The Russians are coming; the Russians are coming!

When I was a kid, we had A bomb drills in school.  The fear of a Soviet sneak attack was that great.  It was part of our national psyche.  My parents didn’t build a bomb shelter in the backyard but we wouldn’t have been alone if they had. 

When the Soviet Union collapsed, it revealed the weaknesses of an economic and political system that ignored sound principles of economic freedom and human rights.  We have had little to fear from Russia since.  Not only are they weak economically but also they are weak militarily. 

The Russian sphere of influence has shifted east and west for centuries.  It has never extended so far to the west as it did during the Cold War and it has never been so far east as it is now.  The Russians would like to change that. 

Toward that end, they have struck deals with countries like Ukraine, Poland and Germany to sell them oil and gas. And, they haven’t been shy about using their customers’ reliance upon them for energy as a means to influence international events.  Energy exporting nations in South Asia and the Middle East are their economic competitors.  So, they seek to extend their sphere of influence southward as well. 

By contrast, the United States is an economic and military juggernaut, a maritime nation whose integration into the global supply-chain (and our ability to keep it secure) makes it in everyone’s interest to be our ally. 

So, how does Russia end up taking us to school over the handling of Syria?  Or, to put it differently, why we are playing a weak hand when we have a strong one?

The U.S. has a conflict between ideology and military strategy.  Our beliefs – the why of what we know we should do – are based on human rights, the manifestation of which, at least in the case of Syria, is our opposition to weapons of mass destruction.  Moreover, we’ve been sensitized to the specter of mass genocide.  Many people – despite their opposition to war – think we could have prevented the death of hundreds of thousands if we had acted sooner in Rwanda and Bosnia.

So, there is constant friction between what we believe and what we do.  Firing missiles, dropping bombs and sending in the Marines is not the best way to promote human rights.

Our original strategy vis-à-vis Syria was to strike in a limited way.  It would not have had a big effect.  It wouldn’t have destroyed the chemical weapons and wouldn’t have toppled the Assad regime.  It would have been painful while it lasted but not debilitating to a dictator who is in the middle of a long war and who would easily be resupplied by his Russian allies. 

So, why do it?  Like most diplomatic moves played out on the world stage, it’s a gesture.  A gesture to express our unhappiness. 

Unfortunately, the result was to send a signal it doesn’t really matter if we are unhappy!  Our military power should be feared but our diplomatic waffling undermines our intentions. The outcome has been to hand Russia an opportunity to appear to be our equals (or perhaps our superior) by brokering a solution that allows us to back down in the face of popular opposition. 

Our President seems unable to decide if he wants to be George W. Bush or Jimmy Carter and is, therefore, ineffective at being either.  Nations with a strong interest in becoming reliable allies in the region – from Azerbaijan to Turkey to Poland – may now see us as unreliable partners.  The image of Russia forcing us to back down and appearing to be our equals for the first time since the Cold War is bound to have an influence for a very long time. 

International diplomacy is a game of carrots and sticks.  We should reserve our carrots for those who mirror our values and reserve our sticks for those who pose a serious threat. 

The economic and military power of the United States provides us an opportunity to LEAD.  Our values, our economic and political systems are based on human rights, economic freedom and the rule of law.  Promoting these values and helping our allies develop liberal institutions to implement them will lead to global stability and prosperity.  Our long-term national and economic security depends upon it.

WHO WILL LEAD? 

The Ford Fusion and how the media got it wrong (again!)

2013 Ford Fusion

I had a pretty intense discussion with a guy from Detroit at a dinner party a couple of years ago.  Okay, so some would say it was more of a debate.  Well, it was an argument.

Anyway, the Detroiter, a visitor to South Florida, was decrying the tendency among the locals to buy foreign cars.  “Why not buy cars made by the Big 3 and create jobs in the U.S.?” he argued.  I might have asserted my preference for the design, features and quality of foreign cars; but I didn’t.  Instead I pointed out that it’s not so easy to figure out what’s a foreign car and what’s a domestic car. 

The Big 3 have focused their investments on foreign markets while manufacturers of “foreign cars” have been investing in factories in the U.S.  Capital investment creates jobs.  So, would you rather buy a Ford Fusion made in Mexico or a Honda Accord made in Ohio?

Well, pretty soon, the question may be moot.  Ford has announced that its Fusion sedan will no longer be made only in Mexico.  They will be expanding their capacity to produce their best selling car in Michigan. 

Ford’s decision is only one example of manufacturers investing and creating jobs in this country.   The media reported this story as though Ford was living up to a promise they had made to the unions to add 12,000 domestic jobs by 2015.  As usual, the media got it wrong.

I’m not saying that Ford didn’t make that promise.  I’m saying other forces drove their decision.  U.S. exports have been growing seven times faster than the economy at large since 2005.  Most of that growth has come at the expense of other large manufacturing economies in Europe and Japan.

To understand this, you need to wrap your head around a new set of economic facts.  By and large, Americans (fed by an uneducated media) focus on jobs and wages. It’s something we can all understand.  But the cost of labor in the economy at large is driven by productivity.  And productivity improves because of automation and labor regulation.  Robots populate automobile assembly plants where workers used to stand.  And, American employers have more flexibility than their European and Japanese counterparts to lay off workers when economic conditions dictate.  In Germany, for example, rules governing notice to workers and requiring severance pay drive costs to shut down a factory.  Lay off 1,000 workers and it may cost you more than $40 Million in severance in addition to mandated worker training and asset write-down rules.

If you are running a global manufacturing company, you have to consider these factors before you invest in a new factory.  So, in a way that some may consider perverse, the absence of those rules in the U.S. is creating more jobs.

A new study by the Boston Consulting Group (BCG) identifies the key drivers of this trend as lower cost of labor (when adjusted for productivity), transportation and electricity.  By their estimates, leading industrial nations – the U.K., Germany, France, Italy and Japan – will have costs ranging from 8 to 18% higher than the U.S. by 2015.  China? Their costs will be lower but the gap is closing.  At 95% of U.S. manufacturing costs, the added transportation cost to get products to our shores erases their advantage completely.

BCG cites some interesting examples of foreign manufacturers investing in plants here so they can export to other countries.  Chinese computer giant Lenovo has opened a plant in North Carolina.  Toyota is exporting Camry’s from Kentucky to China and Russia.  Rolls Royce is making aircraft engine parts in Virginia.  France’s Michelin is building a new factory in South Carolina. 

For sure, there are gaps that need to be addressed.  Technical education is one.  The shortage of degreed engineers and technically qualified factory workers will only grow as time goes on.  Importing engineers from other countries requires reform to our immigration policy.  But, there are ways to address these concerns.

Siemens AG, a German manufacturer of telecommunications equipment, has built a factory in Charlotte, NC.  Their decision to locate there was the result of state and local governments investing in infrastructure and working with local junior colleges to develop programs that will give local workers the skills they need to work in Siemens’ factory. 

Despite the valid complaints of many business people about government regulation, the U.S. still has a high degree of economic freedom.  Capital seeking a high return is coming back to the U.S.  But, the needed reforms to both education and immigration policy are tied to emotional debates between the hard right and the hard left.  A deadlock, as we know, that will not be broken soon. 

WHO WILL LEAD?

Gratuitous sex and violence... Oh, and Egypt

I’m back to being boring again.  I was more exciting a couple of months ago.  When I was writing about the emotional topics like the GM bailout and gay marriage, the popularity of this blog (measured in website hits) was up 50%.  Now that I am writing about things like Syria and Gorbachev, my popularity has come back to earth.

But, doesn’t all the intrigue in the Middle East – particularly Egypt – sound like a potential Showtime series like The Tudors?  You have to admit that Henry VIII had nothing on these guys.  Murder, treachery, deceit…  it’s all there.

Let’s start with deceit.  You probably saw the news a couple of weeks ago.  Senators Graham and McCain have declared to the press that there has been a coup in Egypt.  Really?

There was a coup.  But, it took place in 1952 when General Gamal Abdel Nasser overthrew the elected government of Egypt.  His successors were two other Generals – Sadat and Mubarak.  The military has been in charge throughout. 

What about the Arab Spring?  Wasn’t Mubarak (and, therefore, the military) overthrown? 

Okay, here’s a reality test for you.  Do you really think that, in a country of 85 Million people, 200,000 protestors armed with smartphones could topple the Egyptian military leader Mubarak? The military sat on the sidelines allowing the press to create the myth of the Arab Spring.  Sounds like treachery to me.

That leads to a few other questions.

Why are McCain and Graham calling this a coup?  They are both long-time members of the Senate Armed Services Committee.  Don’t they know the truth?

Well, it could be that they would like to cut off military and other financial aid to Egypt.  And, they know that Congressional rules require that aid be cutoff in the event of a coup.  So, to get their way, they have planted a seed with the media that they hope will create pressure on the Obama administration to cut off aid.

So, if the military were in charge in the person of Mubarak, why would they sit idly by while the mob in Tahrir Square demanded his removal?

Geopolitical consulting firm Stratfor has provided an answer.  There was a years long push for Mubarak’s son, Gamal, to succeed his father on the throne.  Stratfor asserts that the military didn’t want the western educated young son of the president to run the country.  To understand why you have to understand how the Generals get rich.  Egyptian banks lend money to the top military officers through businesses that never make money.  The officers never pay back the loan.  The money ends up in their pockets.

Gamal Mubarak threatened to reform the system on which the Generals relied to get rich.  So, the Mubaraks had to go.

By permitting free elections, the Generals ended up with the Muslim Brotherhood running the show.  Big mistake!  Now we have mobs in the streets, Muslims attacking Christian churches, military repression and so on.  Murder on a grand scale.

Like I said…  treachery, murder, deceit!  Can’t you see a new Showtime series in all that?  The only thing missing is the sex and Hollywood always writes that in.

But, I am making light of a bad situation that has cost many lives.  The larger strategic issue is what US policy should be.  Should we support the Egyptian military?  The Muslim Brotherhood?  The Syrian uprising?

There is no clear doctrine on which our allies can rely and upon which we can base sound judgments.  President Obama has declared the war on terrorism over. So, on what principles should our foreign policy be based?  No answer from the White House!

Writing in the New York Times, Georgetown University international affairs Professor Charles Kupchan offers a possible framework.  Democratic elections sound great but they should not be the first step, he says.  In the absence of the rule of law, nations and their people become subject to the poor judgment of a freely elected dictator.  Good governance relies on liberal institutions of government, an independent judiciary and individual freedom. 

Institutional traditions are not created overnight and Professor Kupchan doesn’t suggest they should or will.  “The US should do what it can to shepherd the arrival of liberal democracy in Egypt and other parts of the Middle East, “ he says.  “But the best way to do that is to go slow and help the region’s states build functioning and responsible governments.  Democracy can wait.”

Sounds like a great blueprint for American foreign policy.  The only question is…

WHO WILL LEAD?

Reagan, Thatcher, Gorbachev, Machiavelli... Where are they now?

Poor Nicolo Machiavelli!  He really gets a bad rap, doesn’t he?  I mean, just because the well-worn phrase “the end justifies the means” can be traced to his masterwork, The Prince, that doesn’t mean he was a bad guy, does it?  But, that’s the way he’s perceived.  Even people who don’t know what he has written or who he is know that a “Machiavellian scheme” is a bad thing.

More high-minded people point to how he turned the concept of a virtuous society on its head.  The ancient Greek philosophers – Aristotle and Socrates – defined a virtuous society as the result of the good works of its citizens.  To their way of thinking, the means were more important than the end.  Old Nick turned that concept of virtue on its head.  To him, virtue was about being crafty, astute or sly.  It referred to the ability of a leader to deal with whatever comes their way – to be decisive and get results.

The Prince was a handbook for the heirs to the Medici fortune not a blueprint for utopia.   The Greeks were idealists.  Machiavelli was a pragmatist.

Most often this blog turns on “issues” and policies.  I am an issues-oriented guy and those who take the time to read this fit the same mold.  We decry the misguided media and wonder aloud why the mass of voters doesn’t seem to care about the issues.  We parse the words of political candidates as if they will actually do (or have a chance to do) what they promise in campaigns.  Naïve idealists that we are, we actually think that policy matters more than politics and that what politicians say, they should do.

Alas, most political leaders have no opportunity to pursue the policies on which they campaign.  Some have no illusions.  They campaign to get elected.  Others may be sincere but their best intentions are overcome by events.  The administrations of LBJ and the much-maligned Jimmy Carter were not defined by their political campaigns.  They were defined by what the world handed them, the Vietnam War and the Iranian hostage crisis, respectively.

What was handed Ronald Reagan and Margaret Thatcher was Mikhail Gorbachev.  What was interesting is that Gorby brought them an opportunity to pursue ideas in which they believed (unlike the duo mentioned above).

More than any world leader in the 80’s, Gorbachev determined how the 20^th Century would draw to a close.  His policies of “perestroika” (restructuring)and “glasnost” (openness) led to freely contested elections and liberalization of the economy.  He foresaw the economic collapse of the Soviet model and hastened it.  The Soviet Union may not have gone so quietly had it not been for Gorbachev, a pragmatist who saw that he didn’t have the resources to continue the Cold War.  Would we think of Reagan and Thatcher in the same way had the Soviet Union dragged on for another decade or two?  How about Helmut Kohl?  Could he have unified Germany and worked with Mitterrand toward the development of the European Union?

In 2000, George Bush campaigned against Clinton’s policies in the former Yugoslavia, calling it nation building, a policy that often results in failure.  But, 9/11 changed everything.  Bush soon found himself nation building in Iraq and Afghanistan.

His successor, Barack Obama, campaigned against Bush’s policies in those two far away lands.  Once inaugurated, he was off to the Middle East to address the Arab public so as to differentiate himself from his predecessor. But, the financial crisis and his response to it define his first term more than any ideology he espoused. 

It was not the policies on which Bush and Obama campaigned that mattered.  It was their character and their ability to make a decision in moments of crisis and stick with them. 

It’s great to focus on policy as a framework for the direction of the country (any country).  However, it’s naïve to think that the political and international landscape is so benign as to permit a candidate to actually follow their prescription for governance.  It is usually a crisis and a leader’s response to it that defines their tenure.  And, it’s their ability to embrace the Machiavellian concept of virtue that determines their success. 

Policy wonks may decry the way in which the media – and most voters – focus on personality or, to put in high-mindedly, character of the candidates.  But, at the end of the day, character is more important than policies. 

WHO WILL LEAD?