill for rescuing troubled banks will be implemented on a national basis from 2018.

It lays the ground for a single system to resolve failed banks in the euro zone and the 27-nation EU, the second stage of what policymakers call a European banking union, meant to strengthen supervision and stability of the financial sector.”

“Most of Europe has been either in recession or on the brink for the past three years, while unemployment has steadily risen. EU unemployment now stands at 11 percent, the highest since records began, with youth unemployment a particular problem, especially in Spain, Greece, Italy, Portugal and Cyprus.

The new EU fund will back a “youth employment initiative” that would offer people under 25 a promise of a job, training or apprenticeship within four months of leaving education or becoming unemployed.

Politicians and sociologists are worried that extended unemployment for young Europeans will lead to a “lost generation” that never gets fully incorporated into economic life, with deep psychological and financial implications.”

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NYT

“The European Union may soon have a new budget — including the first cut to spending in its history — after a surprise breakthrough deal on Thursday.”

“The budget still needs final approval by the European Parliament, but that is looking more likely thanks to this agreement. The European Parliament president, Martin Schulz, called the deal “acceptable” and said he was optimistic that he would have a majority of Parliament members backing it at a vote next week.”

“Separate from national spending, the budget is designed in part to balance out the economic development of its members by giving funding to poorer countries. The European Union has funded thousands of infrastructure and capital projects over the years, from the installation of broadband networks to the upgrade of road networks.

The budget also includes items meant to generate economic growth, like research and development and a new, more accurate satellite navigation system. It also funds regulation and administration in such areas as mergers and competition, the review of national budgets to ensure they do not include excessive deficits, and banking supervision.

If the European Union fails to get a seven-year deal passed by Parliament before the end of the year, the bloc would have to revert to annual budgets, which would make long-term planning difficult.”

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It seems as if the leaders of the European Union–much of which has been mired by historically high unemployment and stagnant growth / recession since 2008–are finally realizing that greater fiscal coordination is needed in order to sustain the Monetary Union.

While it is true that the 7 year, 960 billion euro budget proposal represents an austerity program, in reality coming to an agreement creates the certainty and stability needed for businesses to make long term decisions (and thereby stimulating the economy more as opposed to hoarding cash for instance). It also allows for targeted long term spending, as opposed to a year-by-year budget which would complicate meaningful long-term investments in human and physical capital.

By concentrating on lower income European countries, the European Union will be picking the “low hanging fruit”, realizing a greater return on investment as these countries grow at faster rates. As these countries fully modernize, social spending will go down and new markets will open up, stimulating aggregate demand in the European Union as a whole.

In countries where such “low hanging fruit” does not exist, more specialized growth-targeting projects will help Europe’s higher income countries stay competitive in cutting edge fields going forward.

The plan also sets aside funding for administrative expenses, which will be important in ensuring compliance and accountability from the financial industries / MNCs (which is itself an important aspect in correcting Europe’s fiscal outlook). Managing too-big-too-fail financial institutions and tax evasions / illicit financial flows will be the two most important regulatory steps the EU can take to hold the ultra-wealthy accountable for their role in the current economic crisis and help prevent future crises.

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Targeting youth unemployment has particularly significant implications for sustainable growth in Europe. While it is true $ 6 billion is not a lot of money, I believe that this small “drop in the bucket” can have a large impact. The reason for this optimism is the ability to augment public spending through “public-private partnerships” (PPP).

Public-private partnerships are particularly suited for targeting youth unemployment. The private sector is uniquely positioned to give insight into exactly what skills young people will need for the jobs of today and tomorrow. The government is uniquely positioned to implement these programs into school curricula and unemployment conditions–targeting non-workers with skills needed to obtain jobs. The question is how much money can $6 billion in public investment leverage in private investment?

While there is no exact formula, at the ECOSOC Partnerships forum this past April, Mr. Chirstian Friis Bach, the Minister for Economic Development Coordination in Denmark, told the audience (including myself) how he was able to leverage over 500 million euros in private money from 40 million euros in public investment for various sustainable development initiatives. While the scale is not the same (40 million v. 6 billion initial public investment), this still suggests that leveraging a few hundred to a thousand percent in private funding is not an unrealistic expectation–especially considering the importance of Europe’s youth as a future employment pool / consumption engine, and evidence of large cash reserves held by MNCs.

As the yearly ECOSOC forum in Geneva kicks off July 1st, a golden opportunity presents itself to frame this youth-employment initiative as a large scale public-private partnership. If that $6 billion turns into $60 billion, suddenly that “drop in the ocean” represents a much more meaningful investment.

There is also the importance of proving to employers that the youth is ready and able to work. Employers may believe young people are unemployed because they are lazy or incompetent, leading to the passing over of an otherwise qualified younger person for an older more experienced worker–youth uneployment becomes a self-fulfilling prophecy. If the youth employment program can show that young people indeed posses the skills, passion, energy and innovative ideas needed to be productive workers, then young people will be able to shed the negative stigmas associated with unemployment.

As youth salaries and consumption increase aggregate demand, businesses will have to expand to meet that demand, creating even more jobs which would be more likely to be filled by younger candidates (an example of how the fiscal multiplier is currently >1, as public investment will not crowd out private investment but rather they are be mutually reinforcing).

The Great Recession has turned into a full blown economic Depression throughout much of Europe. To address this, fewer public funds must be channeled in a more concentrated way and supplemented by private funds. Governments bailed-out large private sector actors in the wake of the Great Recession because they understood the interdependence of people, government and the private sector. Now it is time for the private sector to return the favor by augmenting sustainable development initiatives.

To be clear, PPPs are not a call for charity–they represent mutually beneficial and sustainable economic arrangements. Businesses need future employees and customers, governments need non-dependent tax payers, and young people need jobs.


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Transparency Report: Unrest in Egypt and The Democratic Process

Original article:

“On Friday, Mursi’s Muslim Brotherhood and their allies will gather in Cairo, as will some opposition groups. On Sunday, the opposition hopes millions will heed the call, a year to the day since Mursi became Egypt’s first freely elected leader.

‘I am more determined than ever to go out on June 30 to demand the removal of an absolutely irresponsible president,’ Khaled Dawoud, spokesman for a coalition of liberal parties, said on Thursday after Mursi’s marathon late-night address.

It is hard to gauge how many may turn out but much of the population, even those sympathetic to Islamic ideas, are deeply frustrated by economic slump and many blame the government.”

“Mursi described his opponents as “enemies” and “saboteurs” loyal to the ousted dictator, whose “corruption” had thwarted him and driven the economy into crisis, though he conceded he had made some mistakes and promised reforms.

He also offered talks on “national reconciliation” and changes to a controversial new constitution to end the polarization and paralysis that he said threatened democracy.

Opponents dismissed that as nothing new. Mursi and his allies complain that their opponents, defeated by the highly mobilized Islamist groups in a series of elections last year, are bad losers who have repeatedly snubbed offers to cooperate.”

‘Our demand was early presidential elections and since that was not addressed anywhere in the speech then our response will be on the streets on June 30,’ said Mahmoud Badr, the young journalist behind a petition which has garnered millions of signatures calling on Mursi to quit. ‘I hope he’ll be watching.'”

“Warning ‘violence will only lead to violence’, Mursi urged his opponents to focus on parliamentary elections, which may be held this year, rather than on “undemocratic” demands to overturn his election on the streets: ‘I say to the opposition, the road to change is clear,’ he said. ‘Our hands are extended.'”

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I have written many times about the democratic experiment in Egypt here at NN. Egypt is an interesting country, it is the most populous country in the Middle-East, and has a long history of cooperation with Western powers (the U.S. funds the Egyptian military). Egypt’s armed forces will play a crucial role in preventing the Syrian Civil War from turning into a regional conflict (and in maintaining regional security in general). While Turkey is another example of an Islamic state attempting to reconcile democracy and traditional Islamic values, there is something about Egypt’s geographical position that makes it seem like a more robust test of the compatibility of the two ideologies (perhaps Turkey seems European-ized–it is actually seeking EU membership–which may isolate it from more conservative Muslim’s, whereas Egypt is in Africa, which could be more agreeable to those same factions).

For these reasons, alongside the human rights and modernization implications of effective democratic governance, I have been cheering Morsi on in his attempt to bring democracy to Egypt. Sometimes I have been too understanding; Morsi has made mistakes along the way, including targeted violations of the civil rights of his opponents in the name of national security / democracy. President Morsi has owned up to these mistakes, and now seems to have learned what it takes to lead an effective democracy.

Transparency, rule of law, accountability / anti-corruption, personal and societal security, an inclusive and participatory governing process, and the indiscriminate protection of human rights are among the most important aspects of an effective democracy. Morsi has (hopefully) learned that seeking to strengthen the legitimacy of his regime by violating these aspects of democracy, even in the name of national security, is counter-productive. Self-defense is fine, but short of that the opposition must be allowed to assemble. In a religious dictatorship the opposition are terrorists / saboteurs / infidels; in an effective democracy they are simply the opposing political party (again, so long as they use political and not military means to advance their goals). 

So now we have two sides at odds, and in this case I must again take the side of President Morsi, and here is why:

President Morsi has proposed national reconciliation efforts, including making amendments to the constitution (which was open for vote to begin with, the opposition simply refused to participate). He has also proposed the opposition take part in parliamentary elections. Judicial independence has been tricky, as many of the judges in Egypt were assigned under former dictator Hosni Mubarak (packing the courts with his own judges would not ease concerns of a Morsi power-grab either; anyone he appoints, regardless of his background, would be seen by his opponents only as a “Morsi appointee”. Nevertheless, Morsi has offered basically every legitimate democratic avenue available to address the concerns of his opposition.

The opposition, on the other hand, has refused to take part in the democratic process. It will be satisfied with nothing short of Morsi’s removal from office, calling for early presidential elections. Is that any way to establish the credibility of a brand new democratic process, by tossing that process aside instead of trying to work within it? Early elections would undermine the future of democracy in Egypt by setting a bad precedent.

The opposition also continues to emphasize the “15 million signatures it has calling for Morsi’s removal“. Last time I checked, there were 83 million Egyptians, more than half of which are over the legal voting age. Since when has 30-40% of a population been enough to be considered national consensus. If anything the 15 million signature mark–if it is even legitimate–suggests a majority of Egyptians want an end of the political turmoil (with Morsi remaining in power), in order to begin addressing the deteriorating economic and social conditions in Egypt.

So this minority, which refuses to take part in the democratic process, is demanding a step that ultimately undermines the sustainability of democracy in Egypt–thanks but not thanks, I will stick with supporting the imperfect Morsi regime which is at least attempting to make democracy work.

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This is not to say that Morsi cannot do things better to ease peoples fears, but the opposition must be willing to come to the table and compromise through democratic channels. One such channel is the National Council For Human Rights in Egypt. Being an “A” rated NHRI (national human rights institution) according to the UN International Coordinating Committee (ICC), the Egyptian council should be a trusted institution in holding the Morsi regime accountable for its human rights duties not only to its constituents but to all Egyptians.

The issue is that the Egyptian NCHR was last reviewed in 2010 (before Morsi came to power), and is not scheduled to be reviewed again until late 2014. In other words, the NHRC has not been reviewed since Morsi has come to power.

The only information I was able to find on the role of the Egyptian NCHR during the Morsi regime comes from the UN Sixty-seventh General Assembly Third Committee 37th Meeting (PM) (November 14th 2012):

“MONZER FATHI SELIM (Egypt) said the Council played an important role in supporting States in their primary responsibility to protect all human rights, and it should work to ensure the realization of those rights with full respect to the principles of sovereignty and non-interference in order to avoid the politicization, selectivity and double standards that affected its predecessor.  The report reaffirmed the Council’s important role in building national capacities, monitoring human rights, protecting the human rights of Palestinians and strengthening efforts to combat racism, among other things.”

So according to the Egyptian NHRC, its ability to monitor human rights issues has not be compromised since Morsi took office. However, one could argue there may be a conflict of interest if a Morsi crony is running the show. Therefore, Morsi should invite Human Rights Watch, The Center for Economic and Social Rights, Transparency International–literally every and any intentional human rights based organization that wishes to come–to verify the ability of the NHRC to fulfill its functions. Morsi should also extend an invitation to the ICC to perform a formal UN Universal Periodic Review (UPR) in the immediate future, instead of waiting almost a year and a half for the scheduled review.

If Morsi takes these steps, it should separate the legitimate opposition from the Mubarak-era vested interests who want Morsi gone for illegitimate reasons. Additionally, the Morsi regime must stop shooting itself in the foot by denying people their human rights, as this feeds into the claims of the opposition and hurts his regimes legitimacy (which it gained by being the first democratically elected regime in modern Egypt).

There are both domestic and international reasons I want democracy to work in Egypt. Have my own desires clouded my judgment? I think I have been pretty even handed in this analysis, but as always I would like the hear what my readers have to think in the comment section!


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Conflict Watch: (In Syria) Things Will Get Worse Before They Get Better

Perhaps nowhere does this old saying ring as true as in present day Syria. Two weeks ago I wrote about “The Deteriorating Syrian Civil War and Humanitarian Crisis” and since then things have not gotten any better on the ground. However, it seems that Western powers are finally organizing the support that legitimate factions of the Syrian opposition need to present a real threat to the Assad regime without relying on the help of extremist / terrorist organizations:

“Ministers from 11 countries including the United States, European and regional Sunni Muslim powers, held talks that Washington said should commit participants to direct all aid through the Western-backed Supreme Military Council, which it hopes can offset the growing power of jihadist rebel forces.”

“The meeting in Qatar brings together ministers of countries that support the anti-Assad rebels – France, Germany, Egypt, Italy, Jordan, Qatar, Saudi Arabia, Turkey, United Arab Emirates, Britain and the United States.”

“Qatar’s Prime Minister Sheikh Hamad bin Jassim al-Thani, whose country has been one of the most open backers of the anti-Assad rebels, said that supplying them with weapons was the only way to resolve the conflict.

“Force is necessary to achieve justice. And the provision of weapons is the only way to achieve peace in Syria’s case,” Sheikh Hamad told ministers at the start of the talks.

“We cannot wait due to disagreement among Security Council members over finding a solution to the problem,” he said. He also called on Lebanon’s government to halt intervention by Lebanese factions in the neighboring conflict.”

“‘We won’t get a political solution if Assad and his regime think they can eliminate all legitimate opposition by force, and so we do have to give assistance to that opposition,’ Secretary of State Kerry told reporters before the start of Saturday’s talks.”

“After a series of military offensives by Assad’s troops, including the recapture of a strategic border town two weeks ago, President Barack Obama said the United States would increase military support for the rebels

Two Gulf sources told Reuters on Saturday that Saudi Arabia, which has taken a lead role among Arab opponents of Assad, had also accelerated delivery of advanced weapons to the rebels.

‘In the past week there have been more arrivals of these advanced weapons. They are getting them more frequently,’ one source said, without giving details. Another Gulf source described them as ‘potentially balance-tipping’ supplies.”

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One can only hope that this aid is not too little too late, and many questions emerge from the concerted arming of the Supreme Military Council by Western powers: Does the political will exist among the opposition to fill the power vacuum in a sustainable democratic fashion upon Assad’s removal? Would a new governing body protect the rights of minorities, including Alawites, in a post-conflict Syria? What will happen to the extremist factions the opposition once relied on (specifically al-Nursa)? Will these groups attempt to sabotage the Western backed opposition?

Despite all this uncertainty, one thing is clear; the Assad regime has lost all credibility and cannot remain in power / be allowed to run in future Syrian elections (having Assad involved in future elections would inherently distort the democratic process and risk reigniting the sectarian divide). It has also become clear that Russia will continue to honor its military contracts with Damascus, and that Assad has no problem turning the Syrian Civil War into a regional conflict if it helps his prospects:

“U.S. Secretary of State John Kerry said the meeting of 11 countries in Qatar was a chance to discuss “efforts to increase and coordinate support for the Syrian political and military opposition”. Kerry said Assad had allowed Iranian and Hezbollah fighters “to cross the lines from Lebanon and engage in the fight on the ground”.

“The Assad regime’s response to a legitimate global effort to try to have a peace conference was to in fact militarize the efforts and internationalize (the conflict) and make the region far more dangerous as a consequences,” he said.”

(In the spirit of fairness, the opposition is also guilty of turning the conflict into a regional one by enlisting other countries help–this is a reality of modern warfare especially in Africa and Middle-East where the sectarian / cultural divide–alongside human rights abuses–underpins the majority of conflicts in the region).

“President Michel Suleiman has called on the Lebanese Shi’ite Muslim Hezbollah movement to pull its guerrillas out of Syria, saying any further involvement in its neighbor’s civil war would fuel instability in Lebanon.” While coming from the right place, such a plea will ultimately be in vain–you cannot end a  2+ year old Civil War by shaming the fighters, as both sides believe they are fighting for a just cause.

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Can arming the rebels really help lead to a peaceful compromise? Honestly, I do not think so–I think the idea of a peaceful political transition in Syria is a pipe-dream. Even in the face of defeat, I do not believe Assad will step down–I think he will go down with the ship. His family has been in power in Syria for over four decades, Assad knows nothing else and probably believes his power in Syria borders on “divine right“. I believe that Western powers are building up the capacity of the Supreme Military Council to keep Assad’s forces busy, as a covert “Gadaffi-style assassination” is planned. This may be an extreme position to take, but it is the only realistic solution that does not involve more civil war, human suffering and regional instability.

Former U.S. general Wesley Clark is more optimistic that arming the opposition can lead to a political transition:

“Mr. Assad knows that Mr. Obama can be surprisingly resolute, as in his approval of drone strikes and the military operation to kill Osama bin Laden. While the United States begins to supply the rebels, there is a crucial opening for talks. Russia or China could recalculate and help lead Syria to a real peace process, as Viktor S. Chernomyrdin, a former Russian prime minister, did in Kosovo in 1999. Iran could emerge from a truce with Hezbollah’s power in Lebanon (and its strong links to Iran) intact.

The formula for diplomacy is clear: a cease-fire agreement; a United Nations presence; departure of foreign fighters; disarmament of Syrian fighters; international supervision of Syria’s military; a peaceful exit for Mr. Assad, his family and key supporters; a transitional government; and plans for a new Syria.

The conflict, and the diplomacy needed to end it, are likely to play out simultaneously. All parties will be recalculating their options and risks, so any assurance Mr. Obama gives Americans that he will limit our engagement would reduce the chances of success. This is a nerve-racking time, but the consequences of inaction are too high. Working together, America, Russia and China can halt Syria’s agony and the slide toward wider conflict. Mr. Obama’s decision might be the catalyst to get that done.”

I personally do not see Assad as this calculating figure, but time will tell which version of Assad is closer to the truth.

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Of course arming the rebels is no slam-dunk. Even if Assad woke up tomorrow and decided he cannot win this war and would leave (which he will not), arming the rebels inevitably creates the risk that one day our own weapons will be used against us, regardless of how thoughtfully weapons are dispersed.

“As the United States and its Western allies move toward providing lethal aid to Syrian rebels, these secretive transfers give insight into an unregistered arms pipeline that is difficult to monitor or control. And while the system appears to succeed in moving arms across multiple borders and to select rebel groups, once inside Syria the flow branches out. Extremist fighters, some of them aligned with Al Qaeda, have the money to buy the newly arrived stock, and many rebels are willing to sell.”

Even if the arms go directly to the Supreme Military Council, there is no telling where they will end up after this conflict is over.

“For Russia — which has steadfastly supplied weapons and diplomatic cover to President Bashar al-Assad of Syria — this black-market flow is a case of bitter blowback. Many of the weapons Moscow proudly sold to Libya beginning in the Soviet era are now being shipped into the hands of rebels seeking to unseat another Kremlin ally.”

The U.S. learned a similar lesson when arms and training given to Al-Qaeda in the 1970s to oppose Soviet interests backfired.

It is impossible to know where the weapons will ultimately end up–underpinning the ongoing debate of arming the Syrian opposition. Think of the Western world’s “best case scenario”–a legitimate Syrian opposition assumes power following Assad’s removal and attempts to setup a democratic Syria. There is no telling how long that democracy will last (often first attempts at democracy fail). These weapons could be stockpiled by a pro-Western power, only to be lost in a future military coup. The existence of these weapons poses the possibility that they will fall into enemy hands at some point in the future–especially as the conflict becomes a memory and international attention focuses elsewhere.

Still, steps are being taken to ensure the arms are channeled to legitimate branches of the Syrian opposition. If in the future these weapons fall into enemy hands, that will have to be dealt with in the future. Perhaps newer technology, such as GPS or even a remote “kill-switch”, are possible for bigger-ticket items sent to the opposition. If anybody knows anything about how donors keep tabs on military aid be sure to let us know in the comment section.


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Economic Outlook: Europe Addresses “Too Big To Fail” and Speculation v. Investment

Original article

“Finance ministers in Luxembourg will try to resolve one of the most difficult questions posed by Europe’s banking crisis – how to shut failed banks without sowing panic or burdening taxpayers.”

“But France and Germany are divided over how strict the new rules should be, with Paris worried that imposing losses on depositors could prompt a bank run.”

“A draft EU law that will form the basis f discussions recommends a pecking order in which first bank shareholders would take losses, then bondholders and finally depositors with more than 100,000 euros ($132,000) in their account.”

“A central element to ensure the euro zone’s long-term survival is a system to supervise, control and support its banks, known as banking union.

Common rules in the wider European Union are considered a stepping stone towards the euro zone’s banking union.

Agreeing EU-wide norms would address Germany’s demand that European rules on closing banks be in place before the 17-nation euro zone’s bailout fund can help banks in trouble.”

“If agreed, the new EU rules would take effect at the start of 2015 with the provisions to impose losses coming as late as 2018.”

“Britain and France say countries should have the final word in deciding how to close banks and not be tightly bound by any new EU rules.

But Germany, the Netherlands and Austria want regulations that will be applied in the same way across all 27 countries in the European Union. They fear that granting too much national leeway would undermine the new law.

“Some flexibility might be necessary, but it shouldn’t be too much,” Joerg Asmussen, the German member of the European Central Bank executive board, told reporters, arguing that investors need to know the rules of the game. ($1 = 0.7590 euros)”

By systematically imposing losses on investors, the EU is attempting to address the “too big to fail” issue from the demand side.

Combined with preferential rates for long run investments vs. short run investments, and a FTT (which is implicitly higher for short-run investments, as a potential investor is likely to reinvest multiple times, he/she will pay more for many short-sighted investments since he/she is paying for each investment individually), policy changes can funnel money towards “investment” and away from “speculation”.

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Investment v. Speculation

 Keynes: The General Theory of Employment, Interest and Money

“But there is one feature in particular which deserves our attention. It might have been supposed that competition between expert professionals, possessing judgment and knowledge beyond that of the average private investor, would correct the vagaries of the ignorant individual left to himself. It happens, however, that the energies and skill of the professional investor and speculator are mainly occupied otherwise. For most of these persons are, in fact, largely concerned, not with making superior long-term forecasts of the probable yield of an investment over its whole life, but with foreseeing changes in the conventional basis of valuation a short time ahead of the general public. They are concerned, not with what an investment is really worth to a man who buys it “for keeps”, but with what the market will value it at, under the influence of mass psychology, three months or a year hence. Moreover, this behaviour is not the outcome of a wrong-headed propensity. It is an inevitable result of an investment market organised along the lines described. For it is not sensible to pay 25 for an investment of which you believe the prospective yield to justify a value of 30, if you also believe that the market will value it at 20 three months hence.

Thus the professional investor is forced to concern himself with the anticipation of impending changes, in the news or in the atmosphere, of the kind by which experience shows that the mass psychology of the market is most influenced. This is the inevitable result of investment markets organised with a view to so-called “liquidity”. Of the maxims of orthodox finance none, surely, is more anti-social than the fetish of liquidity, the doctrine that it is a positive virtue on the part of investment institutions to concentrate their resources upon the holding of “liquid” securities. It forgets that there is no such thing as liquidity of investment for the community as a whole. The social object of skilled investment should be to defeat the dark forces of time and ignorance which envelop our future. The actual, private object of the most skilled investment to-day is “to beat the gun”, as the Americans so well express it, to outwit the crowd, and to pass the bad, or depreciating, half-crown to the other fellow.”

Keynes’s words still ring true today (even truer really). At the core of the issue is that the term “investment” in a financial sense has evolved in a way that economic policy makers have yet to adjust too. Most “investment” today is little more than rent-seeking speculation.

Consider the following definition from Investopia.com:

“Investment: An asset or item that is purchased with the hope that it will generate income or appreciate in the future. In an economic sense, an investment is the purchase of goods that are not consumed today but are used in the future to create wealth. In finance, an investment is a monetary asset purchased with the idea that the asset will provide income in the future or appreciate and be sold at a higher price.

The building of a factory used to produce goods and the investment one makes by going to college or university are both examples of investments in the economic sense.

In the financial sense investments include the purchase of bonds, stocks or real estate property.

Be sure not to get ‘making an investment’ and ‘speculating’ confused. Investing usually involves the creation of wealth whereas speculating is often a zero-sum game; wealth is not created. Although speculators are often making informed decisions, speculation cannot usually be categorized as traditional investing.”

Don’t want to take my (or Keynes or Investopia’s) word for it? It is not only “outsiders” who believe the financial sector has evolved in a way that is detrimental to society as a whole. Consider the summary of a book recently written by financial guru and pioneer by John C. Bogle:

“Over the course of his sixty-year career in the mutual fund industry, Vanguard Group founder John C. Bogle has witnessed a massive shift in the culture of the financial sector. The prudent, value-adding culture of long-term investment has been crowded out by an aggressive, value-destroying culture of short-term speculation. Mr. Bogle has not been merely an eye-witness to these changes, but one of the financial sector’s most active participants. In The Clash of the Cultures, he urges a return to the common sense principles of long-term investing.”

As I have often advocated, the financial sector needs policy reforms to make it more sustainable–for both society as a whole and for the future of the sector itself in a post-too-big-to-fail world. Policies need to be reshaped to reward the positive externalities of investment,  while holding speculators accountable for the negative externalities of their “investments”.

This will require great political will to overcome the vested interests that the financial sector has secured. It will also require the chasm between investment and speculation to be accepted as common knowledge.

Europe has made strong efforts to “push the needle” on these reforms, with its innovative approach to address too big to fail financial institutions and it’s repeated calls for a FTT. The financial sector cannot continue to thrive to the detriment of society as a whole. The burden of change ultimately falls on the people of the world (surprise surprise), we must elect leaders who possess the political will to make these necessary changes.


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Transparency Report: Denuclearization

In a speech delivered at Brandenburg Gate in Berlin yesterday, President Obama outlined many of his global ambitions for his second term. Among those was a renewed global push for nuclear disarmament:

“President Obama plans to use a speech in Berlin on Wednesday to outline plans for further reductions in the American nuclear arsenal if Russia agrees to pare back its weapons at the same time, administration officials said Tuesday.”

“Mr. Obama will propose trimming the number of strategic warheads that each of the two big nuclear powers still maintains by up to a third, taking them below the 1,550 permitted in the treaty he signed with Russia in his first term, a senior administration official said. That would leave each country with just over 1,000 weapons.”

“Mr. Obama will also declare that he will work with NATO allies to develop proposals for major cuts in tactical nuclear weapons, which are not covered by the existing treaty. Russia, which has far more tactical nuclear weapons deployed than the United States and Europe do, has firmly resisted such cuts. There are fears that its tactical weapons are in parts of Russia where they risk being seized by terrorist groups.”
“The president, who once talked about eventually ridding the world of nuclear weapons, faces enormous obstacles to any further reductions, both in Moscow and in Washington. President Vladimir V. Putin of Russia has demanded further concessions on missile defense before entertaining deeper nuclear cuts, and Republicans in the Senate have made clear they would resist any treaty that went beyond the New Start pact ratified in 2010.”

Despite obstacles, it is heartening to see President Obama placing nuclear disarmament on his second term agenda. It is important if the U.S. seeks legitimacy in talks with Iran and North Korea; both countries, in a recent change of tone, seem ready to begin talks with the U.S.

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North Korea:

“North Korea’s powerful National Defense Commission announced on Sunday that Pyongyang was ready to hold ‘broad and in-depth discussions’ with the US on a range of issues, including the building of ’a world without nuclear weapons.’”

“The country warned, however, that talks cannot take place if the US continues to set preconditions for direct dialogue. Washington has repeatedly said that North Korea must take concrete steps to abandon its nuclear weapons program before negotiations can take place.”

“The Obama administration said Sunday it was receptive to North Korea’s proposal for high-level talks, but wanted “credible negotiations” that would lead to a nuclear-free North.”

“National Security Council spokeswoman Caitlin Hayden said in a statement: ‘Our desire is to have credible negotiations with the North Koreans, but those talks must involve North Korea living up to its obligations to the world,’ including UN resolutions, and ‘ultimately result in denuclearization.’”

The U.S., preempting an obvious North Korean objection of America’s vast nuclear program, is taking the first step towards realizing a “world without nuclear weapons”. The issue remains whether Kim Jong-Un’s North Korea can be a credible negotiating partner.

China will have a key role to play in such negotiations, which it is hopefully ready to do after Presidents Obama and Xi summit meeting in early June. There are reasons to be optimistic, China has signed onto UN sanctions against North Korean in response to nuclear testing, frozen North Korean assets in major Chinese banks, and generally taking a much firmer tone than usual on the issue of North Korean denuclearization.

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Iran:

“The election of Hassan Rowhani as Iran’s next president creates an opportunity to move forward on a negotiated agreement to stop Iran’s nuclear weapons program and to begin to repair three decades of hostility with the United States.”

“During his first news conference on Monday, Mr. Rowhani promised to “follow the path of moderation” and allow greater openness over the nuclear program. But he also restated Iran’s refusal to halt uranium enrichment as the United Nations Security Council has demanded.”

“Iran is ready to suspend enrichment of uranium to 20 percent, a key demand of world powers at talks over its disputed nuclear program, Russian Foreign Minister Sergei Lavrov said.

In return, the Persian Gulf nation must be offered “weighty reciprocal steps,” including a gradual lifting of unilateral and United Nations sanctions, Lavrov said in an interview with the Kuwaiti news service Kuna posted today on the Foreign Ministry’s website.”

“‘This could become a breakthrough agreement that could largely remove the tension surrounding the existing problems, including concern about enrichment rising to weapons level,’ he said. ‘It would be unforgivable not to use this opportunity.’”

“Iranian chief negotiator Saeed Jalili said that while his country would consider the step of suspending enrichment at 20 percent levels, ‘we must know upon what foundations it rests.’ Recognition of Iran’s right to enrich uranium for peaceful use under the nuclear Non-Proliferation Treaty would move the talks forward, he said.”

The interesting issue here is Iran’s continued insistence that its uranium enrichment is for peaceful means. As an American of Jewish decent, I have many reservations about legitimizing the nuclear capacity of a nation that has a history of promoting both anti-Western and anti-Israeli values.

However, the development economist and human rights advocate in me agrees with Mr. Jalili than Iran has a “right to enrich uranium for peaceful purposes”. The fact that it is expressly stipulated in the NPT gives legal backing to the human rights implications of nuclear capability.

Enriched uranium can be used for peaceful purposes, such as nuclear energy and medical isotopes. Is it not the right for Iran’s citizens to have access to cheaper electricity and advances in medical care as the nation modernizes, unlocking resources for further modernization?

Further complicating matters is that nuclear energy has virtually zero GHG emissions; it is hypocritical to promote sustainable development (as Obama has done and continues to do) and at the same time disallow Iran from using nuclear energy. Nuclear energy is part of a “comprehensive energy portfolio” needed to combat climate change.

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The issue comes down to transparency, accountability, and ultimately governance. Can countries without the traditional checks and balances present in Western democracies be credible partners? Can they actually uphold their promises, or are they merely trying to buy time / have sanctions eased until it is beneficial to renege on their commitments?

The burden of proof falls on Iran and North Korea on this one. If either country wishes to be allowed to enrich uranium for peaceful purposes without dealing with crippling international sanctions, certain conditions must be met. Most notably, independent international inspectors must be given unrestricted access to known / suspected uranium enrichment facilities; if either country can fulfill this condition, then it will have earned the right to enhance uranium for peaceful purposes. 

What do my readers think? Are nuclear capabilities a “right”? Can either Iran or NK (or both) be credible negotiating partners? Does nuclear energy have a role to play n combating climate change? Global denuclearization is the definition of a long-term normative goal, but we must start somewhere. To paraphrase Voltaire, we should not let perfection impede progress.


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Conflict Watch: Austerity v. Human Rights

Original article:

“Austerity cuts in Spain could lead to the effective dismantling of large parts of its healthcare system and significantly damage the health of the population, according to a study published on Thursday.”

“The study published in the British medical Journal (BMJ) found that Spain’s national budget cuts of almost 14 percent and regional budget cuts of up to 10 percent in health and social services in 2012 have coincided with increased demands for care, particularly from the elderly, disabled and mentally ill.

The researchers also noted increases in depression, alcohol-related disorders and suicides in Spain since the financial crisis hit and unemployment increased.”

“The findings in Spain chime with other studies in Europe and North America which found budget cuts had a devastating effect on health, driving up suicides, depression and infectious diseases and reducing access to medicines and care.”

“‘If no corrective measures are implemented, this could worsen with the risk of increases in HIV and tuberculosis — as we have seen in Greece where healthcare services have had severe cuts — as well as the risk of a rise in drug resistance and spread of disease,’ said Helena Legido-Quigley, a lecturer in Global Health at LSHTM who worked with McKee.”

“In a book published in April, researchers said around 10,000 suicides and a million cases of depression had been diagnosed during what they called the “Great Recession” and the austerity measures that have come with it across Europe and North America.”

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This is Spain we are talking about here–a high income, EU country. Perhaps incomes are too high, as unemployment remains above 27.2% (and 57 % for people under 25). Since Spain is a Euro country, it cannot devalue it’s currency to bring its wages back to a competitive level, it must pursue painful “internal devaluation”–a mixture of austerity and structural reform that has a contractionary effect on the economy in the short-run (especially when the fiscal-multiplier is >1, as evidence suggests it currently is).

This is of course unacceptable. Fiscal constraints did not stop large scale financial sector bailouts or military expenditure, but when it comes to financing social programs needed for governments to fulfill their basic human rights obligations there is suddenly no money available. Clearly governments around the world have their priorities out of order.

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Unemployment, especially long term unemployment and youth unemployment, has a corrosive effect on society. In America, people are outraged over 8% unemployment, can you imagine a rate 300% higher? 700% higher!? There is literally Great Depression level unemployment in Spain and Greece, now 5 years after the Great Recession began.

The corrosive impact of unemployment creates a vicious cycle of human suffering. A lack of demand leads companies to lay workers off. Lower output leads to less tax revenue for the government, and global economic factors made resources scarcer, driving up borrowing costs. Governments, unable to borrow  money at reasonable rates, must slash social programs and government employment.

The unemployed, increasingly pessimistic, turn to risky behavior, including prostitution and drug use. This in turn leads to greater unfulfilled health needs, including untreated mental disorders. Long term unemployment, drug use, physical and mental illness all deteriorate worker skills, making them increasingly dependent on shrinking government resources. Stigmatization, the idea that the unemployed and homeless are that way because they are lazy or bad, becomes self-fulfilling.

Anti-social behavior becomes the norm, and before long even those who were not directly affected by the economic downturn begin to experience the realities of general societal degradation–increased crime and reduced personal security. Taken to it’s extreme, austerity in the face of a depressed economy lays the groundwork for protracted social conflict (PSC).   

The problem here is that social programs are being cut precisely when people need them the most. Fiscal policy should be counter-cyclical. When times are good, a prudent nation will save money for a rainy day. This is what President Clinton was attempting, and had President Bush’s “starve the beast” tax and military policies not bankrupted America, our national debt would be much lower today.

But America is seen as a safe haven, allowing debt to be rolled-over sustainably despite a high debt/GDP ration. If anything, Obamacare is evidence that the U.S. government is moving in the direction of greater public service expenditure.

This is not the case in Europe. Due to a lack of fiscal integration, peripheral EU countries (the GIPSI countries) suffered from higher interest rates (nobody wanted to lend to them as them scrambled to rescue a failing banking sector) leading to a “sovereign debt crisis”. The European Central Bank eventually decided to play the “lender of last resort” role, but on the condition that economically crippling austerity measures are passed.

It has always been clear that austerity programs have adverse human rights implications. The programs that are cut go predominantly to the most vulnerable people–human rights violations tend to compound one another.

Before we get ahead of ourselves, Europe is not heading for anarchy and regular unchecked violence in the streets. However, in some areas protests have already become the norm, and such a future is not impossible to foresee especially if the combination of depression-level unemployment rates, anti-social behavior, and crippling austerity persists.

Recently, the IMF admitted it was wrong about its the impact it believed austerity would have in Greece. This lesson will be painfully learned in many other countries unless something is done to fix this mistake (ending austerity conditions in order to unlock bailout loans). Admitting you made a mistake is the first step towards redress and accountability–it is past time governments were held accountable for their human rights obligations, in both the developing and developed world.

Only when human rights obligations are fulfilled can we achieve sustainable human development and economic growth, predominantly through the real and creative economies (as opposed to unsustainable economic development based on “financialization“).

However, this is only the first step, now international economic institutions have to “put their money where their mouths are” and make up for the needless suffering caused by general incompetence.

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Economic Outlook: “Financialization”, “Commoditization” and the Real Economy

In a recent Economix blog, Bruce Bartlett explores the role “financialization” has played in American (and global) economic stagnation:

“Economists are still searching for answers to the slow growth of the United States economy. Some are now focusing on the issue of “financialization,” the growth of the financial sector as a share of gross domestic product.”

“According to a new article in the Journal of Economic Perspectives by the Harvard Business School professors Robin Greenwood and David Scharfstein, financial services rose as a share of G.D.P. to 8.3 percent in 2006 from 2.8 percent in 1950 and 4.9 percent in 1980. The following table is taken from their article.”

Data from the National Income and Product Accounts (1947-2009) and the National Economic Accounts (1929-47) are used to compute added value as a percentage of gross domestic product in the United States.

They cite research by Thomas Philippon of New York University and Ariell Reshef of the University of Virginia that compensation in the financial services industry was comparable to that in other industries until 1980. But since then, it has increased sharply and those working in financial services now make 70 percent more on average.”

“While all economists agree that the financial sector contributes significantly to economic growth, some now question whether that is still the case. According to Stephen G. Cecchetti and Enisse Kharroubi of the Bank for International Settlements, the impact of finance on economic growth is very positive in the early stages of development. But beyond a certain point it becomes negative, because the financial sector competes with other sectors for scarce resources.”

“Ozgur Orhangazi of Roosevelt University has found that investment in the real sector of the economy falls when financialization rises. Moreover, rising fees paid by nonfinancial corporations to financial markets have reduced internal funds available for investment, shortened their planning horizon and increased uncertainty.”

“Adair Turner, formerly Britain’s top financial regulator, has said, “There is no clear evidence that the growth in the scale and complexity of the financial system in the rich developed world over the last 20 to 30 years has driven increased growth or stability.”

He suggests, rather, that the financial sector’s gains have been more in the form of economic rents — basically something for nothing — than the return to greater economic value.

Another way that the financial sector leeches growth from other sectors is by attracting a rising share of the nation’s “best and brightest” workers, depriving other sectors like manufacturing of their skills.”

“The rising share of income going to financial assets also contributes to labor’s falling share. As illustrated in the following chart from the Federal Reserve Bank of St. Louis, that share has fallen 12 percentage points since its recent peak in early 2001 and even more from its historical level from the 1950s through the 1970s.

Labor Share of Nonfarm Business Sector

Bureau of Labor Statistics, Department of Labor

The falling labor share results from various factors, including globalization, technology and institutional factors like declining unionization. But according to a new report from the International Labor Organization, a United Nations agency, financialization is by far the largest contributor in developed economies (see Page 52).

The report estimates that 46 percent of labor’s falling share resulted from financialization, 19 percent from globalization, 10 percent from technological change and 25 percent from institutional factors.

This phenomenon is a major cause of rising income inequality, which itself is an important reason for inadequate growth. As the entrepreneur Nick Hanauer pointed out at a Senate Banking, Housing and Urban Affairs Committee hearing on June 6, the income of the middle class is critical to economic growth because of its buying power. Mr. Hanauer believes consumption is really what drives growth; business people like him invest and create jobs to take advantage of middle-class demands for goods and services, which must be supported by good-paying jobs and rising incomes.”

“According to research by the economists Jon Bakija, Adam Cole and Bradley T. Heim, financialization is a principal driver of the rising share of income going to the ultrawealthy – the top 0.1 percent of the income distribution.”

“Among those pointing their fingers at financialization is David Stockman, former director of the Office of Management and Budget, who followed his government service with a long career in finance at Salomon Brothers and elsewhere. Writing in The New York Times, he recently said financialization was “corrosive” and had turned the economy into “a giant casino” where banks skim an oversize share of profits.

It’s not yet clear what public policies are appropriate to deal with the phenomenon of financialization. The important thing at this point is to be aware of it, which does not yet appear to be the case in Washington.”

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A complementary practice that has accompanied “financialization” is the practice of “commoditization“:

“Commoditization” has led to food price volatility and food insecurity in the developing world. It also perpetuated the housing bubble–while it is true that mortgages were always financial products, the way the mortgage backed securities grouped mortgages together turned a practice that was once a means of saving into an opportunity for people to use the equity in their homes like credit cards. When the housing bubble burst, many people found their mortgages “under water”. While there is certainly an element of personal responsibility, the scope of the housing crisis was certainly deepened due to “financialization” and “commoditization”.

Financialization attracts the best and brightest away from other non-financial fields. When all these talented people are working in a saturated market (such as more traditional investments), a natural effect will be the creation of “innovative” financial products–“commoditization”. While commoditization creates short run value by making products more liquid, in the long run it leads to price volatility and bubbles. 

Financialization has led to greater income inequality (as the vast majority of capital gains go to the ultra-wealthy), and diverts resources and man-power away from non-financial industries (the “real economy) due to higher fees paid to financial services (these resources could go to, say, MORE HIRING). It has also perpetuated destabilizing, high-speed, arbitrage-seeking investment. 

It is interesting that Mr. Bartlett says that it is unclear what public policies should be used to correct for this misalignment of resources. The answers are there (and Bruce himself has mentioned some in previous posts), the problem is implementation, as the proper policy responses require transparency and international cooperation and coordination (due to the global nature of capital in the digital age in order to prevent “capital flight”). Therefore, these commitments are rife with incentives to cheat (“prisoner’s dilemma”) which makes it much harder to come to binding agreements. 

One appropriate response is a financial transaction tax (FTT). Such a tax would deter short-run destabilizing trades that have accompanied “financialization” and “commoditization” and direct investments into more long-run wealth creating endeavors (think venture capitalism as opposed to high-speed trading). This would also temper the price volatility effect of “commoditization”.

Another appropriate response would be to have a global standard tax rate for short-run capital gains. By setting such a rate higher than regular income taxation, resources would be diverted away the financial sector and back into the real sector (are you seeing a theme here?). Financial bubbles would be less prevalent, as people would be more likely to hold their income in safer assets / reinvest it in non-financial assets. Due to the relative ease of making short-term capital gains, and differences in national income tax rates, a global short-term capital gains tax rate of 50% seems like a good baseline to start from. Long-term capital gains should be taxed like ordinary income, not at lower preferential rates.

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“Financialization” and “commoditization” have had adverse effects on our real economy. The brightest people and an increasing share of national output have been diverted towards (generally) unproductive activities  In the short run this leads to economic growth. But this growth in unsustainable; in the long run crises occur when these bubbles burst, which  have adverse effects that  reach far beyond the financial sector (due in part to “commoditization”). 

Because public policies have allowed financial institutions to grow so powerful, the were able to become “too big to fail“, necessitating tax-payer backed bailouts.

It is a good sign that economists are scrutinizing these practices. If it can be proved that not only do these practices lead to crises, but also have adverse effects on growth, employment, consumption and equality during “good” times, then it will be much harder for politicians around the world to resist the call for greater financial industry accountability via higher taxation (despite the threats from vested interests; if global standards are established, the 0.1% are welcome to setup the Mars Stock Exchange is they so desire).


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Transparency Report: PRISM, The Declaration of Independence, The Constitution, Civil and Human Rights

There has been understandable concern over reports that leaked last week which tied the US government to the collection of peoples personal phone and internet records through a sweeping government program known as PRISM. One questions brings about more questions. Are whistle-blowers hero’s or traitors? Is PRISM a necessary component of national security or an infringement of civil rights? Has PRISM actually been effective in stopping terrorist attacks? Has the leak compromised America’s national security? Perhaps due to still murky details, American’s are still largely divided on these issues.

The New York Times editorial board was particularly one-sided in its assessment of the programs; such a response is not surprising, as a major representative of news Media, the New York Times ability to produce meaningful content relies on civil rights.

“Perhaps the lack of a broader sense of alarm is not all that surprising when President Obama, Senator Dianne Feinstein, the Democratic chairwoman of the Intelligence Committee, and intelligence officials insist that such surveillance is crucial to the nation’s anti-terrorism efforts.

But Americans should not be fooled by political leaders putting forward a false choice. The issue is not whether the government should vigorously pursue terrorists. The question is whether the security goals can be achieved by less-intrusive or sweeping means, without trampling on democratic freedoms and basic rights. Far too little has been said on this question by the White House or Congress in their defense of the N.S.A.’s dragnet.

The surreptitious collection of “metadata” — every bit of information about every phone call except the word-by-word content of conversations — fundamentally alters the relationship between individuals and their government.”

Tracking whom Americans are calling, for how long they speak, and from where, can reveal deeply personal information about an individual. Using such data, the government can discover intimate details about a person’s lifestyle and beliefs — political leanings and associations, medical issues, sexual orientation, habits of religious worship, and even marital infidelities. Daniel Solove, a professor at George Washington University Law School and a privacy expert, likens this program to a Seurat painting. A single dot may seem like no big deal, but many together create a nuanced portrait.

The effect is to undermine constitutional principles of personal privacy and freedom from constant government monitoring. The American Civil Liberties Union filed a lawsuit on Tuesday, challenging the program’s constitutionality, and it was right to do so.

The government’s capacity to build extensive, secret digital dossiers on such a mass scale is totally at odds with the vision and intention of the nation’s framers who crafted the Fourth Amendment precisely to outlaw indiscriminate searches that cast a wide net to see what can be caught. It also attacks First Amendment values of free speech and association.”

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It should be noted that the open and multifaceted discourse relating to these leaks is hard evidence that our first amendment rights continue to be upheld despite government surveillance–sometimes you just have to look up to see that the sky isn’t falling.  

The ACLU is perfectly within its rights to file a lawsuit, but I believe the Supreme Court will ultimately uphold the constitutionality of PRISM. It is true that PRISM violates the 4th Amendment , in that the government is indiscriminately collecting “metadata” on Americans phone and internet data. The American people want answers. The European Commission wants answers (further complicating US-Euro Free Trade talks). And it seems answers we will get, although perhaps not all the answers we desire:

” The director of the National Security Agency said on Thursday that he would release more information about the top secret programs that sweep up vast quantities of communications data on people here and abroad, and vowed to clear up what he said were inaccuracies and misperceptions about how the programs work.”

“”We have pledged to be as transparent as possible,’ he said after emerging from a classified briefing with House members. “I think it’s important that you have that information. But we don’t want to risk American lives in doing that. So what we’re being is very deliberate in this process so that we don’t end up causing a terrorist attack by giving out too much information.’”

“Among the inaccuracies he said he wanted to clear up was that the N.S.A. is listening to Americans’ phone calls.”

“Mr. Rogers stressed that grave damage was done by the disclosure of the programs, which involve a huge database of the logs of nearly every domestic phone call made by Americans, and the collection of information from American Internet companies like Google without individual court orders if the request is targeted at non-citizens abroad.”

We will get answers, hopefully answers that shed light on previous  terrorists acts thwarted by PRISM. But it is also clear that we will not get answers that compromise national security.

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The Constitution was drafted as a living document, a foundation upon which our nation could grow upon. There is no possible way our forefathers could have foreseen modern security risks–in revolutionary times wars were fought with single shot muskets! Reading into any document too literally, be it a legal or religious document, is likely to lead to extreme conservative values which ultimately restrict human rights. For these documents we’re written in different times, and need to be amended to remain relevant today. As a legal document, the Constitution was understandably focused on civil and political rights and liberties. 

The Declaration of Independence, as a more general declaration, was based on what are now known as human rights. “We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness. That to secure these rights, Governments are instituted among Men, deriving their just powers from the consent of the governed, — That whenever any Form of Government becomes destructive of these ends, it is the Right of the People to alter or to abolish it, and to institute new Government, laying its foundation on such principles and organizing its powers in such form, as to them shall seem most likely to effect their Safety and Happiness. Prudence, indeed, will dictate that Governments long established should not be changed for light and transient causes…”

Subsequent constitutional amendments have been aimed at expanding the universality of civil rights (3/5’s compromise revoked, women’s and minority rights). It was never the intention of the founding fathers for civil rights to constrain the government from upholding basic human rights–such as the right to personal security. In fact, “certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness” referred to in Declaration of Independence are almost identical to Article 3 of The Universal Declaration of Human Rights ,”Everyone has the right to life, liberty and security of person”.

I would argue that America was founded not only on the principles of civil rights, but on the principles of human rights (which include civil rights). The idea government is responsible for providing the services and resources necessary for personal freedom and happiness is 100% consistent with human rights law. That these rights come before the power of government, and with the power to overthrow a government that does not fulfill these duties, places human rights even ahead of constitutional rights (as overthrowing the government would in effect render The Constitution null, but the legitimacy of such action is upheld right there in the Declaration of Independence).

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Enough about 200+ year old documents; it is interesting to interpret the wording (many people have made careers out of it, our own President Barack Obama was a professor of Constitutional Law the University of Chicago, one of the most prestigious law schools in the world), but I would like to set my sites on something a bit more modern–the NYT editorial attack on the PRISM system.

“The issue is not whether the government should vigorously pursue terrorists. The question is whether the security goals can be achieved by less-intrusive or sweeping means, without trampling on democratic freedoms and basic rights. Far too little has been said on this question by the White House or Congress in their defense of the N.S.A.’s dragnet.”

Of course there are other means of achieving our security goals; we have been actively attempting them for the past 12 years. The problem is that fighting wars is incredibly expensive and often counter-productive. We do not have to live within the constraints of colonial times in our legislation or our military conduct. Technology has evolved since the 18th century, allowing us to change the ways in which we protect our national security.

Expensive wars have compromised the ability of the government to pay for basic goods and services. Inequality of opportunity and social mobility are huge problems facing modern American society. Our civil and political rights cannot come at the cost of our economic and social rights. If gathering intelligence keeps American safer, and does so in a way that relies less on military expenditure, then the resources saved have to factor into societies C-B analysis at some point. 

The tangible benefits of reduced military expenditure should not be dismissed due to unfounded fear of government intrusion. The government has been collecting this data for years already. Has it changed the way people go about their lives? No, until a week ago we had no idea the program existed (although I am sure people have speculated) . Is there even one example of the government using personal information for nefarious or deviant purposes? Not that I have heard of.

The absence of evidence may not be the evidence of absence; but in America everyone is still innocent until proven guilty, and the government has yet to be proven guilty of misusing personal data ascertained via the PRISM program.

It would be nice if the government could be more transparent about its national security programs, but information travels to easily in today’s digital world–there is no way to release America’s national security information to Americans while not allowing anyone else to see it.

This is not 1776, the threat of tyranny is not a real one. In order to use our national resources in the most efficient way, we must focus them on containing real threats (terrorism, and general deterioration of equality of opportunity, meritocracy, and social mobility which is hurting America’s long run economic growth potential and compromising the “American Dream” itself), not hypothetical violations of our rights. 


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Conflict Watch: The Deteriorating Syrian Civil War and Humanitarian Crisis

The Syria sinkhole

The Syrian opposition recently offered a dangerous ultimatum, which is symbolic of the overall deterioration for the prospect of a political transition in Syria:

“The Syrian opposition will not attend the proposed Geneva conference on the crisis in Syria unless rebel fighters receive new supplies of arms and ammunition, the top rebel military commander said Friday.

‘If we don’t receive ammunition and weapons to change the position on the ground, to change the balance on the ground, very frankly I can say we will not go to Geneva,’ Gen. Salim Idris said in a telephone interview from his headquarters in northern Syria. ‘There will be no Geneva.’”

“Mr. Assad’s military position has been strengthened by flights of arms from Iran and the involvement of thousands of fighters from Hezbollah, the Lebanese militant group. The change of fortunes on the battlefield was illustrated last week when the Syrian military and Hezbollah fighters captured the town of Qusayr.”

“The proposal to hold talks in Geneva at a point when the Syrian opposition has suffered a bitter reversal has led many in the opposition to question the West’s strategy. In effect, they say, Mr. Kerry is insisting that the Syrian opposition sit down with representatives of a Syrian president who appears as determined as ever to hang on to power and at a time when the opposition’s leverage has been diminished.”

“‘There is agreement on one point within opposition circles: the regime, Iran and Hezbollah, supported by Russia, aim to win; the U.S. aims for talks,’ said Frederic C. Hof, a senior fellow at the Atlantic Council and a former senior State Department official who worked on Syria transition issues. ‘This helps to explain the opposition’s reluctance to attend a Geneva conference and the difficulties it’s having organizing itself around a coherent goal.’”

“At the State Department, Mr. Kerry and his aides have long said that it is vital to change Mr. Assad’s “calculation” about his ability to maintain his grip on power in order to facilitate a political transition.”

“At a meeting in Istanbul in late April, Mr. Kerry announced that the Supreme Military Council should be the only funnel for providing Western and Arab military support to the opposition.”

“General Idris said that while the West has been debating how much military assistance to provide to the moderate opposition, extremist groups like the Nusra Front have begun to play a more prominent role in the struggle against the Assad government.

‘They are now winning sympathy from the people,’ he said. ‘They are very well financed.'”

This is essentially textbook protracted social conflict (PSC). The Syrian government denied the majority of Syrians the human rights they believed they deserved. Peaceful protests were met with violence, turning the ideological divide into a civil war. As the war has progressed, opportunistic extremist groups (Al Nursa for example), seeing a void in Western support for the rebels, have filled that void.

This further complicates American intervention, as arming the rebels could eventually lead to greater military capabilities for anti-American Jihadist organizations.

The call for greater European intervention is well heard, and steps have been made in order for Europe to put itself in position to provide weapons to the opposition should peace-talks not bear fruit (which is not unlikely, but they must at least be attempted). But the Syrian opposition has to realize it cannot try to force military aid, that it must play ball and prove in open forum that Mr. Assad’s “calculations” will not be changed (except to be further emboldened by bolstered support while the opposition loses momentum).

It is an order of operations thing; I truly believe that if the opposition comes to Geneva and makes a real attempt to negotiate a political transition, that if that attempt failed, European powers would provide more military support to the Syrian Supreme Military Council.

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Another Western ally that is being dragged into the Syrian sinkhole is Israel. This past week, fighting broke out along the Golan Heights.

“The United Nations Disengagement Force (UNDOF) monitors the buffer zone between Syria and the Israeli-occupied Golan Heights.”

“Austria – which contributes about one-third of UNDOF’s troops – has announced its decision to withdraw its soldiers, reportedly citing a lack of freedom of movement and an unacceptable level of danger to its personnel.”

“‘Everyone agreed that UNDOF should continue in its mission, even if it is temporarily reduced in its ability to fulfill the current mandate,’ Ambassador Mark Lyall Grant of the United Kingdom, which holds the rotating presidency of the Council for June, told reporters after closed-door talks on the latest developments.

“‘Everyone felt that UNDOF played a key role in guaranteeing the 1974 ceasefire disengagement agreement between Israel and Syria and also acting as a conduit of communications, including in the last few days between Israel and Syria,’ he added. ‘It was therefore an important symbol of the stability across the Israel-Syrian border.'”

Russia has offered to replace the Austrian troops. Aside from the obvious conflict of interest Russian troops would represent in Syria, the offer was rejected on legal grounds:

“The UN has declined a Russian offer to bolster the understaffed peacekeeping force in the cease-fire zone between Israel and Syria. Austria has said it would be withdrawing its troops from the Golan Heights.

UN spokesman Martin Nesirky said on Friday that permanent Security Council members were barred from deploying peacekeepers in the Golan Heights, under the terms of the 1974 cease-fire agreement between Israel and Syria.”

Israel would like to remain out of the Syrian Civil War, but the small military power continues to collect intelligence on the Syrian military and strongly reaffirms it’s right to protect itself:

“The confluence of events confronted Israel with the complex reality of a civil war just across the border in which both sides are hostile to the Jewish state. Hezbollah has vowed in recent weeks that it would facilitate attacks on Israel through the heights. And the most effective rebel force is made up of radical Sunnis aligned with Al Qaeda, while many of the other militias are led by self-identified Islamists.

The result has been a kind of paralysis in Israeli society, where options are debated but no clear consensus has emerged about which outcome of the Syrian crisis is preferable or how to prepare for it.”

If Western powers decided to intervene militarily, they would have to rely on Israeli military supremacy and geographic position to support the operation (Turkey is another important geopolitical ally, while Egypt remains a bit of a wild card). The Syrian opposition and Israeli leaders should be in communication with each other (if they are not already) as they are likely to need to have a working rapport in the foreseeable future.

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All the while, the silent majority of Syrian refugees and internally displaced peoples continue to bear the brunt of the suffering and human rights violations, threatening regional stability in the Middle-East:

“The United Nations launched a $5 billion aid effort on Friday, its biggest ever, to help up to 10.25 million Syrians, half the population, who it expects will need help by the end of 2013.”

“The appeal comprises $2.9 billion for refugees, $1.4 billion for humanitarian aid and $830 million for Lebanon and Jordan, the biggest recipients of Syrian refugees.”

“The appeal updates and multiplies the existing aid plan for Syria, which sought $1.5 billion to help 4 million people within Syria and up to 1.1 million refugees by June. The worsening conflict soon overtook those projections.

The new forecasts expect the refugee population to more than double to 3.45 million from 1.6 million now, based on current numbers arriving in Lebanon, Jordan, Turkey, Iraq and Egypt.

But it assumes the number of needy Syrians inside the country will remain static until the end of the year at 6.8 million. The number of internally displaced Syrians is also assumed to stay where it is now, at about 4.25 million.

That means the current plan could again turn out to be an underestimate if the fighting goes on.”

“‘We have reached a stage in Syria where some of the people, if they don’t get food from the World Food Programme, they simply do not eat,’ the WFP’s Syria Regional Emergency Coordinator Muhannad Hadi said.”

“A few months ago I would like to recall that there was a donors’ conference in Kuwait, and Persian Gulf monarchies promised to donate hundreds of millions of dollars to the U.N. agencies in order to help Syria,” Russian ambassador in Geneva Alexey Borodavkin added.

“I don’t think that the amounts mentioned in Kuwait ever reached these agencies and were ever used to help the Syrian people.”

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World powers are famous for committing money for development / humanitarian purposes and falling short on those commitments. And often it is for understandable reasons, as it is difficult to be sure the money is going where it is supposed to go. But given the global attention and direct UN involvement in the Syrian humanitarian crisis, these fears need not prevent commitments from being fulfilled.

It is difficult to be optimistic about a political end to the Syrian Civil War. Mr. Assad seems recently emboldened, while the opposition continues to shoot itself in the foot. Hopefully the opposition rethinks its position; only with Western support can they hope to remove Assad from power, be it politically or militarily.  All Syria’s most vulnerable can do is sit back and watch, and hope the the UN can raise the aid needed to keep them alive as the conflict grinds towards its eventual conclusion.