Latin America Delivers A Swift Kick

Latin America Delivers A Swift Kick

Dispatches From The Edge

March 30, 2012

On one level, April’s hemispheric summit meeting was an old fashioned butt kicking for Washington’s policies in the region. The White House found itself virtually alone—Dudley Do Right Canada its sole ally—on everything from Cuba to the war on drugs. But the differences go deeper than the exclusion of Havana and the growing body count in Washington’s failed anti-narcotics strategy. They reflect profound disagreements on how to build economies, confront inequity, and reflect a new balance of power in world affairs.

The backdrop for the summit is anger in Latin America over the failure of the U.S. and Europe to stimulate their economies, all the while pursuing policies that have flooded the region with money—a “ monetary tsunami” in the words of Brazilian President Dilma Rousseff—driving up the value of southern hemisphere currencies and strangling local industries.

After meeting last month with President Obama, Rousseff said she told him of Brazil’s “concern with the expansionary monetary policies of the rich countries…leading to the depreciation of developed countries currencies and compromising growth among emerging economies.”

While Latin American economies are in better shape than those in Europe and the U.S., the recession dogging the latter areas—plus the cooling of the Chinese economy—has slowed growth throughout much of Latin America. Brazil’s most recent figures indicate a stalled economy, which could have an impact on efforts by the Rousseff government to raise living standards and narrow what was once the world’s biggest gap between rich and poor.

According to the Getulio Vargas Foundation Brazil has lifted 33 million out of extreme poverty since 2003 and, out of a population of 190 million, has created a relatively well-paid workforce of some 105.5 million. In contrast to the U.S. and Europe, where the wealth gap is accelerating, income for the poorest 50 percent of Brazilians has risen 68 percent, while for the top 10 percent, it has grown only 10 percent.

This growth has come about because most countries in Latin America reject the economic model pushed by Washington and the European Union: free trade, financial deregulation, and deep austerity.

Argentina is the poster child for the region’s rejection of the so-called “Washington consensus.” Throughout much of the ‘90s, a deeply indebted Argentina followed the strictures of the International Monetary Fund (IMF), slashing government spending and instituting a suffocating austerity. The result was a “debt trap”: cutbacks increased unemployment, which dampened tax revenues, which required yet more cutbacks, and more unemployment. In the end, debts went up. From 1998 to 2002, Argentina’s economy shrank 20 percent. By the time Buenos Aires finally said “enough” and defaulted on its $100 billion sovereign debt, half of its 35 million people were below the poverty line.

Argentina reversed course and primed the economy with government spending on housing, highways and education. It also subsidized 1.9 million low-income families, which cut poverty in half. Since 2002, the economy has grown at an average rate of 6 percent a year, and joblessness has fallen from 20 percent to 8 percent.

Brazil has followed a similar strategy that is now threatened by the fiscal and monetary policies of the U.S. and Europe. Those policies have caused the value of Brazil’s currency, the real, to grow, which prices Brazilian manufactured goods out of the international market.

“There is concern in South America about deindustrialization,” says Alicia Barcena of the UN Economic Commission for Latin America. “Therefore some countries are taking measures to support their productive sectors.” While the Obama Administration calls this support “protectionism,” Brazilian Finance Minister Guido Mantega says, “The measures we are using are to defend ourselves.”

There are other issues Latin Americans are unhappy about that never made it into U.S. media accounts on the summit, in particular the make-up of the permanent members of the United Nations Security Council that Brazil—along with India and South Africa—would like to join.

As former Brazilian President Luiz Lula da Silva told the African Union summit last July, “It isn’t possible that the African continent, with 53 countries, has no permanent representation in the Security Council. It isn’t possible that Latin America with its 400 million inhabitants does not have permanent representation. Five countries decide what to do, and how to do it.”

The five permanent members of the Security Council are the U.S., Britain, France, Russia, and China.

While the U.S. has endorsed India’s bid—in large part because it is wooing New Delhi to join its anti-China coalition—Washington has been consciously silent on Brazil’s bid.  Indeed,  United Nations U.S. representative Susan Rice has been sharply critical of Brazil, India and South Africa for not supporting intervention in Syria. “We have learned a lot [about these three countries] and frankly, not all of it encouraging.” The message is clear: back us and we will think about it.

The summit was particularly critical of the Obama administration around the exclusion of Cuba, causing the President to turn positively peevish. “Sometimes I feel…we’re caught in a time warp, going back to the 1950s and gunboat diplomacy and Yankees and the Cold War.”

But from Latin America’s point of view, by maintaining a half-century-old blockade, it is the U.S. who seems locked into the world of the Cold War. And there are, indeed, some worries about “gun boats,” specifically those that make up the newly re-constituted U.S. Fourth Fleet, mothballed in 1950 and revived by the Bush Administration. The U.S. has also recently established military bases in Colombia and Central America.

The Brazilians are particularly nervous about the security of their newly found offshore oil deposits, and the head of the Brazilian Navy, Admiral Luiz Umberto de Mendonca, is pressing Brasilia for surface ships and submarines.

Testifying before the Brazilian House of Representatives,  Simon Rosental of the prestigious Escuela Superior de Guerra (ESG) institute warned that “The world has known oil reserves that will only last 25 years and in the United States, only for the next ten years.”

It may be a bit of a stretch to imagine the U.S. actually threatening Brazil’s offshore oil deposits, but Latin Americans can hardly be blamed if they are a tad paranoid about the Colossus of the North. For the past 100 years the U.S. has overthrown governments from Guatemala to Chile, and supported military juntas throughout the region. Brazil only recently emerged from its own U.S.-backed dictatorship.

“South America,” says Moniz Banderia of the ESG, “is really trying to define its own identity, to differentiate itself from the United States, in opposition to its domination, which is evident in the creation of UANSUR [Union of South American Nations] and the South American Defense Council.”

UNASUR was established in 2008 and includes all 12 South American nations, plus observers from Panama and Mexico.

The Defense Council’s Action Plan 2012 aims to integrate the militaries of the region, establish a “peace zone” on the continent, and create a space agency, an essential step for launching satellites.

Certainly issues like Cuba, the war on drugs, and the tensions over Britain’s claim on the Malvinas/Falkland Islands are areas of friction between the U.S., Europe and South America. But it is in the realm of economics, poverty alleviation, and independent foreign policy that the differences are sharp.

South Americans tried the austerity model and found it wanting. They have also seen the U.S. and NATO spark wars in Afghanistan, Iraq, and Libya, and they are deeply suspicious of policy of “humanitarian intervention” in places like Syria because they don’t trust the motives behind it. Members of the BRIC countries, made up of Brazil, South Africa, India, Russia, and China, share those suspicions.

“There’s almost a third-world sense, a post-colonial sense,” says Mark Quarterman of the Center for Strategic and International Studies, “that they were meddled in, in ways that didn’t rebound to their benefit, and now the same countries are claiming humanitarian reasons for meddling.”

Thus in Libya, the UN enforced an arms boycott and an oil embargo on the Qaddafi regime, while the French supplied arms to the rebels and Qatar handled rebel oil sales. Brazil and other BRIC nations see a similar pattern in Syria. In the meantime, the U.S. and Europe are conspicuously silent on oil-rich Bahrain’s suppression of its Shiite majority and the lack of democracy in the monarchy-dominated Persian Gulf states.

So far the Obama Administration has responded to South America’s growing independence by increasing the U.S. military footprint in the region and acting churlish. While the leaders of India and South Korea got formal state affairs, the U.S. President gave Rousseff a two-hour meeting. “Obama could have taken her to dinner,” one Brazilian official complained to The Guardian (UK) “or to the Kennedy Center.”

But Latin Americans no longer pay as much mind to the atmosphere in Washington as they used to. They are too busy confronting poverty and underdevelopment, forging a multi-polar world in which the U.S. is looking increasingly out of touch.

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The U.S. and The Afghan Train Wreck

The U.S. & The Afghan Train Wreck

Dispatches From The Edge

April 16, 2012

The recent decision by the Taliban and one of its allies to withdraw from peace talks with Washington underlines the train wreck the U.S. is headed for in Afghanistan. Indeed, for an administration touted as sophisticated and intelligent, virtually every decision the White House has made vis-à-vis Afghanistan has been a disaster.

On Mar. 15 the Taliban ended preliminary talks with Washington, because, according to a spokesman for the insurgent organization, the Americans were being “shaky, erratic and vague.” The smaller Hizb-i-Islami group followed two weeks later.

That both groups are refusing to talk should hardly come as a surprise. In spite of the Obama administration’s talk about wanting a “political settlement” to the war, the White House’s strategy makes that goal little more than a mirage.

The current U.S. negotiating position is that the Taliban must cut all ties with the terrorist group al-Qaeda, recognize the Afghan constitution, lay down their arms, and accede to a substantial U.S. military presence until at least 2024. The U.S. has 100,000 troops in Afghanistan, its allies another 40,000. The current plan calls for a withdrawal of most of those troops by the end of 2014.

What is hard to figure out is why the White House thinks any of its demands—with the exception of the al-Qaeda proviso—have even a remote possibility of being achieved? Or exactly what the Americans think they are going to be “negotiating” with Mullah Omar of the Taliban, Gulbuddin Hekmatyar of Hezb-i-Islami, or Sirajuddin Haqqani of the Haqqani Group?

The Obama administration’s initial mistake was to surge some 33,000 troops into Afghanistan with the aim of beating up on the resistance and forcing it to negotiate from a position of weakness. That plan was always an illusion, particularly given the ability of the insurgents to fall back into Pakistan to regroup, rearm, and recruit. In any case, the idea that 140,000 foreign troops—the 330,000 member Afghan National Army (ANA) is incapable of even defending itself—could defeat a force of some 25,000 guerillas fighters in a country as vast or geographically formidable as Afghanistan is laughable.

As a series of recent attacks demonstrate, the surge failed to secure Kandahar and Helmand Province, two of its major targets. While NATO claims that insurgent attacks have fallen as a result of the U.S. offensive, independent data collected by the United Nations shows the opposite.

In short, after a decade of war and the expenditure of over $450 billion, Afghanistan is a less secure place than it was after the 2001 invasion. All the surge accomplished was to more deeply entrench the Taliban and elevate the casualty rate on all sides.

The second U.S. error was to estrange Pakistan by wooing India in order to rope New Delhi into Washington’s campaign to challenge China in Asia.  First, Obama ditched his campaign pledge to address the volatile issue of Kashmir, the flashpoint for three wars between Indian and Pakistan. Second, the White House ignored India’s violation of the Nuclear Non-Proliferation Treaty and allowed it to buy uranium on the world market—the so-called 1-2-3 Agreement—while refusing that same waiver to Pakistan. Add the American drone war and last November’s deadly attack on Pakistani border troops, and most Pakistanis are thoroughly alienated from the U.S. And yet a political solution to the Afghan war without Islamabad is simply impossible.

The U.S. demand to keep Special Forces troops in Afghanistan in order to continue its war on “terrorism” is not only a non-starter for the insurgents—the Taliban are, after all, the target of thousands of deadly “night raids” carried out by these same Special Forces—it is opposed by every country in the region save India. How the White House thinks it can bring the Taliban and its allies to the table while still trying to kill and capture them, or maintain a military presence in the face of almost total regional opposition, is hard to figure.

The more than 2,000 yearly night raids have eliminated many of the senior and mid-level Taliban leaders and atomized the organization. When it comes time to negotiate, NATO may find it has literally hundreds of leaders with whom it will have to cut a deal, not all of whom are on the same page.

That the insurgency would lay down its arms has a quality of magical thinking to it. Not only is the insurgency undefeated, but according to a leaked NATO report, captured Taliban think they are winning. The report—based on 27,000 interrogations—also found that “Afghan civilians frequently prefer Taliban governancy over GIROA [Government of the Islamic Republic of Afghanistan], usually as a result of government corruption, ethnic bias and lack of connection with local religious and tribal leaders.”

There is no popular support for the war, either in Afghanistan, the U.S., or among its allies. The most recent ABC Poll found that 69 percent of Americans want the war to end, and according to a poll in the Financial Times, 54 percent of the British want to withdraw immediately.

As for supporting the Afghan constitution, why would an undefeated insurgency that sees its enemies in disarray and looking at a 2014 U.S.-NATO withdrawal date, agree to a document they had no part in drafting?

None of this had to happen. Back in late 2007, Saudi Arabia carried a peace offer from the Taliban in which they agreed to cut ties to al-Qaeda—a pledge they reiterated in 2008—and accept a time table for foreign troop withdrawals.  In return, a national unity government would replace the Karzai regime until elections could be held, and the constitution would be re-written.

Both the Bush and Obama administrations ignored the offer, apparently because they thought they could bring the Taliban to heel. It was thinking that verged on the hallucinatory.

The trump card holders these days are holed up in the high peaks or hiding in plain sight. Opium is booming in Helmand Province because the Taliban are protecting farmers from drug eradication teams, even blowing up tractors that are used to plow the crop under.

As the 2014 withdrawal date looms, the White House’s options are rapidly narrowing. If it holds to its plans to quarter troops in Afghanistan, the insurgency will fight on, and Washington’s only regional ally will be India, a country that can deliver virtually nothing toward a peace agreement. If it insists the insurgency recognize the Karzai regime and the constitution, it will be defending a deeply corrupt and unpopular government and a document that excluded the participation of country’s largest ethnic group, the Pashtun. Pushtuns make up the core of the Taliban.

How the U.S. managed to get itself into this mess needs to be closely examined. The State Department under Hillary Clinton has become little more than an arm of the Pentagon, and the White House has shown an unsettling penchant for resorting to violence. In the meantime Afghanistan is headed for a terrible smashup.

The World Bank estimates that 97 percent of Afghanistan’s economy is military related. The war is drawing to a finish, and there is no evidence that the U.S. or NATO has any intention or ability to keep the aid spigots wide open.  Europe is in the middle of an economic meltdown and the U.S. economy is struggling.

NATO provides about $11 billion a year to support the Afghan army, a figure that will probably drop to about $4 to $5 billion after 2014. There is already talk of reducing the 335,000-man Afghan army to a more manageable and less expensive force of 230,000.

There is a window of opportunity, but only if the Obama administration takes advantage of it. A strategy that might work—when it comes to Afghanistan there are no guarantees—would include:

• A ceasefire and stand down of all offensive operations, including the highly unpopular “night raids.”
•  Shelving any long-term plans to keep combat troops or Special Forces in the country, and shutting down the drone war in Pakistan.
•  Urging the formation of a national unity government and calling for a constitutional convention.
• Sponsoring a regional conference aimed at keeping Afghanistan neutral and non-aligned.
•  Insuring aid continues to flow into Afghanistan, particularly aimed at upgrading infrastructure, improving agriculture, and expanding education.

At home, the Congress should convene hearings aimed at examining how the U.S. got into Afghanistan, who made the key decisions concerning the war and regional strategy, and how the country can avoid such disasters in the future.

It may be too late and, in the end, NATO may tuck its tail between its legs and slink out of Afghanistan. But the deep divisions the war has created will continue, and civil war is a real possibility. The goal should be to prevent that, not to pursue an illusory dream of controlling the crossroads to Asia, a chimera that has drawn would be conquerors to that poor, ravaged land for a millennium.

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China: The Frog and the Scorpion

China’s Economy: The Frog & The Scorpion?

Dispatches From the Edge

April 5, 2012

Behind the political crisis that saw the recent fall of powerful Communist Party leader Bo Xiali is an internal battle over how to handle China’s slowing economy and growing income disparity, while shifting from a cheap labor export driven model to one built around internal consumption. Since China is the second largest economy on the planet—and likely to become the first in the next 5 to 10 years—getting it wrong could have serious consequences, from Beijing to Brasilia, and from Washington to Mumbai.

China’s current major economic challenges include a dangerous housing bubble, indebted local governments, and a widening wealth gap, problems replicated in most of the major economies in the world. Worldwide capitalism—despite China’s self-description as “socialism with Chinese characteristics”—is in the most severe crisis since the great crash of the 1930s.

The question is: can any country make a system with serious built in flaws function for all its people? While capitalism was the first economic system to effectively harness the productive capacity of humanity, it is also characterized by periodic crises, vast inequities, and a self-destructive profit motive that lays waste to everything from culture to the environment.

Can capitalism be made to work without smashing up the landscape? China has already made enormous strides in using its version of the system to lift hundreds of millions of people out of poverty and create the most dynamic economy on the planet, no small accomplishment in an enormous country with more than a billion people. Over the past 30 years, China has gone from a poor, largely rural nation, to an economic juggernaut that has tripled urban income and increased life expectancy by six years.

But trying to make a system like capitalism work for all is a little like playing whack-a-mole.

For instance, China’s overbuilding has produced tens of millions of empty apartments.  “If we blindly develop the housing market [a] bubble will emerge in the sector. When it bursts more than just the housing market will be affected, it will weigh on the Chinese economy,” said China’s Premier, Wen Jiabao. And, indeed, by controlling the banks—and thus credit and financing—real estate prices have recently fallen in most mainland cities.

But since 13 percent of China’s Gross Domestic Product is residential construction, a sharp drop in building will produce unemployment at the very time that a new five-year plan (2011-2015) projects downshifting the economy from a 9 percent growth rate to 7.5 percent.

What worries China’s leaders is that one of capitalism’s engines of self-destruction—economic injustice and inequality—is increasing.  According to Li Shu, an economist at Beijing Normal University, from 1988 to 2007, the average income of the top 12 percent went from 10 times the bottom 10 percent, to 23 times the bottom 10 percent. According to the Financial Times, it is estimated that China’s richest 1 percent control 40 to 60 percent of total household wealth.

Wealth disparity and economic injustice have fueled “incidents,” ranging from industrial strikes to riots by farmers over inadequate compensation for confiscated land. Endemic local corruption feeds much of the anger.

The government is trying to address this issue by raising taxes on the wealthy, lowering them on the poor, and including more “poor” in a category that makes them eligible for subsidies. Wen said last year that China aims to “basically eradicate poverty by 2020.” According to the United Nations, some 245 million Chinese still live in extreme poverty.

Beijing has also reined in the sale of land by local municipalities. But since the major way that cities and provinces generate money is through land sales, this has made it difficult for local areas to pay off their debts, maintain their infrastructures, and provide services.

Whack one mole, up pops another.

There is a growing willingness by the average Chinese citizen to confront problems like pollution, corruption, and even nuclear power. Part of the current debate in the Communist Party leadership is over how to respond to such increased political activity. Bo had a reputation as a “populist” and campaigned against economic injustice and corruption. But he was also opposed to revisiting the issue of Tiananmen Square, where in 1989 the People’s Liberation Army fired on demonstrators.

Tiananmen has considerable relevance in the current situation, since the main demands of the demonstrators were not democracy but an end to corruption and high food prices. It is no accident that, when food prices began rising two years ago, the government moved to cut inflation from 6.5 percent to 3.2 percent this past February.

While the government generally responds to demonstrations with crackdowns, that policy has somewhat moderated over the past year. When farmers ran local leaders and Communist Party officials out of the town of Wutan, the provincial government sent in negotiators, not police. Anti-pollution protests forced authorities to shut down several factories. At the same time, the government has tightened its grip on the Internet, still arrests people at will, and is not shy about resorting to force.

It is clear the possibility of major political upheaval worries the current leadership and explains why Premier Wen recently called up the furies of the past. The current economic growth is “unbalanced and unsustainable” he said. “Without successful political structural reform, it is impossible for us to fully institute economic structural reform and the gain we made in this area may be lost,” and said that “such a historical tragedy as the Cultural Revolution may happen again.”

Changing course in a country like China is akin to turning an aircraft carrier: start a long time in advance and give yourself plenty of sea room. If China is to shift its economy in the direction of its potentially huge home market, it will have to improve the lives of its citizens. Wages have gone up between 15 and 20 percent over the past two years and are scheduled to rise another 15 percent.

But social services will also have to be improved. Health care, once free, has become a major burden for many Chinese, a problem the government will have to address.

There are some in the Chinese government whose definition of “reform” is ending government involvement in the economy and shifting to a wide-open free market system. It is not clear that the bulk of China’s people would support such a move. All they have to do is look around them to the see the wreckage such an economic model inflicts in other parts of the world.

Can capitalism work without all the collateral damage? Karl Marx, the system’s great critic, thought it could not. Can China figure out a way to overcome’s system’s flaws, or is this the tale of the frog and the scorpion?

The scorpion asked the frog to ferry it across a river, but the frog feared the scorpion would sting him. The scorpion protested: “If I sting you, than I die as well.” So the frog put the scorpion on his back and began to swim. When he reached mid-stream, the scorpion stung him. The dying frog asked “Why?” and the scorpion replied, “Because it is my nature.”

Can China swim the scorpion across the river and avoid the sting? Stay tuned.

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