Pakistan United against the wrong enemy

Pakistan has made a modest start against the likely culprits of the Mumbai killings. But fulminating against India is more fun

AFP

IF PAKISTAN’S leaders had ever united against Islamist militancy as they have against India over the past three weeks, their country would not be the violent mess that it is. Ever since India alleged, with subsequent corroboration from America and Britain, that Pakistani terrorists carried out last month’s mass murder in Mumbai, the country’s politicians, generals and fire-breathing journalists have been declaring themselves ready for war—if that’s what India chooses.

India’s government, despite huge pressure from its own bellicose media, has been more restrained. It has said it does not intend to attack its neighbour. But it has demanded that Pakistan dismantle an anti-Indian militant group, Lashkar-e-Taiba (LET), that has carried out numerous atrocities in India, apparently including the outrage on Mumbai. It has so far relied on diplomacy, particularly through America and Britain, to make this point.

But India is frustrated. Pakistan has taken some steps against Jamaat-ud-Dawa (JUD), an Islamist charity that is a front for LET, which was formally banned by Pakistan, under American pressure, in 2002. But it is not clear at this stage how far they go. On December 11th, a day after the UN Security Council banned JUD, Pakistan said it had also banned it. It has since arrested the group’s leaders, including Hafiz Saeed, a professor of engineering, who founded LET and JUD in the 1980s. It has also arrested many JUD activists, sealed scores of the charity’s offices and stopped publication of at least six JUD newspapers.

Initially, it also said it would take over the group’s many hospitals and schools—allegedly including over 170 schools in Punjab province alone. But it has since seemed to backtrack on this. According to one minister, the government will set up a new charity to run these services. According to a senior official in Punjab, some of JUD’s facilities may be left in the same Islamist hands.

They may include a vast jihadist citadel that JUD operates in Muridke, a town close to the Indian border (its entrance is shown in our picture). It contains two schools, for 1,000 children, an Islamic college and a hospital that sees 100 outpatients a day. The campus’s manager, a courteous Islamist called Abu Ehsan, said 66 local villages depend on the services it provides, and he trusted that the government would not disrupt them. Shortly after JUD was banned, local police turned up on the campus. But they soon left and Mr Ehsan said he had heard no more from them.

So, for now at least, the schools at Muridke remain free to teach what Mr Saeed has preached for two decades: jihad against Hindu India, especially to drive it from the contested region of Kashmir. It was for this purpose that LET was founded, with support from the army’s Inter-Services Intelligence agency (ISI). For two decades, as the army’s proxy, it has waged an insurgency in Indian-held Kashmir that has cost over 40,000 lives. Though the ISI appears to have cut back its ties to LET since it was banned, its armouries and military training camps in Pakistan-held Kashmir have remained in place.

The bearded and purposeful men who patrol the campus in Muridke with pyjama trousers hitched halfway up their shins might be graduates of these camps. They have an imposing bearing not usually acquired during teacher training. On the campus, a 12-year-old boarding student, Hamza Nazir, says he likes his school, “because we get Islamic education and we learn how to deal with our enemies.” Asked to elucidate, he offers an Urdu proverb: “A hint’s enough for a wise man.”

Foolishly, then, many Pakistanis, including some of the country’s most senior officials, are claiming that JUD is being victimised. “No JUD office is recruiting people for jihad,” says one of those responsible for closing the group down. Many also say they fear a violent backlash. Others fret that it will be difficult to make a case against JUD’s detained leaders, even if India supplies Pakistan with the evidence of their responsibility for the Mumbai attacks that it claims to have. These are legitimate worries. Yet, especially to Indian ears, they are starting to sound like familiar excuses.

In the current spirit of nationalism, it is hard to avoid an impression that many Pakistanis are relieved to be unified against the one enemy they can all agree on, India. By contrast, many remain deeply sceptical about their need to tackle terrorism and a Taliban insurgency at home, despite over 50 suicide bomb blasts in Pakistan last year. To explain these conflicts—though it is a stretch—it has become increasingly fashionable in Pakistan to blame them on India. The army seems convinced that India is supporting the Taliban. This makes Pakistanis especially loth to crack down on LET, historically at least their trustiest weapon against India.

This is worrying. So far, Pakistan should consider itself fortunate to have received such gentle handling after Mumbai. In the event of another catastrophic attack, India might be less cautious. Even as it is, great damage has been done. Pakistan really cannot afford anything less than peace with its neighbour. Facing a long war on its north-western border, it cannot keep up its decades-old readiness on the eastern one. Moreover for its moribund economy to grow, it needs urgently to improve trade and investment relations with India.

Asif Ali Zardari, Pakistan’s commercially minded president, seemed to recognise this. He had been trying to coax life back into the once successful but now stagnant diplomatic effort to normalise relations between the two countries. But on December 14th India’s prime minister, Manmohan Singh, suggested that so long as Pakistan’s vicious sometime proxies remain unchecked, this will be impossible.

Somalia's Islamists

The rise of the Shabab

Dec 18th 2008 | KIUNGA
From The Economist print edition

Islamist fighters are taking over swathes of Africa’s most utterly failed state

FOR all its paradisal waters, golden dunes and swanky “eco-lodges”, life in Kenya’s coastal district of Kiunga, just a few miles from the border with Somalia, is hard. The place is remote, hungry and thirsty. The harvest and the wells have failed again. Fishermen have no boats, only frayed nets cast from shore. Their catch rots for want of refrigeration. But what makes the village elders more nervous than anything is their proximity to Somalia.

During a war in the 1960s between Kenya and Somali bandits, known as “shifta”, who were egged on by Somalia, Kiunga was evacuated. These days a rough track, impassable during the rains, barely connects the two countries. The border has been closed since December 2006, when jihadist fighters in Somalia retreated headlong from Mogadishu, the capital, and Kismayo, a southern port, into the mangrove swamps around Ras Kamboni, just inside Somalia. There they were shredded by Ethiopian artillery and American air raids.

An attack on Kenya by Somali jihadists based near the border is unlikely. Resurgent fighters still train there but look north. They belong to the Shabab (Youth), the armed wing of the former Islamic Courts Union that was all but wiped out two years ago. The presence of hated Ethiopian troops in Somalia, together with a corrupt and hapless transitional Somali government, gave the Shabab a chance to regroup.

Money and arms from Eritrea, which wants to use Somalia to hurt Ethiopia, as well as from some Arab countries, enabled it to recruit. Several thousand have signed up in the past year. They attend large training camps in southern Somalia where one of the instructors is said to be a white American mujahideen. They are expected to disavow music, videos, cigarettes and qat, the leaf Somali men chew most afternoons to get mildly high. Thus resolved, they wrap their faces in scarves and seek to fight the infidel. In return, they get $100 a month, are fed, and can expect medical treatment and payments if they are wounded, as well as burial costs and cash for their families if they are killed.

The Shabab now controls much of south Somalia and chunks of Mogadishu. It took Kismayo a few months ago. The port of Marka, which takes in food aid, fell more recently. Many fighters are loosely grouped around two older jihadist commanders with strongholds near Kenya’s border, Mukhtar Robow and Hassan Turki.

Mr Robow celebrated the recent festival of Eid al-Adha by hosting prayers in Mogadishu’s cattle market. How sweet it would be at Eid, he told the gathering, if instead of slaughtering an animal in praise of Allah, they would slaughter an Ethiopian. On a visit to Marka he was only slightly less belligerent. He urged reconciliation—except with enemies of Islam. There are many of those, it seems. Hundreds of Somali aid workers, human-rights campaigners and journalists have been killed or exiled. Foreigners have been shot and kidnapped, in two cases just across Somalia’s border, in Kenya and Ethiopia. Where it cannot exert control, the Shabab excuses banditry. Borrowing tactics from Afghanistan’s Taliban, it spreads chaos to build a new order.

The Shabab has learnt from its mistakes in 2006, when it was overwhelmed in a few days by the Ethiopian army. It is now more pragmatic and more aggressive. This time round, it is apparently not picking fights with wealthy qat merchants. Men can chew what they like—but won’t be “clean enough” to get a lucrative job in Kismayo’s port. Education is encouraged. Girls can go to school. Charcoal burning is forbidden for the sake of the environment.

But the Shabab has also tightened its own security. Alleged spies for the transitional government or for Ethiopia are routinely beheaded with blunt knives. Mr Turki, the jihadist leader who lives mostly in the bush near the Kenyan border, sleeps in different houses when he is in a town. Public floggings and executions strike fear. So do masked faces. “Before, we knew who killed our relatives,” says a Kismayo merchant. “Now we don’t even know that.”

Most tellingly, the Shabab has learnt how to get hold of money faster. It concentrates its fighters in towns where there is money to be earned. The aim is to create an army that puts Islamist identity above divisive clan loyalties. Shabab commanders say a pious state will emerge once weaker militias have been disarmed. Some reckon that the Shabab shares some of the ransoms earned by pirates who operate out of the central Somali port of Haradheere. Those in Puntland, farther north, are apparently beyond the Shabab’s reach.

Ethiopia says it will withdraw its troops within weeks, once ships evacuate the 3,000 Ugandan and Burundian peacekeepers under the African Union’s aegis holed up in Mogadishu. Somalia’s transitional government looks even feebler than before. This week the president, Abdullahi Yusuf, an ageing warlord, sacked his prime minister, Nur Hussein, blaming him for what the president called a corrupt, inept and traitorous government. Mr Hussein refused to resign, and won a vote of confidence in parliament. Mr Yusuf went ahead and appointed his own prime minister anyway. More factional fighting beckons.

The UN says Somalia is the world’s worst humanitarian emergency. Some 3.2m people are said to need aid. The UN, which says 40,000 Somali children could soon starve to death, expects fighting over food to break out, another reason the Shabab wants to control the ports. Pirates make it hard to deliver aid. Their activities may be curtailed after the UN Security Council this week let foreign governments chase pirates in Somalia itself as well as at sea. But the piracy will probably continue as long as the catastrophe on land does.

George Bush’s administration backed some of Mogadishu’s worst warlords as part of its war on terror. President Obama will have to take a new tack. The AU force has proved ineffective but a bigger or more robust intervention, by America or any other country, is not expected; this week Condoleezza Rice, America’s secretary of state, called in vain for UN peacekeepers to be sent. A new American administration is unlikely to urge negotiation any time soon with the Shabab; it is still listed as a terrorist group by the Americans and may indeed shelter al-Qaeda people. It may have sleeper agents in Kenya and even in Britain. It has certainly become stronger

The left's resignation note

Dec 11th 2008
From The Economist print edition

Why the left in Europe is not benefiting from the economic crisis

Illustration by Peter Schrank

SOCIALISM in Britain died in 1983. Its demise can be dated to that year’s Labour Party election manifesto, branded “the longest suicide note in history”. This document combined ideological purity (highlights included the creation of a planning ministry, withdrawal from the European Community, exchange controls to stop capital fleeing overseas and unilateral nuclear disarmament) with a lunatic disdain for what voters wanted.

Today questions are being asked about the health of the European left, as the deepening recession fails to boost Socialist parties across the European Union. This baffles many. After all, the Anglo-Saxon obsession with untrammelled markets has been exposed as madness—or so leftist bigwigs claim. Across the capitalist world, once-strutting tycoons are begging for state bail-outs. Yet voters are not flocking to mainstream centre-left parties. A recent column in Libération, a leftish French newspaper, moaned that this was not just a “paradox” but an “injustice”.

For a clue to what is going on, consider the manifesto adopted earlier this month by the EU’s centre-left parties for next June’s European election. It is punchy enough, accusing conservatives of “blind faith in the market”. Under the banner of the Party of European Socialists (PES), the left touts lots of new regulations on finance, including limits on “excessive risk-taking and debt”. (Just how regulators would detect “excessive” risk in advance is left unexplained—plenty of banks would love to know the answer.)

A motif runs through the PES manifesto, offering a move away from “unregulated markets” towards the regulating wisdom of public authorities. And there lies the left’s problem. For the real argument is not one of markets v state. Even before the crash, that was a false choice: every capitalist economy has a mix of regulation and liberalism. Now the boundary lines are blurred everywhere, as banks are nationalised and cash is shovelled to favoured industries. Instead, the big divide is over globalisation, and whether to resist or embrace competition between different countries. On that front, the PES manifesto is a muddle. Indeed, it could be dubbed one of history’s longer letters of resignation.

As successive European economies tumble into recession, the thing that most frightens and angers workers is the risk of losing their jobs to lower-cost rivals. The PES manifesto dances around this issue. It talks of “managing” globalisation for the benefit of all and using Europe’s combined size and wealth as a labour market to defend “high social standards”. But it does not promise to stop factory closures or lay-offs.

This silence has two explanations. First, Europe’s centre-left parties are split over how best to protect jobs. At a meeting in Madrid to draft the PES manifesto, some west European parties wanted language about limiting the free movement of workers within the EU, says Denis MacShane, a British parliamentarian who represents the Labour Party in the PES. But representatives from new, lower-cost EU countries like Hungary, Poland and Lithuania rejected these ideas, insisting “free movement is one of the best things about the EU.” In the end, PES leaders fudged it, with a clause saying merely that reduced social standards and wage cuts should not give one country a “competitive advantage” over another “at the expense of workers”.

In Britain and the Nordics, centre-left politicians have moved away from protecting existing jobs towards protecting individual workers (through things like retraining if they are made redundant). Elsewhere, socialists still claim that the might of the state can be used to shield workers directly. In France some want laws to ban companies that are in profit from making workers redundant. Portugal, one of the four EU countries with a majority centre-left government, has unveiled plans to subsidise wages in the car industry for up to a year, as production lines are idled.

Such strategies are, alas, fated to collide with the second explanation for the PES’s silence: that efforts to resist globalisation rarely work for long. In their guts, European voters know this. When factories are earmarked for closure, workers may protest, and may even hope that leftist leaders will join the picket lines. But the factories tend to go anyway.

Driving the social model into the ground

The proudest trophy of the left is the European social model, a web of labour and welfare laws offering a “high degree of social protection”. The model emerged during the post-war boom, when living standards soared across western Europe. In his book “Postwar”, Tony Judt, a New York-based British academic, lists many causes: governments turned away from protectionism, people started having lots of babies, energy was cheap and Europe had much catching up to do (in 1957 only 2% of Italian homes had a refrigerator, but by 1974 94% did).

Crucially, the European social model also enjoyed an amazingly low degree of external competition. In 1960 a West German car worker had little to fear from Eastern Europe or Asia. Skodas and Nissans were pretty horrid; Chinese workers were lost to the madness of Mao. When China, India and the ex-Soviet block joined the capitalist world three decades later, the global labour pool grew from 1.5 billion to 3 billion: an explosion called the “great doubling” by Richard Freeman, a Harvard economist.

Never again will west European workers live in a world with so little competition. Honest European politicians know this—and so, deep down, do most voters. That is why trade unions are still shedding members. It is why the mainstream left cannot credibly promise to reverse globalisation, preferring instead to blame the crisis on ill-regulated markets. But attacking market follies is hardly a distinctive position (listen to Nicolas Sarkozy, France’s supposedly centre-right president). Europe’s centre-left is struggling because its 20th century rationale is dying. If it cannot find a less muddled message that explicitly embraces globalisation, this economic crash could deliver it a fatal blow.

Anger over Azhar Mufti meeting Shimon Perez

Anger as Egypt sheikh meets Peres

Sheikh Tantawi insists he did not recognise Shimon Peres

Egypt's top Muslim cleric is under pressure to resign from politicians and newspapers for shaking the hand of Israeli President Shimon Peres.

Criticism has been steadily growing since the newspapers began running a photograph of the Sheikh Mohammad Sayyid Tantawi greeting Mr Peres.

The two met at the United Nations sponsored interfaith conference in New York in November.

Egypt and Jordan are the only Arab states to have made peace with Israel.

But the bitter reaction to Sheikh Tantawi's greeting of Mr Peres showed just how deep the resentment felt by many in Egypt towards its neighbour goes.

'Passing meeting'

Sheikh Tantawi heads Cairo's al-Azhar University, Sunni Islam's leading religious authority and one of the oldest universities in the world.

He [Shimon Peres] was in a place, and I was in the same place... and he met me, stretched out his hand, so I greeted him. And suppose I knew him? So what... Isn't he from a country that we recognise? Sheikh Mohammad Sayyid Tantawi

He says the meeting was in passing, insisting that he didn't recognise the Israeli president. But his explanation has done little to deflect the criticism.

Among others, the leading independent newspaper al-Dustour, has been running a daily campaign calling for his dismissal.

The newspaper said Shimon Peres, whose career in Israeli politics has spanned 60 years, is tainted with the blood of thousands of Palestinians and that Sheikh Tantawi should richly purify his hands.

A spokesman for al-Azhar blamed Sheikh Tantawi's handlers for not paying closer attention and misdirecting him.

But the Israeli media has poured scorn on that version of the story.

The newspaper Maarif reported that it was Sheikh Tantawi that approached the Israeli president.

Although Shimon Peres has declined to comment on the row, his office said at the time the encounter was pleasant and that during dinner the two men had a very serious conversation.

Senior Egyptian politicians regularly meet with Shimon Peres.

Egyptian President Hosni Mubarak played host to the Israeli president just two months ago.

But Sheikh Tantawi, say commentators, is the leader of Sunni Islam and by shaking the hand of the Israeli president, he's seen as normalising relations with Israel while at the same time associating himself with the Egyptian regime, which is deeply unpopular in many quarters.

Plumbing the depths

OPEC has its work cut out to stop the oil price from sinking further

ENERGY analysts spent the first half of the year debating how expensive oil could get. Now they are asking the opposite question. On December 2nd the price of a barrel slipped below $47, the lowest level since May 2005 and less than a third of the peak reached in July.

The main reason for the slump is the darkening outlook for the world economy. Demand for oil continues to grow in a few spots, such as China. But in most places it is falling. America’s appetite for oil, for example, had been more or less stagnant for the past few years, but has recently dropped dramatically (see chart). Many now expect global oil demand to fall next year, and perhaps even this year—which would be the first decline since 1993. Meanwhile, several new oilfields and refineries, which were set in motion when the price seemed likely only to rise, are due to start up in the coming months, increasing supply just as demand atrophies.

The Organisation of the Petroleum Exporting Countries (OPEC) does not seem able to cut its production fast enough to keep pace with all this grim news. In October the cartel agreed to pump 1.5m fewer barrels each day from November 1st, reducing global supply by about 2%. But that cut is only just beginning to take effect, since it can take more than a month for tankers to reach their destinations. Moreover, OPEC’s members do not yet seem to be complying fully with their diminished quotas.

The king of Saudi Arabia recently said that $75 a barrel would be a fair price—an idea that other members of the cartel have echoed with enthusiasm. Oil’s plunge has left many of them in dire fiscal straits. This suggests that when the group meets again on December 17th, it will resolve to cut its production further. But Saudi Arabia will not want to bear all the cost, so it will insist that other big producers, such as Iran and Venezuela, should not only agree to further cuts of their own but also implement them.

Michael Lewis of Deutsche Bank argues that OPEC’s past efforts to prop up prices have succeeded more often than not. Since 1993, cuts in production have led to higher prices on three-quarters of occasions. The exceptions, however, have occurred when the world economy has slowed unexpectedly—most notably in 1998, after the Asian crisis, and in 2001, after the dotcom bubble burst. On those occasions, the price kept falling for more than six months after OPEC first began reducing its output. In 2001, for example, the cartel had to resort to a series of cuts, totalling 5m barrels, before the price finally began to recover.

If events take a similar turn this time, Mr Lewis reckons, OPEC will have to keep cutting its output for another year. The price may not hit rock bottom until early 2010. But the world economy looks less healthy now than it did in 2001, so OPEC may face even more of a struggle this time, he thinks. Deutsche Bank, for one, sees prices falling as low as $35 at times between now and then. After adjusting for inflation, Mr Lewis points out, that would only take the price back to its average level since 1972.

Dec 4th 2008
From The Economist print edition

The American economy

A spent force

Ominous signs that the crisis will have a big impact on spending

IT WAS, admitted Hank Paulson as he threw a $250 billion lifeline to American banks, objectionable to most Americans, himself included, to see the government owning stakes in private companies.

He had no real alternative. But it would have been less objectionable had he been able to promise that the economy would escape a recession as a result. He could not. It may well be in recession already.

The economy appears to have barely grown in the third quarter and the surge in financial stress that followed Lehman Brothers’ failure in mid-September will make things worse. The subsequent plunge in stocks on top of still-falling home prices could result in a 14% drop in household wealth this quarter, the largest on record, according to ISI Group, a broker. News that retail sales sank 1.2% in September triggered the biggest drop in the Dow industrials in 21 years on October 15th.

If it were only wealth, construction and other tangible factors that were in decline, the recession could still be on the mild side—especially as oil prices are falling. But the credit crunch is a wild card. The experience of the Carter era suggests the effect of credit restraint can be large. In 1980 President Jimmy Carter imposed credit controls in a ham-fisted effort to reduce inflation: banks that exceeded targets for some types of loans such as for consumer purchases and mergers had to set aside extra reserves. Americans overreacted in a burst of patriotic fervour; credit usage plunged and GDP fell by an annualised 8%, the steepest quarterly drop in the past 50 years.

Since then the influence of debt has probably grown as the economy has become more credit-intensive. Consumer and home-equity loans equalled 26% of annual personal consumption in the 1990s; they recently reached 36%. In the 1980s about half of homeowners had a mortgage; now about two-thirds do, says Ivy Zelman, a housing consultant.

Meanwhile, the demand for bank credit by companies shut out of the commercial-paper market is straining balance-sheet capacity. In theory the government’s $250 billion rescue package for banks, levered ten-to-one, could support $2.5 trillion of lending (total credit in the economy was $27 trillion as of June 30th). But no one expects so large an effect because banks are trying to delever and will probably build their reserves in anticipation of more loan losses as the economy worsens.

Non-banks are a particular problem. The finance affiliates of the big carmakers, most prominently GMAC, 49% owned by General Motors, now face funding constraints, forcing them to raise underwriting standards and loan charges. Approvals for car-loan applications have fallen sharply (see chart).

Non-banks can tap the Federal Reserve’s new commercial-paper guarantee programme, but are not eligible for government capital. Credit-card debt continues to grow but in that business, too, lenders are cracking down in subtle ways, says David Robertson of the Nilson Report, an industry newsletter. One is to reduce unused credit limits on middle-to-higher-income borrowers who might use more credit if they lose their jobs.

Surprisingly, mortgage-lending conditions may be improving. Under pressure from the federal government, Fannie Mae and Freddie Mac, the now-nationalised mortgage agencies, and the Federal Housing Administration, the programme for low-income buyers, are stepping up their activity. A buyer can now obtain an FHA loan with as little as 3.5% down on a house costing up to $625,000—which would include most of the homes in the country. Ms Zelman reckons the FHA accounted for 22% of mortgage originations in the third quarter, up from 5% in all of 2007.

The real problem, Ms Zelman says, is that almost a quarter of homeowners with mortgages have zero or negative equity in their homes. Householders, she says, have too much debt and must save more. It is, she says, not about credit. “It’s about a hangover from hell.”

taken from:

Oct 16th 2008 | WASHINGTON, DC
From The Economist print edition

Is It the Dawn of the Reregulation Era?

Regulation has been a dirty word in business—and in Washington—for decades. But government oversight is looking a lot better lately

The 30-year era of deregulation came to a sudden and surprising end on Sept. 16. Late that evening the Federal Reserve extended $85 billion to take an unprecedented 80% stake in American International Group (AIG) in order to save the floundering insurance giant. Less than two weeks earlier, Treasury Secretary Henry M. Paulson Jr. had announced that the federal government was taking over Fannie Mae (FNM) and Freddie Mac (FRE), the colossal mortgage agencies. Suddenly the U.S. financial sector could not survive without government help.

Since the long-ago days when Jimmy Carter was President, regulation has been a dirty word in Washington. Politicians of both parties vied to see how much of the economy they could free from the oppressive yoke of government control. The deregulation movement started when Carter signed the Airline Deregulation Act of 1978. Later, as it spread from energy to trucking to telecommunications to financial services, the rallying cry was the same: Less regulation, more growth.

But the implosion in financial services—until recently seen as the shining example of U.S-style free market capitalism—is the definitive sign that deregulation has lost its allure. In areas ranging from food safety to airlines to trade, increased government supervision is becoming acceptable to business as well as to voters. "Over the past couple of years, the mood has changed," says Chris Waldrop, director of the Food Policy Institute at Consumer Federation of America. "What's possible has expanded."

The Candidates Weigh In

Indeed, both consumer and industry groups have come out in favor of giving the Food & Drug Administration stronger authority to monitor food safety. The shift toward reregulation is reflected in the Presidential campaigns. Back in March, Senator John McCain (R-Ariz.) said: "I'm always for less regulation" and referred to himself as "fundamentally, a deregulator." But in a Sept. 16 speech the Republican nominee adopted a far different approach: "Under my reforms, the American people will be protected by comprehensive regulations." On the same day, the Democratic nominee, Senator Barack Obama, (D-Ill.) who has argued much more aggressively about the need to bolster regulation, stepped up his rhetoric as well: "It's time to get serious about regulatory oversight," he said.

The implication: "We're moving in the direction of more regulation," says Tom Gallagher, who analyzes Washington policy at International Strategy & Investment. "The direction is locked into place; the only question now is magnitude." That's a big change. Over the past three decades, the U.S. economy has more than doubled in size , and the private workforce has grown by 70%. Yet overall, outside the Defense Dept., the executive branch employs about the same number of people today as it did in 1978. What's more, many regulatory agencies in Washington have even shrunk. Since 1977 the budget of the Environmental Protection Agency has fallen by nearly 40% in real terms. Financial industry regulation hasn't kept up, either. Despite the vastly increased complexity of the financial sector, the number of employees working at the Federal Reserve, including the regional Fed banks, has decreased since 1990.

Advocates of deregulation in both parties argued persuasively that this decline in the role of government was essential for U.S. competitiveness. The classic case, of course, was financial sector deregulation. Alan Greenspan, as Fed chairman, supported "counterparty supervision," which meant financial institutions would keep close watch on their trading partners out of self-interest. And Robert E. Rubin, as Treasury Secretary under President Bill Clinton, helped repeal the Glass-Steagall Act, which had restricted what commercial and investment banks could do. Moreover, deregulation, in general, was good politics. Voters generally don't like regulations, says Larry M. Bartels, director of the Center for the Study of Democratic Politics at Princeton University. "The notable exception to that is when people are scared." Certainly, there have been plenty of scares in the past few years. A series of food poisoning episodes—notably, the salmonella outbreak that sickened about 1,500 people earlier this year—made consumers worry about the safety of the nation's food supply. What's more, it became clear that the Food & Drug Administration had no easy way to trace tainted food back to its source.

Vulnerable Food Industry

Those incidents resulted in a major turnabout in the food industry's view of regulation. It once loved the fact that the FDA didn't have the money or inspectors to scrutinize it. "The reduction in regulation has made things worse, and industry recognizes it," says William K. Hubbard, a former FDA associate commissioner. "I think they really became aware of their vulnerability."

Electric utility deregulation, too, is coming under increasing attack because true competition has been slow in coming. "I don't think there's any question the pendulum is swinging away from deregulation," says Charles D. Gray, executive director of the National Association of Regulatory Utility Commissioners. One example: The Federal Energy Regulatory Commission was recently granted the authority to mandate the construction of transmission lines. "A lot of the infrastructure issues are not well suited to competition or market opening," says Gray.

The breakdown of the financial markets has left open the question of how much deregulation will be left when the dust settles. "Everyone thought the market had it under control," says economist and financial industry expert Robert E. Litan, vice-president for research and policy at the Ewing Marion Kauffman Foundation Institution. "It was believed by a lot people, even including me."

Not everyone agrees the era of deregulation is over. In energy, voters seem willing to support more offshore drilling. And Daniel Clifton, head of the Washington office of Strategas Research Partners, argues that state and local governments will still have to privatize roads, prisons, and other pieces of their infrastructure. Increasing government control will never be as sexy and politically potent as deregulation once was. But at least for now, reregulation looks like the wave of the future.

Climate change and the poor

Adapt or die

Sep 11th 2008
From The Economist print edition

Environmentalists have long said the world should concentrate on preventing climate change, not adapting to it. That is changing

Panos

“I USED to think adaptation subtracted from our efforts on prevention. But I’ve changed my mind,” says Al Gore, a former American vice-president and Nobel prize-winner. “Poor countries are vulnerable and need our help.” His words reflect a shift in the priorities of environmentalists and economists.

For years, greens said adaptation—coping with climate change, rather than stopping it—was a bit like putting out a fire on the Titanic: desirable, no doubt, but the main thing was to change course. In July, however, a committee of America’s Senate set aside $20m for international adaptation efforts. That was peanuts; and nothing will come of it anyway because there is no comparable legislation in the House of Representatives. But it was the first time American legislators had showed willingness to put money into global efforts at coping. In June, the United Nations hammered out the details of how to control spending of the first carbon tax earmarked for international adaptation.

Two things have changed attitudes. One is evidence that global warming is happening faster than expected. Manish Bapna of the World Resources Institute, a think-tank in Washington, DC, believes “it is already too late to avert dangerous consequences, so we must learn to adapt.”

Second, evidence is growing that climate change hits two specific groups of people disproportionately and unfairly. They are the poorest of the poor and those living in island states: 1 billion people in 100 countries. Tony Nyong, a climate-change scientist in Nairobi, argues that people in poor countries used to see global warming as a Western matter: the rich had caused it and would with luck solve it. But the first impact of global warming has been on the very things the poorest depend on most: dry-land agriculture; tropical forests; subsistence fishing. In a recent paper* for the Brookings Institution, a think-tank in Washington DC, Robert Mendelsohn of Yale University estimates that African farmers on rain-fed land will lose $28 per hectare per year for each 1°C rise in global temperatures. Global warming erodes coastlines, spreads pests and water-borne diseases and produces more erratic weather patterns.

The victims share two characteristics. They are too poor to defend themselves by expensive flood controls or sophisticated public-health programmes. And (unlike China or Brazil) their own carbon footprints are tiny. Kirk Smith, a professor at the University of California, Berkeley, calls climate change the world’s biggest regressive tax: the poorest pay for the behaviour of the rich (see map).

The new focus on adaptation shows itself in a slew of private- and public-sector projects. A private Australian company called New Forests cleans up degraded land in South-East Asia, creates “biodiversity conservation certificates” and sells them to big firms which want to be greener. Swiss Re is designing new kinds of subsidised insurance to help poor farmers in a dozen African countries guard against some of the impacts of climate change, creating innovative climate-risk indices and weather derivative contracts. Dozens of small firms advise big ones on cutting their carbon footprints; although most aim at reducing emissions, a few invest in reforestation, soil protection and the like.

On the public-sector side, rich-country governments are levying new taxes and using the revenues for global poverty-reduction and adaptation. France, for example, imposes a tax on international flights of between €1 and €40 per seat, using the money for HIV/AIDS in Africa. Some environmentalists want a similar tax on all international flights to help adaptation. Countries are creating adaptation funds by auctioning rights to pollute under cap-and-trade arrangements. A fifth of the money raised by the European Union’s emissions-trading scheme—forecast at over $2 billion a year by 2020—is supposed to go on climate-change efforts including, as the scheme says, “developing countries’ adaptation”. A bill proposed this year in America’s Senate would have generated $10 billion-20 billion a year after 2025. The bill failed but similar steps have the backing of both Barack Obama and John McCain.

Most important, a United Nations conference in Bali last December set up what is essentially a global tax on carbon, with the money to be spent by an international body. Under the Kyoto protocol, companies in rich countries that have signed the climate accords can finance reductions in emissions by private firms in developing nations. In return, rich-country companies can offset a portion of their own (capped) emissions. These company-to-company deals produce “carbon credits” which have a value and can be traded. In June, it was agreed that 2% of that value (forecast at up to $950m by 2012) will go into an adaptation fund controlled by donors and recipients. About $100m-worth of these credits are already in the bank.

So adaptation is becoming a proper business. As it does so, however, it encounters a host of problems.

To begin with, the money involved is just a puff of smoke. Back-of-the-envelope calculations suggest the cost of coping with climate change is in the tens of billions a year for poor countries (see table). The total pledged to date (cumulatively, not per year) is $300m, of which just 10% has actually been spent. China says rich countries should allocate 0.5% of their national incomes in official aid to help developing countries adapt. But most rich countries are failing to fulfil earlier promises to increase aid for other reasons, so that looks like a non-starter.

The discrepancy means poor countries will end up bearing most of the burden themselves. China has a national climate-change programme with an elaborate series of targets and exhortations to cope. Bangladesh this year put $50m into a national adaptation fund and invited rich countries to add of their plenty. But this sort of thing is much easier for giants like China or large countries like Bangladesh, than it is for poorer Mali or tiny Maldives.

With more problems than money, there will—as always—be a fight over the spoils. Rich countries may concede the poor are harder hit and need help, but once there is a pot of money, they too will want a share. For an American administration, rebuilding the levees of New Orleans (an adaptation programme) will take precedence over projects in Africa or the Caribbean.

Even if poor countries do get help, there are bound to be fights over how to use it. In general, says Saleemul Huq of the International Institute for Environment and Development in London, most adaptation spending should go on what countries are doing anyway—irrigation, drought-resistant seeds and so forth. But that leaves plenty of room for disputes.

If sea levels go up, do you build sea walls or rehouse people? If infectious diseases are rising, do you spend money trying to eradicate the worst ones, like malaria, or on health and nutrition in general? The latter makes sense but most donors concentrate on single-disease efforts. George Soros, a financier who runs a chain of philanthropic organisations, says that in their experience, few people in poor countries have a clear idea about climate change and how to cope with it.

Lastly, the international arrangements that might help sort out some of these disputes are a shambles. Among developing countries, most negotiations on climate change (as on everything else) are led by the big three: China, India and Brazil. But they are large polluters themselves and their interests differ from very poor states and islands. Angus Friday, Grenada’s ambassador to the UN who speaks for island states there, says the states most vulnerable to climate change are least able to participate effectively in climate-change talks.

The poorest lose out in another way. When industrial polluters in emerging markets cut emissions, they are rewarded through Kyoto. But the poorest are not rewarded for the big contribution they could make towards reducing emissions, which is the better management of tropical forests. That is because forests were excluded from Kyoto, to the chagrin of the poor.

Mary Robinson, a former president of Ireland and UN high commissioner for human rights, says that there should be a “rights-based” approach to climate change, meaning poor countries should have some redress under international law for the environmental costs they suffer. This seems like a recipe for alienating rich countries. But it reflects a growing impatience. As the costs of climate change bear down on the poor, so their demands grow that rich countries, which caused most of the problems, should help them cope.

* www.brookings.edu/events/2008/0801_development.aspx

A worker removing English signage in Mumbai on Aug. 26. (Rajanish Kakade/The Associated Press)

LETTER FROM INDIA

In India, the paradox of 'choice' in a globalized culture

By Anand Giridharadas

Published: September 11, 2008
Internation herald tribune

UMBAI: A decade ago, the world hurtled toward a calendrical crisis, and India seized an opportunity.

An affliction called the Y2K bug impended. Thousands of Indian techies were marshaled to repair the software glitch. The rest is outsourcing history.

The outsourcing boom craved English speakers. Hole-in-the-wall "academies" from Kerala to Punjab began to sell English classes for a few dollars a week. A colonizer's language was recast in the minds of many young lower-income Indians as a language of liberation, independence and mobility.

A decade hence, Indians who have achieved that mobility may struggle to understand the newspaper headlines in Mumbai in recent days. They tell of brigades of young men shattering the windows of shops and restaurants whose signs declare their names only in English, not in the regional language Marathi.

The men are cadres of a political party, the Maharashtra Navnirman Sena, that has electrified a section of lower middle-class youth in this city. Many of them view English as a language of exclusion: a secret code that, having become success's prerequisite, traps millions of non-English speakers in failure.

How can the same language refract so differently through different eyes? The answer here, as on school playgrounds everywhere, depends on who got there first.

Societies are not monolithic blocks that go global all at once. Social change has early and late adopters, and the choices of the timely alter the options among which the tardy must subsequently choose. And so a defining fact about globalization may be that it has freed untold millions from inherited destinies, even as it makes others feel as though their control over fate is slipping away.

It is a universal feeling, connecting the late-adopter Alaskan governor who resents having to be worldly to be respected in her own country with the late-adopter Indian villager who resents having to speak English to be respected in his own country.

In India, early adopters of globalism made certain choices freely and enthusiastically. They studied English. They honed their skills at software. They learned to be chummy rather than deferential around superiors, to guzzle wine rather than beer, to dress and eat and talk in manners alien to them.

By making these choices, Indians were commandeering their own fates.

But the more people who make such choices, the more the society is remade in their image - and the more late adopters can feel like strangers in their own land.

"Hi my name is Akash and I am from India. I dream of working in a Call Center, but I've MTI (Mother Tongue Influence). How am I suppose to get rid of it? Please help," read the posting on an Internet bulletin board.

When Akash's predecessors learned English and found decent jobs some years ago, they were not motivated by insecurity. Global industries like call centers were a new thing here, and having English was simply a nice plus. It would not have felt like a survival skill.

But the choices of the millions who adopted English now act to constrain the choices of Akash. English has become something more in India than a pathway out of poverty. It has become, as it is not in Brazil or China, the language of respect. An Indian who speaks only Indian languages will face inferior treatment in her own society.

To understand the recent window-smashing here, ask yourself: How does it feel to be told that your mother tongue is something to be purged? Is the "choice" to learn a language really a choice when choices made earlier by others have determined the correct answer?

The political scientist David Singh Grewal examines this paradox of choice and choicelessness in a trenchant new book, "Network Power: The Social Dynamics of Globalization."

"The pressures of cultural convergence generated by today's globalization trickle down to the local level," he said in an e-mail message. "Where the process is most disruptive, millions - perhaps even billions - of people feel required to undertake an ambivalent and half-hearted assimilation. Yes, they choose to assimilate, but they may also feel that they have no other real option to choose."

Globalization is often cast as a process of wealthy countries swamping developing nations with alien customs and ideas. But it might also be seen as a competition among the citizens of developing nations themselves. Globalization has created a new kind of status anxiety: not to be richer than your neighbors, but more world-ready.

If you grew up eating with your hands and savoring the taste of food off your fingers, you might resent that upper-crust fashions dictate now that you switch to forks and knives to eat your own cuisine.

"Is it considered uncivilized to eat without a knife and fork?" an Indian questioner asked on a Yahoo! Internet message board. "Burgers and sandwiches aside. Eating rice and other 'dinner' foods; Knife + Fork or hands? I love roti and butter chicken and i just cannot see how to eat it besides with my hands."

Many Indians have grown up cleaning themselves on the toilet with a mug of water and a hand. Mug-and-hand types often view paper users as skeptically as paper users view them. But India's early adopters tend to be of the paper school. And thus today, when mug-and-hand veterans stay in nice hotels or work in big companies, they often find that the cleaning method comfortable to them is unavailable in their own society.

In recent days, a battle over land swelled in eastern India. In a sea of farms in Bengal, an Indian carmaker was getting ready to make the world's least expensive car, the $2,250 Nano. Farmers had sold land to make way for the project, with varying degrees of consent. Then some began to want it back, and the resulting protests halted Tata's operations.

In the prosperous cities, they sneered: Don't they get it? They want land, not money? But the urban sneerers were early adopters. They may not realize it, but they live on a grid of advantages. They have bank accounts. They know how to invest. They have the ethic of thrift and saving that moneyed families pass down the generations.

The late adopters live in an economy of land, a universe where barter still operates, where status and prestige and security still come from the earth, and where the choice to join an urban, moneyed existence feels ever less like a meaningful choice.

"Somewhere I sense that even the most generous monetary compensation will fail to offset my feelings of loss," said Sudhir Kakar, an Indian writer and psychoanalyst, adopting a farmer's perspective.

"What looms instead is the specter of a future which is not only opaque, but represents a threat to any sense of purpose."

What’s with all the hurricanes?

What’s with all the hurricanes?

By Eoin O'Carroll | 09.04.08(Christian Science Monitor)

Look at a satellite map, and you’ll see them lined up like Rockettes, stretching from Texas to the Canary Islands: Former Hurricane Gustav, Tropical Storm Hanna, Hurricane Ike, Tropical Storm Josephine. What gives?

Four simultaneous named storms is unusual, but it’s not unprecedented. As the AP’s Seth Borenstein points out, 1998 saw four hurricanes – not just tropical storms – at the same time. And in 1995 we had five coinciding tropical storms.

Still, it’s not every year that we see a procession like this. Borenstein explains how a number of circumstances have combined to create ideal conditions for tropical storm formation. First is a relative absence of wind shear in the North Atlantic, which can weaken storms or prevent them from developing. Then there are the winds bracketing the hurricane-formation regions, blowing from the west in the deep tropics and from the east in the subtropics, making it more likely for spinning storm systems to develop. And then there’s the slightly-warmer-than-average water, which fuels storms.

And finally, there’s the low atmospheric pressure caused by all the other tropical storms. Hurricanes, it seems, can sometimes beget more hurricanes.

Beginning in 1995, there has been a big upswing in the number of Atlantic tropical storms. According to the Pew Center on Global Climate Change, the years 1850 to 1990 saw an average of about 10 tropical storms, including about 5 hurricanes. Since 1995, the average has spiked, with the 1997-2006 average at about 14 tropical storms, including about 8 hurricanes. This increase correlates with the rise in ocean temperatures, which in turn is linked to global warming.

So can we say that global warming is already influencing hurricanes? Not so fast. This is a matter of honest-to-goodness debate among climate scientists (as opposed to a certain other debate that is largely manufactured). A document posted on the World Meteorological Organization’s website and signed by the world’s top tropical cyclone experts agrees that there is evidence both for and against a human fingerprint on hurricane activity, and that models predict a 3 percent to 5 percent increase in windspeed per degree Celsius increase of ocean surface temperatures.

What’s more, some scientists say they see evidence that ocean temperature goes through natural variations, such as the hypothesized Atlantic Multidecadal Oscillation, a roughly one-degree-Fahrenheit swing in ocean temperatures said to last about 20 to 40 years. According to this theory, since the mid-1990s, we’ve been in a warm phase. This oscillation has been going on for at least the past millennium, and could very well be a cause of the recent spate of Atlantic hurricane activity, but this has by no means been proven.

Also, remember that Atlantic storms account for only about a tenth of all tropical storms. The rest, called cyclones and typhoons, are in the Indian and Pacific Oceans, and their numbers have held steady.

Still, many scientists have observed that hurricanes have gotten more intense in recent decades, and the UN’s Intergovernmental Panel on Climate Change found that it is “more likely than not” that this observed increase is partly due to human activity. What’s more the panel said that it is likely (that is, better than 2 to 1 odds) that future storms will be stronger due to global warming.

And, as I wrote in my previous post, a paper published in this week’s edition of the journal Nature observed that the strongest storms over the past 26 years have become stronger due to increased ocean temperatures.

But none of this is definitive. The data set of measurements of hurricanes is far from perfect, and the mechanisms of the relationship between ocean surface temperatures and storm intensity is poorly understood. What’s more, one study by the NOAA published this year found that global warming could actually decrease the severity of storms, by creating wind shear that lops off the top of the storms.

So until a consensus emerges, those advocating action on climate change will have to content themselves with the prospect of mass extinctions, rising sea levels, withered crops, drought, and water shortages. As for whether the storms currently marching toward our coasts have been influenced by our SUVs, the jury is still out

Time for a new generation

Libya: Time for a new generation

Aug 28th 2008 | CAIRO
From The Economist print edition

Change, if it is on the way, comes in most mysterious ways

HOWEVER much of a mess it has made of Libya, the Qaddafi family certainly puts on a diverting show. Like a television serial with several sub-plots, the drama involving Muammar Qaddafi, who has run his oil-rich state since seizing power 39 years ago, and his eight children, manages to sustain suspense even as the story twists in different directions at once.

For the past few years, a striking sub-plot has been Libya’s emergence from the international isolation brought by its involvement in terrorism in the 1980s. This story has now taken a final happy turn with the inking of an agreement with America to settle all outstanding legal claims between the two countries. A compensation fund, likely to be filled by a mix of Libyan oil money and “donations” from big American firms keen to do business with Libya, will now pay the remaining compensation to American victims of the PanAm aircraft blown up over the Scottish town of Lockerbie in 1988 and for other Libyan-sponsored attacks, as well as for 40-plus Libyans killed by an American bombing raid in 1986 in retaliation for an earlier terrorist incident.

The deal opens the way to a full restoration of diplomatic ties, severed in 1980, and marks the final stage of a process begun in 2001 to reintegrate Libya into the international community. The American secretary of state, Condoleezza Rice, is expected to visit Libya in September, the first such visit by so senior an American diplomat since 1953. Though American qualms linger over Libya’s nasty treatment of dissidents, the step is seen as a necessary reward for Mr Qaddafi’s close co-operation in fighting jihadist terrorism and his decision in 2003 to dismantle a programme to develop nuclear and chemical weapons.

Another long-running drama involves a challenge to the elder Qaddafi from his urbane son, Seif al-Islam. A 35-year-old engineer who dabbles in painting and espouses such causes as environmentalism and human rights, he has emerged as a champion of a different vision for Libya, which most Libyans heartily agree has been dreadfully mismanaged under the dictatorship disguised behind his father’s quirky ideology of “direct democracy”.

Some of the younger Qaddafi’s initiatives have had a degree of success. Like his father, he has held no official position. But Engineer Seif, as he is known, has been credited with solving such tricky issues as last year’s release of Bulgarian medical workers, whom the Libyan authorities had jailed on charges of infecting hundreds of children with AIDS. He has promoted freer public debate, financing Libya’s first privately owned newspapers and television stations, and encouraging the return of exiled dissidents. He has also been careful to shield his father from direct criticism.

Yet, despite the easing of blanket censorship, the passage of some market reforms, surging state earnings from oil and a growing openness to the outside world, the government is still chaotic, oppressive, and opaque. In recent speeches, Seif has sounded increasingly impatient with the slowness of change; many Libyans think he had begun to tread on important toes, including those of some of his siblings. In a wide-ranging address to thousands of youths on August 20th, he decried the “forest of dictatorships” characterising the region and the tendency for sons to inherit their fathers’ throne. He then stunned the audience by declaring that he planned to step aside from politics.

But was he genuine?

Opinions divide over what prompted this move. Made cynical by decades of the older Qaddafi’s antics, many Libyans think his son’s abdication a stunt. They point as evidence to the eruption of “spontaneous” demonstrations in Libyan cities, where protesters have pleaded for the elder Qaddafi to intervene and persuade his son to return to the fray. Others take the younger man’s decision more seriously, as a sign that his lower-profile younger brother, Mutasim, a powerful figure in Libya’s security agencies, has quietly moved to demote his would-be reformist brother.

The suspense may not last long. Qaddafi père is due to make his annual rambling speech on September 1st, the anniversary of the coup that brought him to power. Libyans will be looking for clues as to which son may win his blessing. One sure thing is that it will not be the fifth one, Hannibal. In another running sub-plot, he was arrested in July, yet again, in embarrassing circumstances, while on holiday in Europe. After previous brushes with the law in Britain, France, Italy and the Netherlands, he was charged in Switzerland with beating up two hotel servants.

Russia and Georgia

A scripted war

Aug 14th 2008 | GORI, MOSCOW AND TBILISI
From The Economist print edition

Both sides are to blame for the Russian-Georgian war, but it ran according to a Russian plan

AP

GORI was Stalin’s birthplace. Did his statue in Stalin Square smile approvingly on Vladimir Putin as Russian tanks rolled past and the few residents left wandered around the bombed ghost town, without purpose? In 1921 the Bolsheviks occupied Georgia. Now Russia, for the first time since the collapse of the Soviet Union, had invaded a sovereign country.

Georgia was once the jewel of its empire, and Russia has never psychologically accepted it as a sovereign state. Nostalgia for the Soviet empire has long been the leitmotif of Russia’s ideology. This month it re-enacted its fantasy with aircraft and ground troops. It occupied Abkhazia and South Ossetia, the two separatist regions of Georgia, blockaded the vital port of Poti, sank Georgian vessels, destroyed some infrastructure, blocked the main east-west highway and bombed and partially occupied towns in Georgia, including Gori.

Western diplomats and politicians rushed to Moscow and to Georgia’s capital, Tbilisi, trying to broker a ceasefire. The lobby of Tbilisi’s main hotel resembled a United Nations conference. On August 12th Russia, having pulverised the small Georgian army, decided it was time to stop. A few hours before France’s president, Nicolas Sarkozy, was due in Moscow, Russia’s president, Dmitry Medvedev, announced an end to Russia’s “peace enforcement operation”. The aggressor, he said “is punished and its military forces are unravelled”. He then signed the ceasefire plan that Mr Sarkozy brought to Moscow.

That same day, hundreds of thousands of Georgians flooded Rustaveli Avenue, Tbilisi’s main street. They read poetry and sang songs. Georgia, a small, dignified, theatrical nation, had held together. In the evening they lit candles and waved flags: Georgian, Ukrainian, Armenian. On the same spot almost 20 years ago Soviet troops had brutally disbanded a demonstration which had declared Georgia’s independence.

Yet it was not until America’s George Bush delivered a stark warning to Russia late on August 13th that Russia began to pull back all its forces. Mr Bush sent his secretary of state, Condoleezza Rice, to Georgia and told his defence secretary, Robert Gates, to organise a humanitarian-aid operation. The first American aircraft landed at Tbilisi airport soon afterwards.

So what was all this about? Clearly, more than the two separatist regions of Abkhazia and South Ossetia, as Russia claimed. It was also about more than simply punishing Georgia for its aspirations to join NATO, or even trying to displace Mikheil Saakashvili, Georgia’s hot-headed president, who has irritated Russia ever since he came to power in the “rose revolution” in 2003. It is about Russia, resurgent and nationalistic, pushing its way back into the Caucasus and chasing others out, and reversing the losses Russia feels it has suffered since the end of the cold war.

The fact that Georgia is backed by the West made it a particularly appealing target. In fighting Georgia, Russia fought a proxy war with the West—especially with America (which had upgraded the Georgian army). All this was a payback for the humiliation that Russia suffered in the 1990s, and its answer to NATO’s bombing of Belgrade in 1999 and to America’s invasion of Iraq. “If you can do it, so can we,” was the logic.

Russia was also drawing a thick red line on the map of Europe which the West and NATO should not cross. And, as in any war, there were powerful subjective reasons in play. Mr Putin’s personal hatred of Mr Saakashvili, and his ability to deploy the entire Russian army to fulfil his vendetta, made war all but inevitable.

With the smoke of battle still in the air, it is impossible to say who actually started it. But, given the scale and promptness of Russia’s response, the script must have been written in Moscow.

Who is to blame?

The rattling of sabres has been heard in both capitals for months, if not years. Russia imposed sanctions on Georgia and rounded up Georgians in Moscow. In revenge for the recognition of Kosovo’s independence earlier this year, Mr Putin established legal ties with the governments of South Ossetia and Abkhazia. When Mr Saakashvili called Mr Putin to complain and point out that the West supported Georgian integrity, Mr Putin, who favours earthy language, is said to have told him to stick Western statements up his backside.

In the late spring, Russia and Georgia came close to a clash over Abkhazia but diplomats pulled the two sides apart. A war in Georgia became a favourite subject in Moscow’s rumour mill. There were bomb explosions in Abkhazia and the nearby Russian town of Sochi, the venue of the 2014 Winter Olympics.

Suddenly, the action switched to South Ossetia, a much smaller rebellious region divided from Russia by the Caucasus mountains. In early July Russia staged a massive military exercise on the border with South Ossetia. At the same time Russian jets flew over the region “to establish the situation” and “cool down Georgia’s hot-heads”, according to the Russians.

The change of scene should not, in retrospect, be surprising. Unlike Abkhazia, which is separated from the rest of Georgia by a buffer zone, South Ossetia is a tiny patchwork of villages—Georgian and South Ossetian—which was much easier to drag into a war. It is headed by a thuggish former Soviet official, Eduard Kokoity, and run by the Russian security services. It lives off smuggling and Russian money. As Yulia Latynina, a Russian journalist, puts it, “South Ossetia is a joint venture between KGB generals and an Ossetian gangster, who jointly utilise the money disbursed by Moscow for fighting with Georgia.”

In early August Georgian and South Ossetian separatists exchanged fire and explosive attacks. South Ossetia blew up a truck carrying Georgian policemen and attacked Georgian villages; Georgia fired back at the capital of South Ossetia, Tskhinvali. On August 7th Georgian and South Ossetian officials were due to have direct talks facilitated by a Russian diplomat. But according to Temur Iakobashvili, a Georgian minister, the Russian diplomat never turned up.

What happened next is less clear. Russia claims that Mr Saakashvili treacherously broke a unilateral ceasefire he had just announced, ordering a massive offensive on Tskhinvali, ethnically cleansing South Ossetian villages and killing as many as 2,000 people. According to the Georgians, the ceasefire was broken from the South Ossetian side. However, what triggered the Georgian response, says Mr Saakashvili, was the movement of Russian troops through the Roki tunnel that connects South Ossetia to Russia. Matthew Bryza, an official at the State Department, says he was woken at 2am on August 7th to be told that the Georgians were lifting the ceasefire. “I tried to persuade them not to do it,” he says.

That same night, Georgia started to shell and invade Tskhinvali. Then the Russian army moved in—the same troops that had taken part in the military exercise a month earlier. The picture Russia presented to the world seemed clear: Georgia was a reckless and dangerous aggressor and Russia had an obligation, as a peacekeeper in the region, to protect the victims.

Russia’s response was predictable. One thing which almost all observers agree on is that Mr Saakashvili made a catastrophic mistake by walking into the Russian trap. As Carl Bildt, Sweden’s foreign minister, puts it: “When you have a choice between doing nothing and doing a stupid thing, it is better to do nothing.” But Mr Saakashvili, a compulsive risk-taker, did the second. Even now he is defiant: if the clock were turned back, he says his response would be the same. “Any Georgian government that would have done differently would have fallen immediately,” he says.

Mr Saakashvili bears responsibility for mismanaging disputes between Georgia and the enclaves, pushing them firmly into Russian hands. Yet his mistakes and follies notwithstanding, Russia’s claim that it was “enforcing peace” is preposterous. Despite the terrible atrocities which both South Ossetia and Abkhazia suffered in the early 1990s from the brutal and nationalist government of the Georgian president, Zviad Gamsakhurdia, South Ossetians got on with the Georgians much better than the Abkhaz did. They traded heavily in a smugglers’ market (which Mr Saakashvili shut down in 2004) and lived alongside each other peaceably.

“Georgians always helped me and I don’t feel any pressure now,” says a South Ossetian woman who got trapped in Gori after the Russian attack. This is not a comment frequently heard in Abkhazia. Mr Saakashvili’s nationalistic approach to separatist conflicts certainly did not help, but had it not been for Russia supporting South Ossetia’s corrupt regime, the two sides would not have gone to war. And instead of containing the conflict Russia deliberately spread it to Abkhazia.

Tales of horror

Russia was prepared for the war not only militarily, but also ideologically. Its campaign was crude but effective. While its forces were dropping bombs on Georgia, the Kremlin bombarded its own population with an astonishing, even by Soviet standards, propaganda campaign. One Russian deputy reflected the mood: “Today, it is quite obvious who the parties in the conflict are. They are the US, UK, Israel who participated in training the Georgian army, Ukraine who supplied it with weapons. We are facing a situation where there is a NATO aggression against us.”

In blue jeans and a sports jacket, Mr Putin, cast as the hero of the war, flew to the Russian side of the Caucasus mountain range to hear, first-hand, hair-raising stories from refugees that ranged from burning young girls alive to stabbing babies and running tanks over old women and children. These stories were whipped up into anti-Georgian and anti-Western hysteria. Russian politicians compared Mr Saakashvili to Saddam Hussein and Hitler and demanded that he face an international tribunal. What Russia was doing, it seemed, was no different from what the West had done in its “humanitarian” interventions.

There was one difference, however. Russia was dealing with a crisis that it had deliberately created. Its biggest justification for military intervention was that it was formally protecting its own citizens. Soon after Mr Putin’s arrival in the Kremlin in 2000, Russia started to hand out passports to Abkhaz and South Ossetians, while also claiming the role of a neutral peacekeeper in the region. When the fighting broke out between Georgia and South Ossetia, Russia, which had killed tens of thousands of its own citizens in Chechnya, argued that it had to defend its nationals.

But as Mr Bildt argues, “we have reason to remember how Hitler used this very doctrine little more than half a century ago to undermine and attack substantial parts of central Europe.” In the process of portraying Georgia as a fascist-led country, Russia was displaying the syndrome it was condemning. And it did not seem to mind when, as Human Rights Watch (HRW) reports, ethnic Georgian villages were looted and set on fire by South Ossetian militia. “The remaining residents of these villages are facing desperate conditions, with no means of survival, no help, no protection, and nowhere to go,” says Tanya Lokshina of HRW.

The biggest victims of this war are civilians in South Ossetia and Georgia. Militarily, Mr Putin has won, hardly surprisingly. But all Russia has got from its victory so far is a ruined reputation, broken ties with Georgia, control over separatist enclaves (which it had anyway) and fear from other former Soviet republics. Mr Saakashvili, who promised to reintegrate the country when he was elected president, has made this prospect all but unattainable.

The six-point peace plan negotiated by Mr Sarkozy recognises Georgian sovereignty but not its integrity. In practice, this means that Russia will not allow Georgia back into Abkhazia and South Ossetia. According to the same plan, Russia should withdraw its troops to where they were before the war broke out.

So what happens now?

The ceasefire is signed, but it still needs to be implemented. The early signs were not good with looting, killing and rapes in villages in both Georgia and South Ossetia. On August 13th the Americans announced that they would send military aircraft and naval forces to deliver humanitarian aid to the Georgians. This seemed to make more impression on the Russians, who soon began to withdraw, than the agreement in principle by the European Union to send monitors to supervise the ceasefire. A NATO meeting has also been called to reassess relations with Russia.

Much will now depend on how far Russia wants to go and whether it wants Mr Saakashvili’s head on a plate or not. In a confidential conversation with Condoleezza Rice, America’s secretary of state, Sergei Lavrov, Russia’s foreign minister, declared that Mr Saakashvili should go. The conversation was made public at the UN Security Council, infuriating the Russians. Regime change is a Western invention, Russia retorted; Russia will not try to overthrow Mr Saakashvili, but will simply refuse to deal with him.

Other former Soviet republics, including Azerbaijan, Armenia, and Ukraine, have been dealt a lesson, about both Russia’s capacity to exert its influence and the weakness of Western commitments. America’s inability to stop or deter Russia from attacking its smaller neighbours has been devastatingly obvious in Georgia over the past week.

Yet the people who are likely in the end to pay the biggest price for the attack on Georgia are the Russians. This price will go well beyond any sanctions America or the European Union could impose. Like any foreign aggression, it will lead to further stifling of civil freedoms in Russia.

The war in Georgia has demonstrated convincingly who is in charge in Russia. Just as the war in Chechnya helped Mr Putin’s rise to power in 1999, the war in Georgia may now keep him in power for years to come. As Lilia Shevtsova of the Carnegie Moscow Centre argues, if Mr Medvedev still had a chance to preside over a period of liberalisation of Russia, this opportunity is now gone. The war in Georgia will make Russia more isolated. Worst of all, it will further corrode the already weak moral fabric of Russian society, making it more aggressive and nationalistic. The country has been heading in the direction of an authoritarian, nationalistic, corporatist state for some time. The war with Georgia could tip it over the edge.

taken from:

http://www.economist.com/displayStory.cfm?story_ID=11920992

Economics focus

The mandarins of money

Central banks in the rich world no longer determine global monetary conditions

In August 1977, The Economist published an article by Alan Greenspan, the former chairman of America's Federal Reserve, who was then a private-sector economist. It listed five economic “don'ts”. One of these was: “Don't allow money-supply growth to spiral out of hand.” Yet that is exactly what central bankers have done in recent years. The bubble in credit markets that now seems to be bursting and the frothiness of so many asset prices was encouraged by loose monetary policies which pumped liquidity into financial markets.

Many economists blame that excess liquidity on Mr Greenspan himself for keeping interest rates too low for too long when he headed the Fed. After the dotcom bubble burst in 2000-01, the Fed slashed short-term interest rates to 1% by 2003. The European Central Bank (ECB) and the Bank of Japan also cut rates to unusually low levels, pushing the average interest rate in the big rich economies to a record low. The real short-term interest rate is now above its long-term average for the first time since 2001, suggesting that global monetary policy is no longer loose. So why did financial markets remain exuberant for so long? One reason is that the world's two most important central banks, the Fed and the ECB, have not been the main sources of global monetary liquidity.

Many economists in investment banks and international institutions mistakenly assume that “global” monetary conditions are set by the central banks of the rich economies. Yet over the past year, a staggering three-fifths of the world's broad money-supply growth has flowed from emerging economies.

Their mints are working overtime. Goldman Sachs reckons that growth in China's M3 measure of broad money has quickened to 20% over the past year. In Russia money supply has grown by a striking 51% and India's is up by 24%. Indeed, the broad money supply in emerging countries has increased by an average of 21% over the past year, almost three times as fast as it has in the developed world. Adjusted for inflation, their money growth has accelerated alarmingly (see chart). As a result, the entire world's money supply is growing at its fastest for decades in real terms.

One would expect emerging economies' money supply to outpace that of the rich world, because their GDP growth is faster. But their surplus money growth over and above the increase in nominal GDP (a crude measure of the excess money available to be invested in financial assets) is also far bigger. Their interest policy has been timid: over the past three years, as monetary policy has been tightened in America and the euro area, average rates in the emerging world have barely budged. China and India have real interest rates among the world's lowest, even though they have the fastest-growing economies.

A decade or so ago, speedy monetary growth in emerging economies was of little concern to the central banks of the developed world: a monetary deluge in Brazil, say, simply caused hyperinflation there. But today these economies play a larger role in the world economy and cross-border financial flows are much bigger. Inflation remains low, so the liquidity pumped out by central banks is flowing somewhere else, namely into global financial markets. For instance, huge purchases of Treasury bonds by these central banks have reduced bond yields, and so spurred excessive borrowing in America.

The policies of the People's Bank of China (PBOC) or the Bank of Russia are likely to have an increasing impact on developed economies in future as capital controls are reduced and markets become more integrated. This prospect becomes more alarming when one considers that, unlike the Fed and the ECB, most central banks in emerging economies are not independent, and thus free to set interest rates in the best long-term interest of the economy. They are still firmly under the thumb of politicians.

Yes, Minister

According to conventional wisdom, monetary-policy mistakes such as those that caused the Great Inflation in the 1970s are much less likely today because central banks in the rich world are now independent of politicians. Yet few of the main central banks in emerging economies enjoy full legal independence, and thus often face pressure from politicians to hold interest rates low to boost growth and jobs. Their monetary independence is also constrained by governments' desire to hold down exchange rates. This forces central banks to engage in heavy foreign-exchange intervention, which inflates money supplies.

A recent IMF study ranked 163 central banks according to their political autonomy (based on factors such as how officials are appointed, the length of their terms and whether interest rates have to be approved by the government). Emerging central banks have become more independent since the 1980s, but they remain much less so than the ECB or the Fed. Some of the central banks that have been pumping out the most money, notably those in China, India and Russia, are among the least independent. The PBOC is under the sway of the Communist Party. The Reserve Bank of India would have raised interest rates more aggressively last year were it not for political pressure. Controversially, the study reckons that both central banks are more independent than the Bank of Japan—another country where its own cheap money policy has created a flood of liquidity outside its borders, through the carry trade.

The days when central-bank watchers could just focus on the Fed and perhaps the ECB in order to assess “global” monetary conditions are over. They no longer control the amount of money sloshing around the world and, as financial markets become ever more linked, analysts will need to pay more attention to central banks in the emerging world. They may even have a bigger role to play in stabilising the global economy if the squeeze in the credit markets becomes more acute.

Hindsights

The New Colonialist Power

China's hunger for natural resources is causing more problems at home than abroad

It is not an exaggeration to say China is hungry for commodities.The fact is that it accounts for about twenty (20) per cent of the world's population, but it gobbles up more than half of the world's pork, half of its cement, a third of its steel and over a quarter of its aluminium. Indeed much of its spending, estimated at 35 times as much on imports of soya beans and crude oil as it did in 1999, and 23 times as much importing copper—indeed, to point this out China, as a matter of fact, swallowed over four-fifths of the increase in the world's copper supply since 2000.

But worse is yet to come as China is getting ever hungrier. Although consumption of petrol is falling in America, the oil price is setting new records, because demand from China and other developing economies is still on the rise. The International Energy Agency expects China's imports of oil to triple by 2030. Chinese demand for raw materials of all sorts is growing so fast and creating such a bonanza for farmers, miners and oilmen that phrases such as “bull market” or “cyclical expansion” do not seem to do it justice . Instead, bankers have coined a new word: supercycle.

Not all observers, however, think that China's unstinting appetite for commodities is super. The most common complaint centres on foreign policy. In its drive to secure reliable supplies of raw materials, it is said, China is coddling dictators, despoiling poor countries and undermining Western efforts to spread democracy and prosperity. America and Europe, the shrillest voices say, are “losing” Africa and Latin America.

This argument ignores the benefits that China's commodities binge brings, not only to poor countries, but also to some rich ones, such as Australia. The economies of Africa and Latin America have never grown so fast. That growth, in turn, is likely to lift more people out of poverty than the West's faltering aid schemes. Moreover, China is not the only country to prop up brutish regimes. Witness the French troops scattered around Africa, some of whom recently delivered a shipment of Libyan arms to Chad's embattled strongman, Idriss Déby.

A new nuance or a new Global Power?

China as a power broker could—and should—use its influence to curb the nastiest of its friends, including the governments of Sudan and Myanmar. And from its diplomatic posturing as noticed,it has ceased to resist the deployment of United Nations peacekeepers in Darfur, and is even sending some of its own military engineers to join the force. Wen Jiabao, China's prime minister, has called publicly for democracy in Myanmar—which, even though Chinese officials' understanding of democracy is different to Westerners', is a bold step for a government that claims not to meddle in other countries' internal affairs.


Still, China's hunger for natural resources is creating plenty of problems. Most of them, though, are in China, not abroad.

As a country moves from Light industries to heavy industries.... environmental problems begin.

China is hoovering up ever more commodities not just because its economy is growing so quickly, but also because that growth is concentrated in industries that use lots of resources. Over the past few years, there has been a marked shift from light manufacturing to heavy industry. So for each unit of output, China now consumes more raw materials.

That may sound like a minor change, but the implications are dramatic. For one thing, it has encouraged the sort of foreign entanglements that are now causing China such embarrassment. More worryingly, it is compounding China's already grim pollution. Heavy industry requires huge amounts of power. Steelmaking, for example, uses 16% of China's power, compared with 10% for all the country's households combined. By far the most common fuel for power generation is coal. So more steel mills and chemical plants mean more acid rain and smog, not to mention global warming.

These are not just inconveniences, but also an enormous drag on society. Each year, they make millions sick, cause hundreds of thousands of premature deaths, sap agricultural yields and so on. Pan Yue, a deputy minister at the government's environmental watchdog, believes that the costs inflicted by pollution each year amount to some 10% of GDP.

No fire without smoke

It is no wonder, then, that pollution is the cause of ever more protests and demonstrations. There were some 60,000 in 2006 alone, by the authorities' own count. Some are led not by impotent peasants but by well-organised burghers from Shanghai and Xiamen, a development that must horrify China's rulers. And the potential for even more disruptive environmental crises is great: northern China is already running out of water, and the glaciers that feed its dwindling rivers are melting, thanks to global warming.

The government is aware of these problems, and is trying to address them . It has used this month's People's Congress to raise the status of Mr Pan's agency to a ministry. It has increased fines for pollution, reduced subsidies on fuels and scrapped tax breaks for heavy industry. It is also promoting cleaner sources of power, such as windmills and natural gas. Yet despite frantic efforts to clean up Beijing in time for the Olympics in August, athletes still doubt the air will be fit to breathe. The world's fastest marathon runner, for one, has threatened to drop out of that race because of pollution.

All the government's green schemes are being undermined by an artificial abundance of cheap capital, and by bureaucrats' enthusiasm for channelling it to grubby industries. Chinese banks, with the government's blessing, pay negative real interest on deposits and so can lend to state-owned firms very cheaply. Many of those firms also benefit from free land and pay negligible dividends to the state, leaving lots of money to invest in more dirty factories. Chinese depositors and taxpayers are subsidising the very industries that are slowly poisoning them.

China is bound to consume enormous amounts of raw materials as it develops. But given how polluted the country already is, and how much unrest that pollution is causing,It should be considering on a lot of factors among them, less wasteful development strategy which could be a healthier one.

Centrist Islamist parties Can Be Bulwark Against Extremism

Centrist Islamist parties Can Be Bulwark Against Extremism

by KHALIL AL-ANANI

CAIRO — For more than three decades, fundamentalist religious organisations across the Arab world – such as the Islamic Group in Egypt, the Armed Islamic Group in Algeria, and Al Qaeda – have monopolised global attention. Meanwhile, moderate currents faced – and continue to face – difficulty expressing themselves at the international level, even though they represent the mainstream essence of Islam.

Now, violent waves of extremism have waned one after the other, as is evident from the receding popularity of such organisations, the disintegration of the central command of Al Qaeda, and its transformation from a hierarchal system to a state of mind. It seems that the Arab public has meanwhile become more amenable to “centrist” political ideologies, which call for tolerance, moderation and communication with the “other”.

This comes as a result of the suffering that Arab societies have witnessed due to the prevalence of extremist violence, and a wariness towards martyrdom overtures which inflict death and destruction upon innocent civilians. However, shifting this paradigm requires that moderate political Islamic groups be allowed the opportunity to participate in the political arena.

Moving away from traditional political movements such as the Muslim Brotherhood, centrist Islamic activists and parties have gradually established their political presence over the past 20 years. Examples include the Nahda (Awakening) Party in Tunisia, which was established in 1981, and the Justice and Development Party in Morocco, which combines the Popular Constitutional Democratic Movement established in 1967 with members of the more religious Moroccan Reform and Renewal Movement. Other centrist parties include the Jordanian Islamic Centre Party, which was established in 2001, the Sudanese Middle Party, established in 2006, and the New Middle Party in Egypt, whose members have been struggling for the past ten years to obtain a legal license for political activity.

There are several reasons to pay serious attention to the rising phenomenon of Islamic centrist parties.

Such parties appear to exhibit an advanced level of “Islamic” political awareness that has been missing in the political arena since the emergence of the Arab nation-state over half a century ago. Such nuanced understanding of the relationship between Islam and politics has been sidelined largely by the strife between the state and extremist religious groups that have come into existence since the 1970s. These continuing clashes have hurt the chances for successful centrist Islamic political participation.

These centrist parties represent a departure from the traditional political currents of Islam – which range from the moderate all the way to the violent extremist – instead measuring their success on the basis of political efficiency. These parties have the ability to absorb the concepts of democracy and civil service, and deal with them independently of religion. Such parties believe Islam can provide a moral framework for political action by adhering to basic universal – and Islamic – values like justice, freedom, equality and citizenry. They respect, for instance, the concept of political plurality and do not oppose the emergence of secular or communist parties.

Furthermore, they realise the rights of all non-Muslim minorities. That they are labelled “Islamic” implies that they emanate from a value system, as does the liberal or social frame of reference. These parties have the ability to absorb the concepts of democracy and civil service in a manner that is consistent with the outlook of mainstream Islam without falling prey to the restrictions of some narrower interpretations.

For example, centrist parties reject any discrimination among citizens assuming public posts on the basis of gender, colour, religion or ethnicity, whereas groups like the Muslim Brotherhood place restrictions on who could attain the presidency in Egypt.

These imposed limitations for developing an effective political model have haunted political Islamic philosophy throughout the past century. Other more extremist parties are entrenched within the confines of their own religious rhetoric, unable to move beyond perceived restrictions, which inevitably leads to their political and intellectual inertness and reduces the likelihood of being successfully championed by civil society.

These parties also provide a prominent example of the nature of the relationship between the state and society. They do not, for instance, impose a specific type of governance, such as shari'a (Islamic law), but leave society to select the appropriate model. With these principles, they have succeeded in resolving the historic dilemma of how to combine religion with politics in public life that has long plagued all Islamic political currents.

Islam assumes a central position in these centrist political parties, a pre-requisite for credibility with a mainstream audience and a safeguard against those who may attack them for turning away from religion. In its genuine commitment to both the principles of Islam and cultural identity on the one hand, and to meeting the challenge of modern political life on the other, centrist Islamic politics are the only credible way forward for many countries in the Arab world.

____________________

KHALIL AL-ANANI is an Egyptian specialist of Islamism and author of The Muslim Brothers in Egypt: Old Age Struggling with Time and a second book titled Political Islam:The Phenomenon and the Concept. He is also deputy editor-in-chief of the international politics journal Al Ahram. This article is written for the Common Ground News Service (CGNews) and can be accessed at www.commongroundnews.org