By Andrew Vought*

Mired in an era of cheap oil, Kuwait is looking for answers. Along with its petrochemical-rich neighbors, Kuwait has been dealing with this harsh reality since 2014. Throughout previous decades, Kuwaitis consistently relied on oil to fund government spending and to grow their immense sovereign wealth fund. The Kuwait Investment Authority (KIA) holds nearly USD 592 billion in assets. When global oversupply caused prices to drop below USD 40 per barrel, Kuwaiti officials had to accept an ineluctable truth. Their state could no longer rely on commodity prices as the sole source of wealth for government coffers. Like Saudi Arabia, Kuwait has unveiled a plan, dubbed “Kuwait 2035” and marketed as the “New Kuwait”. Sheikh Mohammad Abdullah Al Mubarak Al Sabah, the Minister of State for Cabinet Affairs, described the plan as a set of “initiatives that will transform our economy, create jobs, attract foreign direct investments and facilitate knowledge transfer in the fields of renewable energy, information technology, and the services sector.”

Founded in 1953, KIA, the world’s oldest sovereign wealth fund, manages surpluses from oil revenue. The fund adheres to the Santiago Principles, which ensure transparency, risk management and accountability, regulatory accountability, and financial stability. Following 16 years of surpluses, Kuwait posted a large budget deficit in 2015-2016, and the government recently approved a 2017-2018 budget that projects a deficit for the third consecutive year. Finance Minister Anas Al Saleh estimated the coming shortfall to be USD 21.6 billion. This figure is an improvement from the 2016-2017 fiscal year (which ends on April 1, 2017), during which the shortfall is projected to be USD 29 billion. Rising oil prices are the cause of this uptick.

The “New Kuwait” development plan is designed to transform Kuwait’s economy through 164 strategic programs. The plan features seven “pillars” which will ensure diversification and growth. Pillar 1 targets public administration to reform bureaucratic practices and reinforce transparency, accountability, and efficiency. Pillar 2 seeks to diversify the economy and reduce dependency on oil revenues, which comprise around 90 percent of government revenue. Pillar 3 focuses on infrastructure development. The remaining pillars target domestic living standards, public healthcare, the domestic labor market, and Kuwait’s global position.

The objectives of this National Development Plan are consistent with other regional development plans, such as Saudi Arabia’s Vision 2030. Government officials hope to increase direct foreign investment and to position Kuwait as a hub for the global petrochemical industry. They also look to invest in tourism and infrastructure, target high-population areas through urban development programs, and introduce social and economic empowerment programs. For foreign investors, Pillar 2, which targets economic diversification, demonstrates appropriate opportunity. Most obvious are programs targeting the tourism and technology sectors. Investors should also heed infrastructure and labor-market developments.

The KIA has recently demonstrated a desire to invest in technology through several high-profile investments. Three years ago, the KIA established a USD 2 billion portfolio for venture capital investments, closing deals with Alkem Laboratories, Apttus, Tyba, and NantHealth. Managing Direct Bader Al Saad argued that the KIA must “take more risk in order to maintain the returns,” indicating a shift toward active management. Kuwaiti investment in the tourism sector has also grown. According to the World Travel and Tourism Council (WTTC), tourist arrivals are expected to increase from 270,000 in 2014 to 440,000 by 2024. The KIA needs to expand capacity and has allowed foreign corporations to provide the hotel space. The Four Seasons will open its first Kuwaiti hotel at the Burj Alshaya Centre this year. The Mercure Kuwait, Hilton Olympia Kuwait, and a Grand Hyatt are expected to follow, opening by 2020.

Infrastructure will remain a top priority for Kuwaiti politicians. Cabinet Affairs Minister Sheikh Mohammad Al Abdullah Al Sabah spoke of elaborate mega-projects during the “New Kuwait” presentation. These include the Silk City, a planned urban area in northern Kuwait; the 37-kilometer Subiya Causeway, that will connect Shuwaikh Port with Subiya New Town; and the ongoing development of Boubiyan Island into a container harbor and gateway commercial seaport. Government funding is not sufficient to finance these ambitious projects and public-private partnerships are necessary. Kuwait’s finance minister, Anas Al Saleh, stressed the necessity to focus on infrastructure investment. Managing Director Bader Al Saad declared: “To write a big check, you need projects in infrastructure. Otherwise there’s no size. You need scale.” Materials and construction firms should reap the immediate benefits of these projects. Services and tourism will follow.

Labor market reform is also a key focus of “New Kuwait.” The Ministry of Social Affairs and Labor estimates that expatriates comprise nearly 70 percent of Kuwait’s population. The plan hopes to reduce this number to 60 percent by 2030. The large expatriate population (3.1 million compared to 1.33 million Kuwaiti citizens) has elicited vitriol from some lawmakers. One MP described them as “colonial settlers” and called for a tax on expatriates for “walking on the street”. While government investment in education will help a new generation of Kuwaitis join the workforce, corporations must remain wary of the state’s plan to limit foreign workers.

The “New Kuwait” plan is an anticipated reaction to the commodities slide of 2014. Kuwait’s 2010 launch of a USD 107 billion plan to invest in energy, transport, and health infrastructure engendered squabbling between the government and parliament and brought lackluster results. It is clear that political stability will attract foreign investment. Otherwise, projects by foreign companies are subject to review and abrogation by officials. Despite this risk, the country has a favorable business environment. Accommodative fiscal policy will aid rapid implementation of public-private partnerships and other foreign investment. Perhaps the slack in commodities revenues will finally provide impetus for capital spending and project development. If “New Kuwait” is executed properly, Kuwait’s economy will diversify and expand. Until Kuwaiti officials can prove capable of avoiding delays, however, political deadlock is the main downside risk.

*Andrew Vought is a contributor to Gulf State Analytics. Gulf State Analytics originally published this article on February 13, 2017

Reporters Without Borders (RSF) said Tuesday it is deeply concerned by new proposals that threaten journalists with jail time of up to 14 years for obtaining leaked official materials, and would make it easy to categorise journalists, whistleblowers, and human rights defenders as ‘spies’.

In a newly released 326-page consultation paper titled ‘Protection of Official Data’, the Law Commission proposes replacing the Official Secrets Act with an updated ‘Espionage Act’. Although the proposal has now been opened for a public consultation closing on 3 April, the Law Commission developed the initial recommendations without meaningfully engaging NGOs and media, effectively shutting out key stakeholders in a serious matter of public interest.

As proposed, the act would redefine espionage as “capable of being committed by someone who not only communicates information, but also by someone who obtains or gathers it”. There would be “no restriction on who can commit the offence”, and the maximum jail sentence for such offences would be increased from two years to a staggering 14 years. The scope of the law would also be broadened to include information that damages “economic well-being”.

“The UK government’s increasingly hostile attitude towards journalists and whistleblowers is alarming, particularly in the context of a number of other worrying moves against press freedom in recent months”, said Rebecca Vincent, RSF’s UK Bureau Director. “The threat of being labelled a spy and facing possible serious jail time for legitimate journalistic work would be a serious deterrent for many journalists, and would have a significant chilling effect on the media, restricting the public’s right to access information”.

The new recommendations follow a recent public consultation on the problematic Section 40 of the Crime and Courts Act 2013 pertaining to press regulation, which a joint RSF/English PEN submission called to be repealed.

The proposals also follow the passage in December of the menacing Investigatory Powers Act, described by the Don’t Spy on Us Coalition as “the most extreme surveillance law in UK history”. RSF has cautioned that the law could serve as a “death sentence for investigative journalism” in the UK ; combined with the proposed new Espionage Act, the threat to investigative journalism is even more alarming.

The United Kingdom is ranked 38th out of 180 countries in RSF’s 2016 World Press Freedom Index.

By William L. Anderson*

About 40 years ago, economist Bruce Yandle went to Washington to work for the Council on Wage and Price Stability, ready to apply his knowledge of economics and educate his fellow workers. After all, he reminisces, one eye-rolling, head-scratching decision after another was coming from government regulators that surely someone versed in economics could expose as stupid, wasteful, and downright ridiculous.

Government Serves the Interests of Government

At some point, Yandle realized that the lay of the regulatory land looked quite different in Washington than it did in Clemson, South Carolina, where he was on the faculty at Clemson University. Regulators — and the representatives of the enterprises they regulated — were not looking to create an atmosphere in which the government tried to find the “optimal” set of regulatory policies that both minimized regulatory costs and allowed for the maximum removal of whatever “externalities” were created.

No, as Yandle writes:

… instead of assuming that regulators really intended to minimize costs but somehow proceeded to make crazy mistakes, I began to assume that they were not trying to minimize costs at all — at least not the costs I had been concerned with. They were trying to minimize their costs, just as most sensible people do.

The more he examined the situation, the more he realized that all of the various actors in the system were acting in their own perceived self-interests — regulators, politicians, and those being regulated — and the combination of their interests created perverse outcomes. The “big picture” view that those on the outside of the situation might have is irrelevant to what actually happens, and understandably so.

Far from the stated goals of the regulators and those involved in the process — that regulation was pursued in order to promote a lofty “public interest” —  the real purpose of the regulatory apparatus is the promotion of the regulatory apparatus. The system exists to preserve and protect itself.

Socialists Are Interested in Control, not Economic Prosperity

As I observe (and participate in) a few discussions on Facebook and elsewhere about socialism, I have come to a few conclusions about the nature of the arguments and the reasons why socialists remain socialists even as we see the utter failure of socialist economies throughout history. Maybe the meme that appears once in a while — “If socialists understood economics, they wouldn’t be socialists” — might be true, but I doubt it. As I see it, the purpose of establishing socialism is to further promote socialism, not improve the lot of a society and certainly not to promote prosperity.

First, and most important, the minds of socialists work differently than do the minds of economists that see an economy as a mix of factors of production, prices, final goods, markets, and entrepreneurs that drive the whole route. Those of us who are economists are fascinated by this process because we see human ingenuity, the coordination of the goals of numerous people, and, when the system works, a higher standard of living for most people.

Socialists, however, don’t see what we see. Instead, they see chaos and unequal outcomes. Not everyone benefits, right? In some situations, someone may lose a job or a way of doing things becomes obsolete. In the end, some people won’t be helped at all, at least not directly, and in the mind of someone that has an organic view of society, the fact that certain entrepreneurial actions taken by some individuals have created goods that meet the needs of others is irrelevant. Society should be providing those goods for free! People should not have to pay for what they need!

Are you a surgeon who had done well financially because you have performed medical miracles for people who desperately needed your services? You have exploited sick people! Are you like Martha Stewart, who became wealthy in part by showing people how to make holiday celebrations better? What about the poor? They don’t have nice houses!

When I first started writing about economics nearly 40 years ago, I was like Bruce Yandle, believing that all that was needed to convince socialists to stop being socialists was a well-reasoned economic argument. You know, explain that entrepreneurs don’t earn profits by exploiting workers, but rather entrepreneurs make workers better off by directing resources to their highest-valued uses. You know, explain how a price system really does result in morally-just outcomes because, in the end, it directs resources toward fulfilling the needs of consumers. And so on.

I still believe the arguments, and over the years have come to understand them even better than I did when I wrote my first article for The Freeman in 1981. (It’s funny how Economics in One Lesson continues to become increasingly relevant to my thinking each time I read it.) However, I believe that the end of all of this activity is — or should be — the improvement of life for people in a way that is not predatory and brings about voluntary cooperation among economic actors. In other words, economic activity is a means to an end, and the end is free people gaining in wealth and standards of living.

A socialist does not and will not see things this way. The end of socialism is not a higher living standard or even making life better for the poor, as much as a socialist will talk about the well-being of poor people. No, the end of socialism is socialism, or to better put it, the ideal of socialism. Once socialism is established, as it was in Venezuela or in the former USSR or Cuba, the social ideal had been met no matter what the actual outcome might be.

But what about the problems that inevitably occur in a socialist economy? Are not socialists shaken by the economic meltdown in Venezuela? The answer is a clear NO. For example, The Nation, which has supported various communist movements for generations, takes the position that Venezuela suffers from not enough socialism:

If socialism is understood as a system in which workers and communities (rather than bureaucrats, politicians, and well-connected entrepreneurs) exercise effective democratic control over economic and political decision-making, it would appear that Venezuela is suffering not from too much socialism, but from too little. Who can deny that Venezuela would be much better off if the hundreds of billions of dollars reportedly diverted through corruption were instead in the hands of organized communities?

The author assumes, of course, that socialism can be separated from the state, which shows either dishonesty or naivety, or perhaps both. After all, the author continues by claiming that the vast system of price controls the government has laid down over Venezuela’s economy has had little economic effect and certainly has not been harmful, just as the author assumes that because most businesses in Venezuela officially are privately-owned, the government has little economic control over their operations. (As we know, the government there has seized businesses, arrested store owners for raising prices in the face of blizzards of paper money, and made ridiculous claims about conspiracies to overthrow the government.)

The one thing the author does not suggest is the government backing off its policies and its socialist ideology. To do so, obviously, would mean that socialism had failed and no socialist is going to ever embrace the idea that socialism could fail.

Perhaps the best example of this is Robert Heilbroner’s famous 1989 New Yorker article, “The Triumph of Capitalism,” written even before the Berlin Wall went down, along with the communist governments of Eastern Europe and the USSR. He followed this a year later with “After Communism,” also in the New Yorker. In his first article, the Marxist Heilbroner wrote:

The Soviet Union, China & Eastern Europe have given us the clearest possible proof that capitalism organizes the material affairs of humankind more satisfactorily than socialism: that however inequitably or irresponsibly the marketplace may distribute goods, it does so better than the queues of a planned economy … the great question now seems how rapid will be the transformation of socialism into capitalism, & not the other way around, as things looked only half a century ago.

Yet, it is clear, especially after the second article, that Heilbroner was not advocating the establishment of free markets, but rather saw the collapse of the communist system as little more than a strategic pause of the Long March to Socialism. To reach that Utopia, wrote Heilbroner, socialists needed to turn to environmentalism to deliver the goods. (That most of the socialist countries also were ecological disasters did not penetrate Heilbroner’s mind, and that should not surprise anyone. To Heilbroner, the end of socialism was not a better way to produce and equally distribute goods; no, the end of socialism was socialism.)

In other words, even after seeing the socialist system that economists like he, John Kenneth Galbraith, and Paul Samuelson praised for a generation melt down right in front of him, Heilbroner could not bring himself to admit that maybe socialists needed to turn in their membership cards and promote capitalism. No, Heilbroner decided that socialists simply needed new strategies to find ways to have state (read that, social) control of resources and economic outcomes. Interestingly, he wrote these words even after acknowledging that Ludwig von Mises and F.A. Hayek were correct in their assessment of socialism’s “economic calculation problem,” but even that admission did not bring Heilbroner to the logical end of his analysis: total rejection of the socialist system.

Like the Fonzie character from Happy Days that never could admit being “wrong” on an issue, Heilbroner — and others like him — could not concede that socialism in any form still would run aground, be it in providing medical care, establishing strict environmental policies, or the establishment of a vast welfare state. The central problem facing socialism — economic calculation — does not disappear just because a government does not directly own factors of production and engage in five-year economic plans.

This hardly means that economists like me should stop writing about the failures of socialism or stop explaining how a private property order and a free price system work. First, one never can be too educated in economic analysis and neither can anyone in public life. Socialists may not be able to abandon their faith, but others who might like to hear well-reasoned arguments might not be willing to join the Church of Socialism in the first place.

Second, there is nothing wrong in speaking the truth and just because socialists and their followers are averse to truth does not mean we give up saying what we know to be true. Just because socialists refuse to believe that socialism fails — even when the evidence points otherwise — does not mean they have the moral and intellectual high ground.

About the author:
*Bill Anderson is professor of economics at Frostburg State University in Frostburg, Maryland. Contact: email, facebook.

Source:
This article was published at MISES Institute.

By Bhaskar Roy*

Following US President Donald Trump’s executive order banning entry of people from seven designated Muslim countries, and hints from the White House that more countries could be added to the list, Pakistan moved swiftly to put Jamat-ud-Dawa (JUD) chief Hafiz Saeed and four other aides under house arrest. JUD offices were sealed and bank accounts frozen. The JUD’s charitable arm, Falah Insanyat Foundation (FIF) came under the same directive. Both the government and the Pakistani army gave similar terse reasons – national security was behind this action.

Hafiz Saeed was the head of the terrorist organisation Lashkar-e-Toiba (LET) which was involved in numerous terrorist attacks in India, including the carnage in Mumbai (Bombay) in 2006. His role, and that of the Pakistani intelligence agency, the ISI are now well known.

The Hafiz Saeed- led LET was banned in 2002, but under the new name of JUD it was allowed to survive and flourish. FIF was floated as a charitable organisation as a cover. JUD has emerged with a new name again- the Tehreek Azadi Jammu and Kashmir (movement for Freedom of Kashmir). The JUD continues to collect donations at their old centres, but without JUD signboards and banners. So much for the ban on JUD.

Pakistan has drawn international opprobrium, sometimes hostility, for harbouring, aiding and directing terrorist groups. It has admitted these terrorist groups are part of its foreign policy tools. Two countries which have suffered the most are India and Afghanistan. Pakistani foot prints have been there in a number of terrorist attacks in the west, from the 9/11 attack in New York to attacks in other cities last year.

After the attack on the Indian airbase in Pathankot in January 2016 by Jaish-e-Mohammad (JEM) led by Masood Azhar, international position took a sharp and vocal turn. Another Pakistan based terrorist attack in Uri (Jammu and Kashmir) last year rendered Pakistan’s arguments untenable.

Some Pakistani lawmakers including from the ruling PML-N and the foreign office are frustrated at the rebuff they face when they try to raise the Kashmir issue in international fora. At a meeting of the Pakistan National Assembly Standing Committee on Foreign Affairs last October, PML-N lawmaker Rana Muhammad Afzal asked why no action was being taken against Hafiz Saeed. He said that during a recent trip to France, when he tried to raise the issue of Indian atrocities in Kashmir, the interlocutors raised the question of Hafiz Saeed, and that Saeed was considered a “notorious character” in international circles.

Pakistan People’s Party (PPP) legislator Aitaz Ahsan told a joint session of Parliament (October 2016) Pakistan was being isolated because it gave freedom to “non-state actors”. He also sharply criticized the government for mishandling the Uri attack.

At a high level security meeting between civil and military leadership in Islamabad (Dawn, October 06, 2016), reviewing the recent diplomatic outreach by Pakistan, Foreign Secretary Aizaz Choudhary disclosed that Pakistan faced diplomatic isolation and that government talking points were met with indifference in international capitals. The reason was the same – Hafiz Saeed and Masood Azhar issue always came up.

Last year (September 20, 2016), two US congressmen moved a bill to designate Pakistan a state sponsor of terrorism. The congressmen, Ted Poe (Chairman of the House Subcommittee on Terrorism), and Dana Rohrabacher, were incensed by Pakistan’s betrayal of the trust reposed by the US in Islamabad including through civil and military aid and declaring Pakistan a non-NATO ally. Both congressman are Republicans. The text of the bill cited multiple infractions by Pakistan in its sponsorship of terrorism, including harbouring Osama bin Laden and facilitating al Qaida’s movement of fighters to and from Afghanistan as well as the organisation’s purchase of weapons.

Ted Poe said “Not only is Pakistan an untrustworthy ally, Islamabad has also aided and abetted enemies of the United States for years.” Poe added “It is time we stop paying Pakistan for its betrayal and designate it for what it is: a state sponsor of terrorism”.

The bill was largely symbolic as the Congress was nearing the end of its term and the presidential race was heating up. Yet, it is an emphatic expression of the mood in the Congress. Now with a Republican President in place, who has shown a strong intention of cracking down on terrorism, the spirit of this bill is very much alive.

In a more recent development (6 Feb) a group of ten top level think tanks of Washington DC issued a report cautioning the US government that Pakistan has been allowed to slip through in the past while acting against US interests. The report titled “A New US Approach to Pakistan: Enforcing Aid Conditions without Cutting Ties”, was authored by Hussain Haqqani, Director for South Asia and Central Asia with Hudson Institute and Lisa Curtis of Heritage Foundation. Haqqani was Pakistan’s ambassador to the US from 2008-2011, a critical period, while Lisa Curtis was an analyst in the US security. Other signatories include Bruce Reidel of the Brookings Institution who served with CIA and the State Department as a counter terrorism expert. All of them have profound knowledge of Pakistan and its state policy of terrorism.

The report falls short of recommending declaration of Pakistan as a state sponsor of terrorism, but does not take the option off the table. It strongly advocates holding Pakistan’s feet to the fire and recommends against “chasing the mirage of securing change in Pakistan’s strategic direction by giving it additional aid or military equipment”.

The CIA and the DIA are aware of Pakistan’s double game including diversion of US counter-terrorism aid to groups like the Haqqani network to target US intelligence personnel in Pakistan. In one case the Haqqani network was paid by the ISI to decimate a CIA establishment in Pakistan near the Afghan border. Some of this information came out in the US last year.

What is China’s position in this scenario? While the Chinese are aware that support to the Uighur separatists comes from Pakistan, they have too much stake in Pakistan to let it down. In fact, the Chinese further tightened the exit-entry points on their border with Pakistan, in January this year. Supporting Pakistan, they put on technical hold a US move backed by the UK and France on February 02, to list Masood Azhar an international terrorist in the UN Sanctions Committee 1267.

Sealing the border with Pakistan in China’s Xinjiang Autonomous Region was a Chinese read-out to Pakistan of its displeasure that Pakistan was not doing enough to counter what they say are the “three evils” – separatism, terrorism and religious extremism. Pakistan sent its ISI Chief Lt. Gen. Naveed Mukhtar to China quietly in January to assuage their feelings and promised more active measures. In 2008, in the run up to the Beijing Summer Olympics, Xinjiang Party Chief, Wang Lequan had publicly accused Pakistan of harbouring Uighur terrorists.

In the first week of February, China despatched its State Commissioner for counter-terrorism, Cheng Guoping, to Pakistan. The Chinese official media generally skirted the visit while the Pakistani Foreign office issued a wishy-washy read- out, saying all is well between the two countries.

Cheng’s visit to Pakistan was not a tourism visit. There were reports in a section of the Pakistani media that Beijing was putting pressure on Islamabad to take action against Masood Azhar and Hafiz Saeed. Of course, the Chinese foreign ministry denied such reports. China does not want to be seen as a “bad boy” among the Pakistani people, many of whom either support the Jehadis or empathise with them, and see China as their one and only all-weather friend. China wants Pakistan to take action on its own. That is why the Chinese official position remains that the decision to ban or designate terrorist leaders like Azhar should be resolved between India and Pakistan through talks.

The Chinese are getting a little uncomfortable with the Masood Azhar case. According to a Pakistani media outlet which is up front and anti-Jehadi Pakistani Foreign Secretary Aizaz Choudhury told at a confidential meeting last year, that the Chinese would still put a hold on Masood Azhar at UN Sanctions Committee 1267, but also asked for “how long”.

While China is a member of the international coalition against terrorism, its track record does not encourage confidence. Its focus remains mainly on the Uighurs who are Muslims of Turkic Origin. Most recently, Beijing posted Chen Quanguo as Xinjiang Party Secretary. Formerly Party Secretary of Tibet Autonomous Region (TAR), Chen is a known hardliner. With the support of the Communist Party and the central government, Chen has launched a scorched earth policy against the ten million Uighurs living in Xinjiang. Their basic rights have been suspended and every Uighur is seen as a potential separatist or terrorist.

Beijing risks its big power status as a global leader because of its aggressive, assertive and dual policies. Whether it is its “grey” position on terrorism, or on the South China /East China Sea, China is positioning itself against international laws, agreements and opinion.

China says its position on Masood Azhar and against India’s entry into the Nuclear Suppliers Group (NSG) are “small issues,” that should not impact China-India overall relationship. For India, on the other hand, these two issues are a direct threat to India’s security and core strategic interests. New Delhi’s recent demarche to China on the Masood Azhar issue is a slight change in its otherwise passive and accommodative approach to China. India must keep an eye on all engagements where its security is concerned – seeking investments from China in strategic areas like the information technology sector is fraught with danger.

How long the US pressure on Pakistan vis-a-vis terrorism will remain is still an open question. The US has strategic interests in Pakistan. There is the Afghan problem, the Taliban issue and the unhappy possibility of having to cede space to China.

And finally, the Pakistani army and politicians have made Hafiz Saeed a monster threatening to swallow the nation. Islamabad and Rawalpindi are already battling the Tehrik-e-Taliban Pakistan (TTP). But Hafiz Saeed is much stronger than the TTP, having spread his influence to all corners of Pakistan, with hundreds of thousands of dedicated cadres waiting for their leader’s command. They have also penetrated the Pakistani security and military organisations. Jaish can also join them if needed. An exceedingly gloomy situation indeed. No early solution is on the horizon.

*The writer is a New Delhi based security analyst. He can be reached at e-mail grouchohart@yahoo.com

By Dr Subhash Kapila*

Global balance of power 2017 is weighted heavily against perceived combined strategic weight of the China-Russia nexus as the history of 20th Century World Wars would indicate that Hitlerian impulses do not triumph against democracies coalescing against them.

Democracies have long patience and forbearance in tolerating the strategic delinquencies and provocations of ‘revisionist powers’ like China. The United States and the West have for far too long attempted to steer and motivate China to emerge as a ‘responsible stakeholder’ in global peace and security. China has misinterpreted this effort as appeasement by a Superpower on the decline. And, therein exist the combustible dangers which historically have led to major conflagrations in a heavily surcharged security environment between ‘revisionist powers’ and coalition of democracies ignited by a solitary and unintended spark.

Russia gets type casted in the same category for nothing else but by Russia’s synergising its strategic outlook and policies supportive of China and in consonance with China’s power ambitions oblivious to the underlying reality that in China’s long-range strategic s calculus, Russia too figures as an impediment to China’s Superpower ambitions. But till such time that Russia displays policy inclinations to the contrary, in geopolitical and strategic analyses, the China-Russia strategic nexus has to be calculated as one entity for balance-of power assessments.

China and Russia today with pretensions of being Superpowers do not count much as ‘balance-of- power’ game-changers in the global power calculus, even with their combined strategic and military might. At best, they are strategically- irritant powers with propensities for disruptive turbulence generation. This applies more to China. Russia gets drawn into the same league by virtue of its perceived strategic nexus with China and also by the perception that Russia is now not an independent power-centre.

Historically, the combined might of democracies takes time to coalesce, as democracies are more patient and forbearing against revisionist fascist tendencies. Perceptionaly, this gives China and Russia strategic space to generate impressions that the United States, the West and other democracies like Japan, India and Australia are powerless or lack firm intentions to limit their strategic waywardness. Such historical examples abound in the run-up to the First World War and the Second World War of the last century.

The above trend also leads to misperceived and distorted discussions in strategic debates that comparatively the power of major democracies ranged against revisionist powers is on the decline. Such is the case of the impression that has been growing for some time that the United States power and those of its Western Allies is on the decline. But is that really so?

It is not so, as an accurate analysis of United States power potential would indicate that the strategic weight, its military might, its force projection assets and capabilities and its global geopolitical and economic dominance still remains intact. The same is true for the Western democracies. In case of the major Asian democracies, namely, Japan and India, there are concerted efforts by both nations to build up their power potential spurred by the rising ‘China Threat’. Both Japan and India have appreciable deterrent power potential against China. The arms build-up of Japan and India, it needs to be pointed out is China-centric and not aimed at Russia. To that extent, this neutralises China’s misperceptions of the combined weight of the China-Russia nexus.

In the overall power-potential comparative analyses the combined weight of the United States, the Western democracies, and Japan and India would far outweigh the might of China or Russia or both combined together. That strategic coalescing in relation to China is underway as is evident more noticeably from the evolving US-Japan-India Trilateral and the US-Japan-India-Australia Quadrilateral. In relation to Russia, NATO still continues in existence and also an enlarged NATO at that, more than the NATO that existed at the height of the Cold War confrontation.

China’s exponential growth in its military power may be a reality but the double-digit growth of its economy which sustained it is petering out. It is debatable that in the years to come that with other fissiparous tendencies coming into play, how much power-potential would China be left with even to protect its so-called “Core National Interests”. On the other extreme, should China with the arrogance of newly acquired military power and the arrogance arising that US power is on the decline be tempted to push the envelope in its illegal South China Sea and East China Sea claims and risk an armed conflict, then it is possibly destined to meet the same fate as Hitlerian Germany.

Russia’ resurgence as an independent power centre was well underway in the last decade under President Putin, but somewhere along the way Russia ended up as a perceptional B-Team player of China, despite its superior power- potential than China. Russia by its actions in the Ukraine and in the Crimea provided the stimulus for NATO to gets its act together against earlier impressions gaining ground that NATO was becoming redundant. Russia’s forays in Syria too have not added much to its true strategic weight with its image of being a junior partner of China. Russia pushing the envelope further in Europe, more particularly in the Baltics, may be risking a combined NATO confrontation in which China can play no part.

China-Russia strategic nexus getting operationalised militarily ever, may not be unthinkable but it is a remote scenario as too many existing and potential geopolitical contradictions between China and Russia come into play to impede it. This has been examined in my past SAAG Papers and the conclusion was that in the event of China or Russia getting into an armed confrontation with the United States, neither Russia or in the reverse situation China would come to the aid of the other.

Russia is unlikely to be in a situation of any armed conflict with any nation in the Indo Pacific Asia region and hence not would be faced with the scenario of a military confrontation or showdown with the United States and the West. China in marked contrast has any number of explosive flashpoints with its Asian neighbours which by Chinese brinkmanship or accidental causes could draw China into armed conflict with Japan, Vietnam and Taiwan to begin with. China inevitably would be drawn in into any United States showdown with North Korea. Would Russia be inclined to bail-out China from flashpoints and conflicts of China’s own making and provocations? And that too, when China gets ranged against the United States and its allies and its strategic partners?

Potential also exists for China being drawn singularly into conflict over its South China Sea sovereignty claims, irrespective of its dispute with its neighbours, if it chooses to impede free flow of traffic and navigation both in the maritime expanse and so also the air-space over the South China Sea. In that case China may have to face the combined might of a multinational coalition under the UN flag or otherwise.

While dwelling on the issue of the global balance of power in relation to the China-Russia nexus it is also for consideration that while Russia adds strategic ballast to China, the same is not true of China adding strategic ballast to Russia, in global power equations.

Historically, it needs to be recalled that Russia as the then Soviet Union has a record of combatting Germany in the Second World War, fighting on the same side as the United States and the Western democracies. Even post- Soviet Union disintegration the then Russian Foreign Minister described Russia as the ‘Natural Ally of the West.’ China’s record is otherwise.

Concluding the foregoing analysis, it needs to be reiterated that the global security environment in 2017 stands seriously challenged by China’s ‘revisionist power’ impulsive military brinkmanship reminiscent of Hitlerian Germany and therefore it becomes more imperative for powerful democracies like the United States, the West, Japan, India and Australia to unitedly checkmate China’s aggressive instincts. This is all the more imperative till such time Russia disassociates itself from China’s national aggrandisement and stands on the right side of history and which in consequence prompts China to restrain its revisionist impulses.

*Dr Subhash Kapila is a graduate of the Royal British Army Staff College, Camberley and combines a rich experience of Indian Army, Cabinet Secretariat, and diplomatic assignments in Bhutan, Japan, South Korea and USA. Currently, Consultant International Relations & Strategic Affairs with South Asia Analysis Group. He can be reached at drsubhashkapila.007@gmail.com

By Seyed Hossein Mousavian

Donald Trump’s Middle East policies began with two major decisions, one to ban entire Muslim populations and another to impose sanctions on Iran. Both threaten to undo the Iran nuclear deal. His new sanctions over a recent Iranian missile test targeting Iranian and non-Iranian individuals and entities, including some from Lebanon, the UAE, and China. The international impact of these sanctions is clearly meant to instill more fear into global firms from doing business with Iran.

Trump’s executive order, erroneously titled “Protecting the Nation from Foreign Terrorist Entry into the United States,” exposes not just the Islamophobia and incompetence of Trump’s inner circle, but also their disregard for basic human rights and international norms. By deliberately targeting roughly 220 million men, women and children based solely on a single aspect of their identity, the order evokes not just the darkest moments of human history, but also the dangerous lengths the Trump White House is willing to go to achieve its—potentially extremely nefarious—political agenda.

While enforcement of the order has temporarily been blocked after a federal judge in Seattle ruled there was “no support” for the argument that U.S. federal government has to “protect the U.S. from individuals from these countries,” the Trump White House is seeking to an emergency stay of the ruling. Trump has personally lambasted the “so-called judge” who overruled his ban.

A hope had emerged for U.S.-Iran peace in recent years that Trump’s actions are set to destroy. The United States and Iran and both regional heavyweights, and a confrontation between them would be severely destabilizing for the entire region.

The extent to which Trump’s order runs counter to international values and laws, the fight against terrorism and the cause of international peace and stability, can be encapsulated in eight points:

1. Trump seeks to completely undo Barack Obama’s engagement policy towards Iran and revert to a policy of threats and coercion. He has condemned Obama for being “kind” to Iran, which he says Iran did not “appreciate,” and as the new sanctions indicate, is bent on dangerous escalation. However, the reality is that this policy approach towards Iran has already been tried and been a proven failure. From the 1979 revolution until the start Obama’s second term, the United States pursued roughly every tactic of pressure on Iran, with the aim of regime change. Not only have they failed, but Iran has emerged as the most stable and powerful regional country.

The only productive U.S. approach towards Iran was under Obama from 2013-2016. By choosing to engage Iran based on mutual respect, the United States and Iran managed during this period to resolve the nuclear crisis and establish a bilateral channel that secured the speedy release of U.S. sailors who had drifted into Iranian waters, exchange of some prisoners and resolve decades-old financial disputes.

2. The Muslim Ban order sharply raises U.S.-Iran tensions, with Trump starting off his presidency by targeting the Iranian people, who form the biggest share of the populations banned (roughly one-third). It has validated opponents of President Hassan Rouhani in Iran who argue America can never be trusted, and fostered resentment against the U.S. government across Iranian society.

For its part, the Iranian government has responded by stating it is “considering” taking reciprocal measures. Rouhani has also declared that the order exposes America’s duplicity in claiming it is only against the Iranian government, not people. “Because this person (Trump) is a special character, he has removed the mask of hypocrisy and he is showing what they have in their hearts,” Rouhani stated.

The specter of a permanent ban on Iranians is also likely, with a State Department dissent memo noting how the ban can only be lifted “under conditions which will be difficult or impossible for countries to meet.”

3. The Iran nuclear deal, formally known as the Joint Comprehensive Plan of Action (JCPOA), is directly challenged by the executive order, given it specifically requires the United States to “sustain this JCPOA and to prevent interference with the realization of the full benefit by Iran of the sanctions lifting.”

Last year’s changes in the U.S. visa waiver law already undermined the JCPOA by creating obstacles to trade with Iran. By outright banning many Iranian dual nationals, Trump’s executive order further sabotages JCPOA-ordained sanctions relief. It also prevents Iranian businessmen from selling JCPOA-allowed goods to the United States, such as pistachios and Persian carpets.

4. No one from the seven targeted countries—Iran, Iraq, Syria, Yemen, Libya, Sudan and Somalia—has killed anyone in a terrorist attack on American soil. This is in contrast to countries like Saudi Arabia, which actively proselytize Wahhabi Salafism, the main source of international terrorism.

Trump himself decried during the campaign that the Saudis were the “biggest funders of terrorism” and studies have shown how Saudi Arabia, along with the UAE, Egypt and Lebanon have produced by far the highest numbers of individuals who have committed terrorist attacks in America. Surprisingly, after his election, Trump phoned Saudi King Salman and the two leaders reportedly affirmed the depth of their “strategic relationship.”

Furthermore Trump’s conflict of interests were again highlighted by this executive order, with the ban excluding countries where Trump has business ties.

5. By spontaneously banning visitors and immigrants from these countries—including individuals with work or student visas and initially even green cards—tens of thousands of lives have been tragically upended. Families have been torn apart from loved ones, with countless students and others now unable to visit their home countries.

6. Terrorist groups such as ISIS will benefit the most from this order, which alienates whole Muslim societies and collectively punishes them. Both U.S. and regional security in the Middle East will deteriorate as a result. Furthermore, three of the targeted countries—Iran, Iraq, and Syria—are leading the on-the-ground fight against ISIS. In the case of Iraq, its ability to combat the group in coordination with United States will be significantly hindered.

7. Trump’s executive order deeply erodes international good will towards the United States. That the United States would ban travelers and even refugees, from countries such as Iraq, Libya, Syria and Yemen, where it has intervened militarily in recent years, signals an astounding level of callousness. World leaders such as Germany’s Angela Merkel have even had to explain to Trump his obligations under the Geneva refugee convention after the ban.

8. By issuing a blanket ban on individuals for simply who they are and what they believe, a strong message is sent to the world that the Trump administration is against the religion of Islam—a pluralistic faith with a rich history dating back 1,400 years and with over 1.5 billion adherents.

President Trump approach will make the United States more unpopular in the Muslim world, promoting a culture of hate that has proven a threat to US foreign relations in parts of the world and international peace and security. Such a conflict would guarantee strategically self-defeating quagmires in the Muslim world for decades, as other global powers march well ahead of America.

Source: El Pais

By Sinisa Jakov Marusic

If fresh elections were held immediately, Macedonia’s ruling and opposition parties would again end up with almost-tied results, leaving the political crisis unresolved, an opinion survey suggested.

Amid the ongoing delay in forming a new government after the December 11 elections, an opinion poll published on Monday suggested that if the polls were repeated, the ruling VMRO DPMNE party and its bitter rival, the opposition Social Democrats, SDSM, would win almost equal support, as they did two months ago.

The survey commissioned and published on Monday by Telma TV and MCMS, an NGO, and carried out by M Prospect agency, suggests that the ruling party would win 23.3 per cent of the votes while the opposition would win 23 per cent.

One interesting find was that the leading ethnic Albanian party, the Democratic Union for Integration, DUI, which now has 10 MPs and is seen as a crucial ally for any of the two main parties to form a new government, would lose its bargaining chip if the pols were repeated.

The poll suggests that the DUI, which since its formation in 2002 has been the dominant force in the Albanian bloc, would lose its primacy.

Only 3.3 per cent of voters would support the DUI at repeat elections while 3.5 per cent would support the ethnic Albanian newcomer, the Besa party. The Democratic Party of Albanians, DPA would get 2.2 per cent and the Alliance for Albanians 1.5 per cent.

The telephone survey conducted between 4 and 10 of February on a representative sample of 1,000 respondents also suggests that for the first time since independence, the majority of ethnic Albanians would not opt for an Albanian party but rather choose the opposition SDSM.

A total of 20.4 per cent of the ethnic Albanian respondents opted for the SDSM, more than any other ethnic Albanian party. Fifteen per cent of Albanians said they would support Besa, 14 per cent opted for the DUI, 10 per cent supported the DPA while six per cent supported the Alliance for Albanians.

The majority of ethnic Macedonians, 30.6 per cent, opted for the ruling VMRO DPMNE, while 23.8 per cent chose the SDSM, a gap that the opposition would manage to close with its Albanian supporters.

In the aftermath of the December 11 elections, at which VMRO DPMNE won 51 MPs in the 120 seat parliament, just two more than the SDSM’s 49, neither of the two big parties has been able to secure a majority of 61 MPs and form a government.

Both need the support of Albanian parties, which control 20 MPs altogether.

The potential kingmaker, the DUI, which won 10 MPs in December, foiled the VMRO DPMNE’s attempt to lure them back into a renewed government alliance.

The DUI is however yet to decide whether it will now support a government alliance led by the SDSM.

Majority against repeat elections

Immediately after failing to form government, the ruling VMRO DPMNE caled for repeat polls which would, it said, end the current political stalemate.

However, the opinion poll not only suggests this would not be the case but also that the majority of Macedonian citizens are against this idea.

A total of 56.5 per cent said they were against new elections while 38.6 per cent said it could be the right path to follow.

Support for Special Prosecution

The survey suggests that a convincing majority of respondents support the work of the Special Prosecution, SJO, which was formed through EU mediation in 2015 to investigate allegations of high-level crime.

The majority would also like its deadlines for pressing charges, which in most cases expire in two months, to be prolonged.

A total of 62.8 per cent said they wanted the extension of SJO’s deadline while 28.8 per cent were against it. Eight per cent of the respondents gave no answer to the question.

Asked what they thought was the best solution for the political stalemate, 30.,3 per cent opted for a formation of a wide-ranging coalition government, 27.3 per cent chose a government led by the opposition SDSM, while 23.5 per cent said they would support a government led by the ruling VMRO DPMNE, which has been in power since 2006.
– See more at: http://www.balkaninsight.com/en/article/survey-another-snap-poll-won-t-solve-macedonia-s-crisis-02-14-2017#sthash.pkzOZ13o.dpuf

By Jonathan Perraton

Predictions that the 21st century will be the Asian century appear to have been borne out already. From the 1990s there has been a decisive shift in global economic activity—current projections pit the centre of economic activity globally between India and China by the middle of the century.[1] This shift in economic activity—arguably a return to patterns before the industrial revolution—has occurred over an unprecedentedly short period of time. Over 2003-2013, the global median level of real income nearly doubled.[2] This was essentially an Asian effect, the only region to experience sustained productivity growth and catch-up this century; above all, this transformation has been driven by Chinese and Indian growths.

China is likely to overtake the United States soon as the world’s largest economy and the World Economic Forum predicts that India will become the world’s third-largest economy by 2030.[3] Asian economies succeeded through embracing globalisation, but they did so on their terms. More subtly, emerging economies have come to play a much greater role in global economic governance, notably as the G7 was superseded by the G20 and through a more active role within the World Trade Organisation (WTO) in particular. Further, emerging economies have started to construct institutions of international economic cooperation and governance parallel to existing ones established and dominated by Western powers.

Asian economies, particularly China, have forged new trade and investment relationships with emerging economies in Africa and Latin America. The period before the global financial crisis was characterised by a phase of hyper-globalisation based on a particular conception of global integration that came to be associated with a policy package of openness to trade and financial flows and general economic liberalisation. This came to be seen as driven by US economic hegemony, often dubbed the Washington Consensus, although the European Union was also an active player particularly in the field of financial liberalisation. The new economic relations promoted by emerging economies in Asia and elsewhere have reshaped the architecture of economic globalisation in the 21st century.

Globalisation Interrupted?

Yet the future of these trends now poses major challenges for Asian countries, both in terms of globalisation generally and the role of Asian development models specifically. Only a decade ago, globalisation trends were widely expected simply to continue—global flows of trade, investment and finance would continue to grow, global economic governance would continue to evolve to promote such flows and reduce barriers to them. Since the 2007/08 global financial crisis (GFC) global growth has been continued to be anaemic—emerging economies were central to dragging the world economy out of the post-crisis downturn, but latterly growth has slowed in China and elsewhere (although it remains strong in India). China responded to the GFC with a major stimulus package, but with the slowdown there may be emergent debt problems in its banking and shadow banking sectors.[4]

More fundamentally, developments since the GFC have challenged assumptions of ever-growing globalisation. Trade flows fell sharply at the start of the crisis and, although growth has resumed, it remains subdued and is no longer growing relative to GDP.[5] Foreign direct investment flows of multinational corporations have only recently resumed growth, having slumped after the financial crisis, and they too have ceased to grow relative to GDP.[6] The reversal of financial globalisation has been even more dramatic—international financial flows had grown exponentially from the 1970s but have fallen back since to a fraction of their pre-crisis levels; relative to GDP, international financial flows are now comparable to levels last seen in the mid-1980s.[7] Much of this is driven by retrenchment of cross-border banking flows—unsurprisingly in the aftermath of a financial crisis—but it also points to reduced appetite for the risks of international investment.

The persistence of these trends indicates more than just a cyclical phenomenon. Not only have flows fallen, barriers may also be returning. Even before the GFC, the Doha round of the WTO had become deadlocked, not least because of a lack of agreement between emerging economies and Western powers. Whilst the financial crisis did not see a return to 1930s-style protectionism, trade barriers did rise and are partly responsible for the subdued level of global growth. The election of Donald Trump and the UK’s Brexit vote point to a turn against globalisation; already the Trans-Pacific Partnership (TPP) and Transatlantic Trade and Investment Partnership (TTIP) negotiations appear doomed. There is historical precedent from the inter-war years for a turn against globalisation. Emerging Asian economies are central to the globalisation processes that have brought the world economy to its current juncture.

Rising Asia and the Future of its Development Model

Whilst countries elsewhere have registered gains, the global transformation is essentially a story of the rise of emerging Asian economies—above all, China and India. Initially globalisation developed from the 1980s largely as an intensification of flows between developed countries, but a series of technological developments and policy shifts led to a wholesale shift of global manufacturing power. As Richard Baldwin has recently documented,[8] economic globalisation of the past quarter century has seen the development of global value chains leading to the rapid industrialisation of emerging economies and the further deindustrialisation of developed economies.

What is unprecedented here is the combination of trade openness with the new information and communication technologies (ICTs), enabling the flow of ideas and technological know-how. Offshoring enabled the transfer of advanced technology and the rapid evolution of manufacturing in emerging economies; this drove the unprecedented growth and catch-up in Asia. Emerging economies were able to access leading-edge technologies and multinational companies were able to transfer production to lower-wage economies. These new ICTs effectively eliminated many of the barriers to diffusion of advanced technological know-how, enabling a shift in manufacturing to Asia.

This wholesale shift in industrial production has created a profound pattern of winners and losers. In what Milanovic has characterised as the “greatest reshuffle of individual incomes since the industrial revolution,” growth in the two decades before the GFC was concentrated around the global—the vast majority in Asia—and amongst the global top one percent.[9] On the other side, incomes stagnated for lower and middle income earners in developed countries; the timing and extent of this varied between countries, but the combined effects of globalisation, policy shifts, automation and anaemic growth have hit household income growth across the developed world.[10] In these circumstances the populist backlash in Europe and the United States—focused on trade, immigration, or both—is not surprising. Increasingly, parallels are drawn with the inter-war retreat from the pre-First World War phase of globalisation.

Cumulative real income growth between 1988 and 2008 at various percentiles of the global income distribution Source: Milanovic (2016)

The Asian growth model has been predicated upon export-led growth through manufacturing and high levels of savings and investment; since the 1997 East Asian crisis this has entailed current account surpluses. There are major external and internal challenges to the future of this model. The shift in industrial power over recent decades is very unlikely to be reversed in the foreseeable future; whatever his election promises, Donald Trump won’t be able to engineer a renaissance in American manufacturing. Instead, the shift in manufacturing towards emerging economies is likely to continue.

Nevertheless, the growth of world trade has slowed and Asian export growth has not picked up with the recovery of the global economy in contrast to earlier global downturns. The rapid expansion of trade before the GFC with the spread of global value chains now appears exceptional. Trade barriers have risen, and may rise significantly further under the Trump administration. Further, the model itself became increasingly reliant on the United States as the ‘consumer of last resort.’

The imbalances that developed between trade deficits in the United States and surpluses in Asian economies cannot be sustained indefinitely (ultimately, growth of consumer demand in the United States was based on rising house prices, falling savings and rising debt). In the face of sluggish world trade growth Markus Rodlauer, deputy director for Asia and the Pacific at the International Monetary Fund, has gone so far as to assert that “[t]hat model that Asia had of relying on the trade channel—that’s gone.”[11] In the context of debt overhang and deleveraging in the global economy, even the spectre of ‘secular stagnation’ amongst the developed economies ever-growing Western consumer demand cannot be assumed.

Internally, too, there are a number of challenges to the continuation of this model. Latterly developing economies appear to be experiencing ‘premature deindustrialisation’—manufacturing output and, especially, employment peaking at lower levels of income than was the case historically. This is particularly significant given the evidence that manufacturing is central to productivity growth and development.

In general Asia has been the major exception to these trends; indeed, its very success in industrialisation appears to have limited the opportunities for further industrialisation in Africa and Latin America. However, India does display signs of this phenomenon,[12] although a combination of factors has underpinned its advantage in services trade. In the past manufacturing generated mass employment and was central to absorbing labour from agriculture. As advanced technology spreads modern factories in emerging economies, like their counterparts in the already industrialised world, these are far less labour intensive.

In 2016 Foxconn was reported to have replaced 60,000 factory workers in China with robots.[13] The demographics pose key challenges for China and India, particularly in both generating sufficient employment to continue to absorb workers with basic education and skills whilst also ensuring growth of a skilled workforce to enable up-grading of production.[14] This is closely related to the potential challenge of ‘middle income trap’; it has been claimed that although countries may find it relatively easy to achieve some development, they appear to hit a ceiling rather than accede to the still small club of rich nations. Low-wage industries are increasingly footloose, but transitioning from initial export-led manufacturing growth to more sophisticated production as incomes rise requires a set of policies, skill generation and institutions.

Related to these developments, Asian economies have also experienced significant rises in inequality since 1990. Historically labour-intensive export-led industrialisation in Asia produced relatively egalitarian outcomes through strong growth of formal employment; although Asia remains on average more equal than Africa or Latin America, the general forces that have raised inequality in developed countries―globalisation, technological change and policy shifts―have also acted to manifest themselves in the same adverse manner across emerging Asian economies.[15]

In the face of mounting evidence that inequality is economically harmful and politically destabilising, these developments raise concerns over the sustainability of current development paths.

The rapid pace of industrialisation based on the spread of global value chains may render older policy packages redundant or inoperable, but neither upgrading nor ensuring inclusive growth is a simple task or an automatic process. Recent proposals for revitalising industry sketch out strategies that may enable governments to adapt policy tools to develop capabilities so that countries are able to upgrade within value chains.[16]

Asian Economies and the Reshaping of Global Finance

Trade and financial integration are often discussed separately, but for emerging economies these have become intertwined. In the aftermath of the 1997 East Asian currency crises emerging economies have attempted to manage their exchange rates to ensure continued export growth and strong external balances. This has been associated with an accumulation of reserves that has, in turn, brought forth accusations of currency manipulation, particularly in the United States.

The financial turbulence following the GFC, combined with low interest rates and quantitative easing, led to potentially disruptive capital flows to emerging economies. (This also led to accusations of currency manipulation against the United States; the possibility of currency wars remains). In response to this China, India and a number of emerging economies in East Asia and elsewhere instituted capital controls or utilised existing such provisions to manage these inflows. There has been a striking shift in the intellectual climate since the start of the crisis that now claims that capital controls are a potentially useful tool for emerging economies to manage capital flows and mitigate associated risks.

The IMF in particular appears to have adopted a more lenient view of some forms of capital controls. This has occurred in the context of a marked retrenchment in international financial flows. Emerging economies have retained considerable access to international finance—in particular, external corporate debt in emerging economies has boomed over the past decade under conditions of accommodative monetary policy and weak economic prospects in developed economies.

Financial liberalisation had become increasingly entwined with trade agreements in practice. The General Agreement on Trade in Services under the auspices of the WTO does have provisions for opening up capital markets. Further, regional and bilateral trade agreements with developed countries have increasingly aimed at opening up emerging economies’ financial markets. Bilateral investment treaties―the principal means of negotiating arrangements for foreign direct investment in the absence of an established global regime for this—also frequently include provisions for financial openness.

Here the emerging economies’ response has shaped the evolution of the global financial architecture. Acting in consort through international economic agencies they have cooperated to create provisions to regulate capital flows and create policy space. National finance often underpinned the export-led growth model, directed to national priority sectors and export promotion. Asian countries have actively cooperated with emerging economies in Africa and Latin America on this. The result has been a shift to reregulate global finance in the aftermath of the GFC, in contrast to earlier developments. This has been one of the influences in the shift in policy thinking in international agencies, but has also been reflected in the response of the G20 to emphasise measures to address international financial instability and effective macroprudential regulation.

This process of reregulation of international finance by emerging economies entails a partial return to national regulation of finance rather than the construction of a new global financial regime. The US dollar remains the dominant currency and although the IMF adding the Renminbi to its Special Drawing Rights is symbolic of China’s global importance, there is little prospect of it rivalling the dollar in the foreseeable future.

Rather than envisaging developments in terms of emergence of a single international monetary hegemon, in the way the United States in the 20th century took over from Britain in the 19th, emerging market economies are not seeking to create a unified international monetary system. Rather, they have used their increasing power to reshape the operation of global finance. As well as their activity within international economic agencies, there have been a number of key initiatives between emerging economies, notably the establishment of the New Development Bank (headquartered in Shanghai) and the Asian Infrastructure Investment Bank, as well as plans to create a BRICS-based credit rating agency.

Towards a New Globalisation?

The global financial crisis bookended a phase of hyper-globalisation, based on a conception of a unified set of global rules and an expectation of continuously rising global flows. The financial crisis itself raised profound questions over the effectiveness of global arrangements in ensuring financial stability. While for earlier proponents of globalisation, the phenomenon could ensure general prosperity—or, at least, only a relatively small minority of national populations would be affected adversely—today, wider concerns over globalisation have emerged and strengthened

In practice a far more disruptive reconfiguration of economic power has been underway. The combination of global integration and ICTs has meant that advanced technological know-how is no longer essentially the preserve of richest countries. The establishment of global value chains has created industrialisation and productivity growth in emerging Asia at an unprecedented rate. This has also created major global patterns of winners and losers—the flip-side of income growth in middle income countries has meant stagnation of incomes for swathes of households in developed ones. The drive towards deeper trade agreements now appears to be over—the backlash from groups in developed countries appears to have effectively stopped TPP and TTIP.

More widely the increased organisation of emerging economies within the WTO has changed the nature of global trade negotiations. For some analysts these developments raise the possibility of a reversal of globalisation, comparable to that seen during the Great Depression. The prospect of a return to US protectionism under a Trump administration and even the possibility of the European Union imploding do raise concerns. However, the analysis here points to a more nuanced outcome. The response to this from emerging Asian economies has been to cooperate with other emerging economies and effectively this is leading to a multi-polar system of globalisation.[17] A series of initiatives amongst the BRICS are leading to emerging financial relations amongst emerging economies. China’s New Silk Road strategy is an alternative mechanism for integration from traditional trade agreements, but could potentially integrate markets across Eurasia.

The emergence of a multipolar system of globalisation poses particular challenges for emerging Asian economies. The dangers of rising protectionism and an inward turn amongst developed economies have already been highlighted. Global trade negotiations through the WTO have stalled; regional trade negotiations continue, but these could lead to fragmentation of global trade. Further, critics have noted that recent regional trade agreements often contain provisions strengthening firms’ intellectual property rights. International technological diffusion has been central to the industrialisation of emerging Asia, and measures that entrench the advantages of developed country multinational enterprises may limit the ability of emerging economies to absorb best practice technology.

Although recent developments have focused attention on the potential for a rise in trade protection, the future development of the international financial system remains at least as important for emerging Asia. The global financial system remains US dollar-based. It has not functioned effectively to promote development—flows to emerging and developing countries have often been too low, too volatile and too short term.

In response to the 1990s crises, emerging Asian economies have pursued strategies of reserve accumulation as an insurance policy, but this entails significant costs and creates global economic tensions. Since the 2007 global financial crisis emerging economies have effectively utilised countervailing power to enhance domestic policy space and promote new arrangements, but this falls some way short of reshaping the global financial system.[18] A shift to a multipolar system which reflects the shifts in economic activity would offer the potential for the emergence of an international financial architecture more conducive to development finance. However, developments since the global financial crisis point to only limited reform and a marked continuation of existing relations.

The industrialisation of emerging Asia still looks set to continue. The Asian growth model does face challenges in the face of sluggish global growth, and of ensuring sustained productivity growth and inclusivity within nations. Nevertheless, emerging Asian economies have reshaped global production and through their increased role in international integration, they have reshaped the nature of globalisation from the Western hyper-globalisation model of the 1980s and 1990s.

This article was originally published in Raisina Files: Debating the world in the Asian Century

[1] Danny Quah, “The Global Economy’s Shifting Centre of Gravity,” Global Policy 2, no. 1 (January 2011).

[2] Tomas Hellebrandt and Paolo Mauro, “The Future of Worldwide Income Distribution,” Peterson Institute for International Economics Working Paper 15–7, April 2015, https://piie.com/publications/working-papers/future-worldwide-income-distribution.

[3] Wolfgang Lehmacher, “Why China should lead the next phase of globalization,” World Economic Forum, November 22, 2016, https://www.weforum.org/agenda/2016/11/china-lead-globalization-after-united-states/.

[4] Richard Dobbs et al., “Debt and (not much) deleveraging,” McKinsey Global Institute report, February 2015, http://www.mckinsey.com/global-themes/employment-and-growth/debt-and-not-much-deleveraging.

[5] WTO, World Trade Report, 2016 and 2013, part II.

[6] UNCTAD, World Investment Report, 2016.

[7] Kristin Forbes, “Financial “deglobalization”?: Capital flows, banks, and the Beatles” (speech, November 18, 2014).

[8] Richard Baldwin, The Great Convergence: Information Technology and the New Globalization (Cambridge: Harvard University Press, 2016).

[9] Branko Milanovic, Global Inequality: A New Approach for the Age of Globalization (Cambridge: Harvard University Press, 2016).

[10] Richard Dobbs et al., “Poorer than their Parents? A new perspective on income inequality,” McKinsey Global Institute report, July 2016, http://www.mckinsey.com/global-themes/employment-and-growth/poorer-than-their-parents-a-new-perspective-on-income-inequality.

[11] Quoted in Wayne Arnold, “Asia’s Export Engine Splutters,” Wall Street Journal, April 28, 2014, http://www.wsj.com/articles/SB10001424052702304163604579527483006022494.

[12] Amrit Amirapu and Arvind Subramanian, “Manufacturing or Services? An Indian Illustration of a Development Dilemma,” Center for Global Development Working Paper 409, June 2015.

[13] Jane Wakefield, “Foxconn replaces ’60,000 factory workers with robots,’” BBC, May 25, 2016, http://www.bbc.co.uk/news/technology-36376966.

[14] Richard Dobbs et al., “The World at work: Jobs, pay, and skills for 3.5 billion people,” McKinsey Global Institute report, June 2012, http://www.mckinsey.com/global-themes/employment-and-growth/the-world-at-work.

[15] ADB, Asian Development Outlook 2012: Confronting Rising Inequality in Asia (Manila: ADB, 2012); R. Balakrishnan, C. Steinberg and M. Syed, “The Elusive Quest for Inclusive Growth: Growth, Poverty, and Inequality in Asia,” IMF Working Paper 13/152, 2013, https://www.imf.org/external/pubs/ft/wp/2013/wp13152.pdf.

[16] Transforming Economies: Making industrial policy work for growth, jobs and development, eds. Jose M. Salazar-Xirinachs et al. (Geneva: ILO, 2014).

[17] Some of these issues are explored in more detail in Marko Juutinen and Jyrki Käkönen, “Battle for

Globalisations? BRICS and US Mega-Regional Trade Agreements in a Changing World Order,” ORF Monograph, March 21, 2016, http://www.orfonline.org/research/battle-for-globalisations/.

[18] See: Kevin Gallagher, Ruling Capital: Emerging Markets and the Reregulation of Cross-Border Finance (Ithaca: Cornell University Press, 2015).

The Deep State does not ever want peace with Russia, or a respite in their interventionist wars overseas. They have thus far lobbed “softballs” at President Donald Trump, such as with their control over the Mainstream Media’s relentless attacks on Donald Trump, his character, his nominee choices, his vision, his America-first policies, and other decisions that he has made.

The Deep State has also used their thoroughly corrupted Judiciary at their disposal to thwart and sabotage Donald Trump’s executive orders, with their corrupted judges stockpiled in the federal, state and local courts for literally the past at least 28 years all the way from President George Herbert Walker Bush starting in 1988, to Bill Clinton, to George W Bush, and then through Obama all the way until 2016.

The U.S. Congressional and Senatorial gridlock established by the Deep State has also stood in Trump’s way, but they were relatively easier to manage and move around for the Great Deal Maker (and Twitter communicator), Donald Trump.

However, now, with the latest revelation that General Michael Flynn, an ardent promoter of peace with Russia and the removal of sanctions, as well as non-intervention in other trouble spots throughout the world, the Deep State has literally pulled the proverbial “rabbit out of the hat,” and have now fully revealed their hand – the question is – who exactly made this happen, and who were their handlers?

That person, whoever he is, has been revealed to be the ultimate emissary and messenger of the much feared and shadowy American Deep State, someone who could force the resignation of one of the most powerful, sensitive, and highest security clearance positions within the Executive Branch of the United States.

Even former CIA Director James Clapper got a “free pass” by this Deep State when he, under full oath, openly and overtly LIED to the entire United States Congress and Senate when he stated that NSA Surveillance was not comprehensive and was not listening in on each and every American citizen’s phone calls, emails, faxes, and other communications, 24/7, 365 days a year.

This was a bald faced and abject lie, as revealed by whistleblower Edward Snowden, and even worse, since it was under oath in front of the entire U.S. Congress and Senate, was complete and total PERJURY – this was not just an impeachable offense, but one that can send you to jail for a thousand years.

Yet James Clapper was allowed to walk, given a free pass – why?

Because James Clapper was a total stooge and errand boy for the American (and now Global) Deep State, and did exactly what they told him to do, whenever they told him to do it, even when his actions were antithetical to the interests of the American people, or the rest of the people of the world.

This was his reward for faithfully carrying the Deep State’s water.

Now, with the forced resignation of General Michael Flynn from his National Security Advisor position, the message from the Deep State to President Donald Trump is crystal clear:

The Deep State is fully in control, fully in charge, and we can even casually throw out your most important and sensitive appointment in your cabinet and administration to date – and so you better do exactly what we tell you to do, whenever we tell you to do it, and exactly in the manner that we prescribe.

Only a few weeks ago, in what is now obvious in hindsight, Michael Flynn in a fit of feverish desperation to save his job, went off on a half-cocked rampage on live national television when he stated “we are hereby putting Iran on Notice!”

This was an obvious attempt to appease the most fringe elements of the Israeli government – but someone within the Deep State did not care about catering to the most extreme Israelis – because the Deep State has other plans for Israel, Iran, and the rest of the Middle East – possibly World War 3 by and between purposefully created, cultivated, and funded radical Islam and radical Zionism, as predicted and described by 33rd Degree Freemason Albert Pike in the late 1800s?

Well, now with the forced ejection of the rational and reasonable peacemaker Michael Flynn, the prospect of World War 3 has become that much closer.

As a Russia-related scandal engulfs the White House, with the resignation of national security adviser Michael Flynn, Donald Trump’s disgraceful immigration ban continues to attract condemnation in US courts. The ban, which bars entry to the US to anyone from seven countries with mainly Muslim populations (Iraq, Iran, Libya, Somalia, Sudan, Syria and Yemen) for 90 days, and refugees for 120 days (with a total ban on refugees from Syria) was first subjected to a nationwide stay nine days ago, when District Judge James Robart, a senior judge in the United States District Court for the Western District of Washington, declared that the ban was unconstitutional, and granted a temporary restraining order against it that applied nationwide. Washington State’s Attorney General Bob Ferguson had successfully argued in court that the ban “violated the guarantee of equal protection and the first amendment’s establishment clause, infringed the constitutional right to due process and contravened the federal Immigration and Nationality Act,” as the Guardian described it.

Last week, three judges in the Ninth Circuit Court of Appeals in San Francisco upheld Judge Robart’s ruling, having found that the government had “pointed to no evidence that any alien from any of the countries named in the order has perpetrated a terrorist attack in the United States,” and added that, “[r]ather than present evidence to explain the need for the executive order, the government has taken the position that we must not review its decision at all,” in the Guardian’s words.

Yesterday, in Virginia, a third blow for the government came when District Judge Leonie Brinkema, in Aziz v. Trump, issued a preliminary injunction against the order based specifically on the issue of religious discrimination.

The opinion, as the Washington Post explained, relied on “Trump’s own statements advocating a ‘Muslim ban,’ and those of his adviser Rudy Giuliani as evidence of the discriminatory intent underlying the order.”

Judge Brinkema also rejected the notion, put forward by lawyers for Trump – that “the ‘plenary power’ doctrine requires absolute deference to the president on national security and immigration issues.” As Judge Brinkema stated in her ruling:

Maximum power does not mean absolute power. Every presidential action must still comply with the limits set by Congress’ delegation of power and the constraints of the Constitution, including the Bill of Rights … Defendants have cited no authority for the proposition that Congress can delegate to the president the power to violate the Constitution and its amendments and the Supreme Court has made it clear that even in the context of immigration law, congressional and executive power “is subject to important constitutional limitations.”

Judge Brinkema also made a point of asking “whether the EO was animated by national security concerns at all, as opposed to the impermissible motive of … disfavoring one religious group.”

Unlike the Washington State ruling, upheld by the Ninth Circuit, whose scope is nationwide, Judge Brinkema’s decision is limited to Virginia, but it will have wider repercussions as the cases against the ban proceed.

In San Francisco, as Reuters reports, “an unidentified judge” on the Ninth Circuit has requested that a full panel of judges should review the three judges’ earlier decision to uphold Judge Robart’s stay, and both sides in the case have been asked to file briefs by Thursday.

Meanwhile, in Seattle, yesterday, Judge Robart “said he would move forward with discovery in the case.”

Donald Trump has persistently reacted with rage to the court’s decisions, and most recently threatened to issue a new executive order, but nothing has been forthcoming — I suspect because there are simply no grounds whatsoever for anything resembling the blanket ban he wants to impose. As Arthur Hellman, a professor at the University of Pittsburgh School of Law who has studied the Ninth Circuit, told Reuters, “You would think [Attorney General] Jeff Sessions would do whatever he had to do to get this case ended as soon as possible.”

As we await further developments, I’d like to share with you below an extraordinary amicus submission to the Ninth Circuit, which was considered as part of the three judges’ ruling last week, and which was issued by ten prominent former government officials, including Madeleine Albright, John Kerry, Michael Hayden and Leon Panetta. As the Guardian noted, this was just one of several prominent amicus briefs submitted in the case — others included one by ninety-seven US tech firms, including Apple, Microsoft, Google and eBay, another by Harvard, Massachusetts Institute of Technology, Tufts, Boston University and other Massachusetts-based academic institutions, and another by the American Civil Liberties Union — but the former officials’ brief was extremely powerful, and I have never seen anything quite like it.

The former officials wrote that they were “unaware of any specific threat that would justify the travel ban,” and stated that it “ultimately undermines the national security of the United States, rather than making us safer,” as well as criticizing it because it “offends our nation’s laws and values.”

They also stated that there was “no national security purpose for a total bar on entry for aliens from the seven named countries,” explaining that, since 9/11, “not a single terrorist attack in the United States has been perpetrated by aliens from the countries named in the Order,” and “[v]ery few attacks on U.S. soil since September 11, 2001 have been traced to foreign nationals at all,” because “[t]he overwhelming majority of attacks have been committed by U.S. citizens.”

They added that the Trump administration “has identified no information or basis for believing there is now a heightened or particularized future threat from the seven named countries,” also adding, in a recognition of the fact that the ban is aimed specifically and unjustifiably at Muslims, “Nor is there any rational basis for exempting from the ban particular religious minorities (e.g., Christians), suggesting that the real target of the ban remains one religious group (Muslims).”

The officials also described how, “As a national security measure, the Order is unnecessary,” because “[n]ational security-based immigration restrictions have consistently been tailored to respond to: (1) specific, credible threats based on individualized information, (2) the best available intelligence and (3) thorough interagency legal and policy review.”

They also described it as “ill-conceived, poorly implemented and ill-explained,” and “of unprecedented scope,” and added, “We know of no case where a President has invoked his statutory authority to suspend admission for such a broad class of people.” Crucially, “Even after 9/11, the U.S. Government did not invoke the provisions of law cited by the Administration to broadly bar entrants based on nationality, national origin, or religious affiliation.”

The officials’ joint declaration is below:

Joint Declaration of Madeleine K. Albright, Avril D. Haines, Michael V. Hayden, John F. Kerry, John E. McLaughlin, Lisa O. Monaco, Michael J. Morell, Janet A. Napolitano, Leon E. Panetta, and Susan E. Rice

1. We are former national security, foreign policy, and intelligence officials in the United States Government:

a. Madeleine K. Albright served as Secretary of State from 1997 to 2001. A refugee and naturalized American citizen, she served as U.S. Permanent Representative to the United Nations from 1993 to 1997 and has been a member of the Central Intelligence Agency External Advisory Board since 2009 and the Defense Policy Board since 2011, in which capacities she has received assessments of threats facing the United States.

b. Avril D. Haines served as Deputy Director of the Central Intelligence Agency from 2013 to 2015, and as Deputy National Security Advisor from 2015 to January 20, 2017.

c. Michael V. Hayden served as Director of the National Security Agency from 1999 to 2005, and Director of the Central Intelligence Agency from 2006 to 2009.

d. John F. Kerry served as Secretary of State from 2013 to January 20, 2017.

e. John E. McLaughlin served as Deputy Director of the Central Intelligence Agency from 2000-2004 and Acting Director of CIA in 2004. His duties included briefing President-elect Bill Clinton and President George W. Bush.

f. Lisa O. Monaco served as Assistant to the President for Homeland Security and Counterterrorism and Deputy National Security Advisor from 2013 to January 20, 2017.

g. Michael J. Morell served as Acting Director of the Central Intelligence Agency in 2011 and from 2012 to 2013, Deputy Director from 2010 to 2013, and as a career official of the CIA from 1980. His duties included briefing President George W. Bush on September 11, 2001, and briefing President Barack Obama regarding the May 2011 raid on Osama bin Laden.

h. Janet A. Napolitano served as Secretary of Homeland Security from 2009 to 2013.

i. Leon E. Panetta served as Director of the Central Intelligence Agency from 2009-11 and as Secretary of Defense from 2011-13.

j. Susan E. Rice served as U.S. Permanent Representative to the United Nations from 2009-13 and as National Security Advisor from 2013 to January 20, 2017.

2. We have collectively devoted decades to combatting the various terrorist threats that the United States faces in a dynamic and dangerous world. We have all held the highest security clearances. A number of us have worked at senior levels in administrations of both political parties. Four of us (Haines, Kerry, Monaco and Rice) were current on active intelligence regarding all credible terrorist threat streams directed against the U.S. as recently as one week before the issuance of the Jan. 27, 2017 Executive Order on “Protecting the Nation from Foreign Terrorist Entry into the United States” (“Order”).

3. We all agree that the United States faces real threats from terrorist networks and must take all prudent and effective steps to combat them, including the appropriate vetting of travelers to the United States. We all are nevertheless unaware of any specific threat that would justify the travel ban established by the Executive Order issued on January 27, 2017. We view the Order as one that ultimately undermines the national security of the United States, rather than making us safer. In our professional opinion, this Order cannot be justified on national security or foreign policy grounds. It does not perform its declared task of “protecting the nation from foreign terrorist entry into the United States.” To the contrary, the Order disrupts thousands of lives, including those of refugees and visa holders all previously vetted by standing procedures that the Administration has not shown to be inadequate. It could do long-term damage to our national security and foreign policy interests, endangering U.S. troops in the field and disrupting counterterrorism and national security partnerships. It will aid ISIL’s propaganda effort and serve its recruitment message by feeding into the narrative that the United States is at war with Islam. It will hinder relationships with the very communities that law enforcement professionals need to address the threat. It will have a damaging humanitarian and economic impact on the lives and jobs of American citizens and residents. And apart from all of these concerns, the Order offends our nation’s laws and values.

4. There is no national security purpose for a total bar on entry for aliens from the seven named countries. Since September 11, 2001, not a single terrorist attack in the United States has been perpetrated by aliens from the countries named in the Order. Very few attacks on U.S. soil since September 11, 2001 have been traced to foreign nationals at all. The overwhelming majority of attacks have been committed by U.S. citizens. The Administration has identified no information or basis for believing there is now a heightened or particularized future threat from the seven named countries. Nor is there any rational basis for exempting from the ban particular religious minorities (e.g., Christians), suggesting that the real target of the ban remains one religious group (Muslims). In short, the Administration offers no reason why it abruptly shifted to group-based bans when we have a tested individualized vetting system developed and implemented by national security professionals across the government to guard the homeland, which is continually re-evaluated to ensure that it is effective.

5. In our professional opinion, the Order will harm the interests of the United States in many respects:

a. The Order will endanger U.S. troops in the field. Every day, American soldiers work and fight alongside allies in some of the named countries who put their lives on the line to protect Americans. For example, allies who would be barred by the Order work alongside our men and women in Iraq fighting against ISIL. To the extent that the Order bans travel by individuals cooperating against ISIL, we risk placing our military efforts at risk by sending an insulting message to those citizens and all Muslims.

b. The Order will disrupt key counterterrorism, foreign policy, and national security partnerships that are critical to our obtaining the necessary information sharing and collaboration in intelligence, law enforcement, military, and diplomatic channels to address the threat posed by terrorist groups such as ISIL. The international criticism of the Order has been intense, and it has alienated U.S. allies. It will strain our relationships with partner countries in Europe and the Middle East, on whom we rely for vital counterterrorism cooperation, undermining years of effort to bring them closer. By alienating these partners, we could lose access to the intelligence and resources necessary to fight the root causes of terror or disrupt attacks launched from abroad, before an attack occurs within our borders.

c. The Order will endanger intelligence sources in the field. For current information, our intelligence officers may rely on human sources in some of the countries listed. The Order breaches faith with those very sources, who have risked much or all to keep Americans safe – and whom our officers had promised always to protect with the full might of our government and our people.

d. Left in place, the Executive Order will likely feed the recruitment narrative of ISIL and other extremists that portray the United States as at war with Islam. As government officials, we took every step we could to counter violent extremism. Because of the Order’s disparate impact against Muslim travelers and immigrants, it feeds ISIL’s narrative and sends the wrong message to the Muslim community here at home and all over the world: that the U.S. government is at war with them based on their religion. The Order may even endanger Christian communities, by handing ISIL a recruiting tool and propaganda victory that spreads their message that the United States is engaged in a religious war.

e. The Order will disrupt ongoing law enforcement efforts. By alienating Muslim-American communities in the United States, it will harm our efforts to enlist their aid in identifying radicalized individuals who might launch attacks of the kind recently seen in San Bernardino and Orlando.

f. The Order will have a devastating humanitarian impact. When the Order issued, those disrupted included women and children who had been victimized by actual terrorists. Tens of thousands of travelers today face deep uncertainty about whether they may travel to or from the United States: for medical treatment, study or scholarly exchange, funerals or other pressing family reasons. While the Order allows for the Secretaries of State and Homeland Security to agree to admit travelers from these countries on a case-by-case basis, in our experience it would be unrealistic for these overburdened agencies to apply such procedures to every one of the thousands of affected individuals with urgent and compelling needs to travel.

g. The Order will cause economic damage to American citizens and residents. The Order will affect many foreign travelers, particularly students, who annually inject hundreds of billions into the U.S. economy, supporting well over a million U.S. jobs. Since the Order issued, affected companies have noted its adverse impacts on many strategic economic sectors, including defense, technology, medicine, culture and others.

6. As a national security measure, the Order is unnecessary. National security-based immigration restrictions have consistently been tailored to respond to: (1) specific, credible threats based on individualized information, (2) the best available intelligence and (3) thorough interagency legal and policy review. This Order rests not on such tailored grounds, but rather, on (1) general bans (2) not supported by any new intelligence that the Administration has claimed, or of which we are aware, and (3) not vetted through careful interagency legal and policy review. Since the 9/11 attacks, the United States has developed a rigorous system of security vetting, leveraging the full capabilities of the law enforcement and intelligence communities. This vetting is applied to travelers not once, but multiple times. Refugees receive the most thorough vetting of any traveler to the United States, taking on the average more than a year. Successive administrations have continually worked to improve this vetting through robust information- sharing and data integration to identify potential terrorists without resorting to a blanket ban on all aliens and refugees. Because various threat streams are constantly mutating, as government officials, we sought continually to improve that vetting, as was done in response to particular threats identified by U.S. intelligence in 2011 and 2015. Placing additional restrictions on individuals from certain countries in the visa waiver program –as has been done on occasion in the past – merely allows for more individualized vettings before individuals with particular passports are permitted to travel to the United States.

7. In our professional opinion, the Order was ill-conceived, poorly implemented and ill-explained. The “considered judgment” of the President in the prior cases where courts have deferred was based upon administrative records showing that the President’s decision rested on cleared views from expert agencies with broad experience on the matters presented to him. Here, there is little evidence that the Order underwent a thorough interagency legal and policy processes designed to address current terrorist threats, which would ordinarily include a review by the career professionals charged with implementing and carrying out the Order, an interagency legal review, and a careful policy analysis by Deputies and Principals (at the cabinet level) before policy recommendations are submitted to the President. We know of no interagency process underway before January 20, 2017 to change current vetting procedures, and the repeated need for the Administration to clarify confusion after the Order issued suggest that that Order received little, if any advance scrutiny by the Departments of State, Justice, Homeland Security or the Intelligence Community. Nor have we seen any evidence that the Order resulted from experienced intelligence and security professionals recommending changes in response to identified threats.

8. The Order is of unprecedented scope. We know of no case where a President has invoked his statutory authority to suspend admission for such a broad class of people. Even after 9/11, the U.S. Government did not invoke the provisions of law cited by the Administration to broadly bar entrants based on nationality, national origin, or religious affiliation. In past cases, suspensions were limited to particular individuals or subclasses of nationals who posed a specific, articulable threat based on their known actions and affiliations. In adopting this Order, the Administration alleges no specific derogatory factual information about any particular recipient of a visa or green card or any vetting step omitted by current procedures.

9. Maintaining the district court’s temporary restraining order while the underlying legal issues are being adjudicated would not jeopardize national security. It would simply preserve the status quo ante, still requiring that individuals be subjected to all the rigorous legal vetting processes that are currently in place. Reinstating the Executive Order would wreak havoc on innocent lives and deeply held American values. Ours is a nation of immigrants, committed to the faith that we are all equal under the law and abhor discrimination, whether based on race, religion, sex, or national origin. As government officials, we sought diligently to protect our country, even while maintaining an immigration system free from intentional discrimination, that applies no religious tests, and that measures individuals by their merits, not stereotypes of their countries or groups. Blanket bans of certain countries or classes of people are beneath the dignity of the nation and Constitution that we each took oaths to protect. Rebranding a proposal first advertised as a “Muslim Ban” as “Protecting the Nation from Foreign Terrorist Entry into the United States” does not disguise the Order’s discriminatory intent, or make it necessary, effective, or faithful to America’s Constitution, laws, or values.

10. For all of the foregoing reasons, in our professional opinion, the January 27 Executive Order does not further – but instead harms – sound U.S. national security and foreign policy.

Respectfully submitted,

MADELEINE K. ALBRIGHT
AVRIL D. HAINES
MICHAEL V. HAYDEN
JOHN F. KERRY
JOHN E. McLAUGHLIN
LISA O. MONACO
MICHAEL J. MORELL
JANET A. NAPOLITANO
LEON E. PANETTA
SUSAN E. RICE

By Scott Carlson

The “Russian Game” is a chess opening first popularized in the mid-19th century by chess master Alexander Petrov, a symmetrical strategy that allows attacking opportunities for both sides. After gaining tempo, one side gains the upper hand through a well-placed Knight. The Russian Game alternates between offense and defense, offering both sharp (symmetric) and blurred (asymmetric) lines of attack. Victory results in as little as six moves.

Viewing European politics as a chess game, Mr. Putin is certainly aligning the board to his advantage. His diplomatic, informational, military and economic strategy demonstrates how the Russian game can be won. The West, comprised of NATO and its allied partners, must outsmart Putin’s diplomacy, win the battle for the narrative in the information campaign, outsmart Russia’s military moves, and unite against his economic assault. If it can outmaneuver these four Putin moves, the West wins.

Smart Diplomacy

Mr. Putin arm wrestled his way into greater regional influence with friendships in surprising corners. Alliances with both Islamic (Turkey) and Jewish nation states (Israel) upped his game and increased regional influence. Mr. Putin’s “turning of the cheek” to Mr. Obama’s eviction of 35 Russian diplomatic staff, modeled constraint-through-kindness to US counterparts and leveraged an even more positive image to the world. Pro-Russian election victories in Belarus and Moldova further legitimatized Mr. Putin’s Game. Add to this a newly rediscovered Western European populism with potentially European Union-destabilizing elections in Italy, France, the Netherlands, and Germany. Should the European chessboard suffer the loss of vital members, Germany is left as the last bastion of traditional European liberalism. The West must stick together, prolong, and win the diplomatic game.

A Focused Information Campaign

Despite the ongoing debate over Russian denials of hacking the US election process, Mr. Putin’s information capabilities are much greater than singular, repeated cyber attacks. Russia’s slick 24-hour news and information source RT (Russia Today), complete with legitimatized Western reporters and foreign correspondents reporting from the “field,” is prime-time showmanship for his informational “battle for the narrative.” Judging from its popularity with Western audiences unaware of its propaganda value, Mr. Putin leverages his Russian game through professionally delivered, tidy sound bites. Mr Putin’s media slant has thousands of eager listeners in the ethnic Russian populations in former Soviet Baltic, Black Sea and the Balkans breakaway Republics for whom Western cultural and economic reforms proved wanting. The West must up its information game, overcome Russia’s battle for the narrative, and win the media war.

A Strategic Military

From subs in the suburbs of Stockholm to air raids in Aleppo, the Russian Game is certainly on the offensive. An increase in Russian military activity is noted along Russia’s western flank as well as a military buildup in Kaliningrad, the tiny Russian Republic sandwiched between Poland and Lithuania. Yet the West’s response has been neither fast nor strong. Cat and mouse-like, in the Russian Game Mr. Putin makes a move, NATO reacts. Mr. Putin rattles his sabers in the Baltics. NATO garners a show of force through allied and partner exercises in the region. Mr. Putin bombs Aleppo, emptying half of the country in the form of European migrants, advancing asymmetric power across other real estate on the board. NATO responds appropriately but too lethargically, from the 2014 Wales Summit (Eastern European assurance) to the 2016 Warsaw Summit (Russian deterrence). The West must earn bonus clock time by completing its “military Schengen zone” efforts and speed-of-assembly initiatives to win on the military front.

A Calculated Economy

With the two-punch combo of Western sanctions and low worldwide demand for gas and oil exports, theoretically Russia’s economy is crippled and Mr. Putin contained. Yet does this limit the Russian Game? Certainly not. If Mr. Putin cannot outright win the game, he can still force a draw. His Syrian strategy emptied half of the country. Conversely, Western Europe struggles from negative interest rates, lethargic economic growth, and high unemployment. On top of this, the economic burden of two million migrants pouring through its open borders. Millions more wait not-so-patiently for Turkey to open the gates. Small stress fissures on government support systems are likely to crack infrastructure, breaking apart an already overwhelmed system. The West’s Queen is taken, the noose is tightened and the remaining players struggle to cover the King: Check. Conquering and dividing, the Russian Game continues to knock the European chessboard further off balance. Intelligence estimates could declare the winner. One to three percent of innocent migrants are likely to become radicalized, increasing Europe’s terrorist population by10,000 to 30,000. After recent attacks and the rise of populist politicians, the European Union will most likely look smaller and more fractured as 2017 draws to a close. At this point the West’s King could very well be boxed in: Checkmate.

NATO and its allied partners must remain united, encourage open borders, and promote free trade to win the economic war.

The Marines say: “Hope for the best and plan for the worst.” The Russian Game, as in chess, allows for countless potential diplomatic, information, military and economic interactions and outcomes. Hoping for the best means the West stretches out the game to outright win the match. Planning for the worst means declaring a draw. It certainly beats losing a game after four moves.

The opinions, beliefs, and viewpoints expressed by the authors are theirs alone and don’t reflect any official position of Geopoliticalmonitor.com, where this article was published.

Speaking to Radio Sputnik, political commentator and The Duran contributor Adam Garrie pointed out just how absurd White House Press Secretary Sean Spicer’s statement that Russia must ‘return Crimea’ really sounds. The journalist also explained the reasons for the bizarre ‘civil war’ that’s going on in Washington over its policy on Russia.

On Tuesday, Spicer said that the Trump administration expected Russia to “deescalate violence in the Ukraine and return Crimea” to Kiev. Shortly thereafter, Russian officials responded, emphasizing that Russia does not ‘return’ its territories, and reaffirming that the Crimea issue is permanently closed.

Asked to comment on this apparent flip-flop by Trump, who had earlier hinted that he would “take a look” at recognizing Crimea as part of Russia, and said that the Crimean people “would rather be with Russia,” The Duran political author Adam Garrie explained why Spicer’s comment didn’t just border on the absurd, but completely crossed that boundary.

“Crimea was of course part of Russia ever since 1783. Before that it was part of the Crimean Khanate of the Ottoman Empire; so I don’t know who they want to ‘return’ it to,” Garrie said, speaking to Radio Sputnik.

“The whole situation is absurd,” the journalist noted, particularly given the US’s positioning itself allegedly as a country that promotes democratic values, and the fact that an overwhelming majority of Crimeans “voted to return home to their historical mother country of Russia. They should be praising it! It was done without a shot being fired, it was done smoothly and peacefully.”

In March 2014, a majority of over 95% of Crimeans voted to break off from post-Maidan Ukraine and to rejoin Russia, in a snap referendum organized by the peninsula’s government.

Effectively, Garrie suggested that the US position on Crimea is just as absurd as it would be for Kremlin Spokesman Dmitri Peskov to come out and say that the US’s western states including California should be ‘returned’ to Mexico, with Moscow now not recognizing the 1848 Treaty of Guadalupe Hidalgo for some reason.

If that were to happen, the political writer noted, “you could imagine any American president going absolutely bonkers, let alone Donald Trump, whose views on Mexico are very widely known.”

“So the whole thing about ‘we want to get on with you and want to have good relations, but please give up your territory that’s been historically part of Russia, and just voted democratically in overwhelming numbers to rejoin’ is a bit like saying ‘I want to be your best friend, but can we please cut off your left arm to make things a bit easier’,” Garrie emphasized. “It just doesn’t follow any logic.”

The journalist noted that he “expected more of the Trump administration.” Unfortunately, he said, “there’s a war going on inside the administration, and at least in terms of rhetoric, policies of reconciliation toward Russia seem to be an early victim in this Trump civil war.”

Flynn’s resignation is connected to this ‘civil war’ Garrie added. “Flynn was sort of an interesting character; on the one hand, he was one of the leaders of the pro-Russian reconciliation party in the deeply divided White House. At the same time, his policies toward China were a bit strange, even though prior to his resignation, Trump said that he would accept the One China policy, meaning that perhaps Flynn’s anti-Chinese statements didn’t carry the weight some might have expected.”

“When it comes to Iran, all I’ll say is that I don’t know how to say ‘pass the popcorn’ in Farsi, but if I were in Tehran at this very moment, I’m sure I’d learn that quite soon,” the journalist quipped.

As far as America’s Russia policy is concerned, Garrie pointed out that “there’s a big part of the US deep state, – the Democratic Party as a whole and the neocon faction of the Republican Party, led by John McCain and Lindsey Graham, that will do anything to preserve the anti-Russian attitudes coming out of Washington. Some stand to gain materially by it – we all know about the military-industrial complex…and some are just ideologically dogmatic to the point of being, frankly, stupid,” he noted.

Ultimately, the journalist said that Flynn was a casualty of these powers that be. “The mainstream media, the political opponents of reconciliation between the US and Russia wanted blood, and it was sort of a night of the long knives. The first person to fall on his own sword was Flynn. I don’t think he should have resigned; he did nothing illegal or untoward.”

Garrie noted, for instance, that if it was the German ambassador whom Flynn called, it would have been a non-story. “But because Russia was involved, the people who hate Russia, and hate the idea of a Trump administration having good relations with Russia, they pounced, and as a result, Flynn is out.”

By Vijay Shankar*

Donald Trump in his inaugural speech, vowed “…this American carnage must stop here.” What preceded his vow suggested, with more intensity and less clarity, what the “carnage” was. Presumably he implied a host of current circumstances whose balm included the advent of an era marked by mass mobilisation, bellicism, end of idealism, a blow out of the liberal left, abrogation of the spoils of the political and power elites, imposition of a draconian immigration policy, discarding multilateral alliances in favour of the bilateral, a baleful threat to eradicate radical Islamic terror, and a promise to ease the agonising ‘reality of the citizen’s state.’ His prescriptive mantra was simplistic; nationalism, protectionism, a menacing portent of a war on radical Islam, and the nebulous abstraction of “America First” (an odd declaration; were not US interests always first?). And yet coming from the mouth of a democratically elected leader of the planet’s sole super power, it must indeed set the stage for serious debate of what foreshadows the immediate future. It is his mantra that will disproportionately influence any strategic prognostication.

Global events such as Brexit and the rise of the far right in Europe, Russia and other parts of the world are symptomatic and a precursor of the geopolitical trends that Donald Trump articulated.

Clearly the challenges are complex, and in an intertwined world of global economic and security networks, the need for reconciling competing and often conflicting perspectives through empathy and compromise is on a collision course with insular politics. Given events that disparage (often correctly) established leadership as corrupt and the quest for mutuality involving far-reaching alliances as acknowledgement of frailty; nationalism has been ignited to mould malevolent distinctiveness that threatens to derange the integrative forces that have brought north and south together in a beneficial embrace. All this has been fuelled by the rapidity of technological changes and the inability of leadership to fully come to grips with the reach of the individual, which extends far beyond the ambit of the nation-state. And yet, at a point in the evolution of a world order which begs for robust international institutions that manage and regulate current global shifts, the world is faced with forces that unhinge existing systems.

Nationalism, as one such unhinging force, conventionally, snatches control from the ‘gilt-edged’ and sets into motion undercurrents that progressively redistribute power. However, nationalism in the context of the masses damning ruling elites and challenging the beneficiaries of privilege has historically been double-edged.

While being a powerful dynamic of change, the history of the twentieth century has shown that it is invariably accompanied by anarchy in the absence of systems that serve to provide social solidity. Russia, China and Europe in the run-up to the First World War and in the frenzied interregnum between the two wars are all precedents that cannot be easily set aside. But the 21st century citizens’ voluntary and non-violent electing for chauvinistic administration is different. It is not only an indication of deep-seated frustration that targets the statusquo, but is also an expression of ‘disruptive discontent’, that is, a conception of the crisis without either the competence or the wherewithal to direct events. Paradoxically, it remains at odds with the gains of order, inclusive economics and globalisation. And because of the unique temper of contemporary times dominated by a cult of popular power laced liberally with nationalism, collaborative structures, both economic and security, that were hitherto evolving, are severely undermined.

A quick geopolitical scan will be helpful in putting the dangerous pall of instability in perspective. Russia, over the last quarter of a century since the end of the Cold War and disintegration of the Soviet Union, has emerged out of strategic limbo and again transformed into a major global player. It is today expanding and assimilating the western confines of what was the erstwhile Czarist empire and has, with relatively more success than the US and NATO, established its influence in West Asia. Eastward, it is building bridges with Communist China. While China, on a winning march of influence over East Asia and the South China Sea, is yet to reconcile its autocratic rule with the aspirations of its people, leaving it a trifle inadequate to don the mantle of global or even regional leadership. Unfortunately, the tide of history is turning towards these authoritarian states. In the meantime, the promise of an Arab awakening in West Asia and North Africa has been belied. The stalled transformation has given way to implosions within and the rise of a host of medieval ‘jihadist ideologies’ bent on re-establishing a Caliphate through the instruments of terror and radical Islam. In what is historically an awkward irony, the very destruction of Saddam’s Iraq has paved the way for fragmentation of the Sykes-Picot borders and the tri-furcation of Iraq into a Kurdish enclave in the northeast, a Shia enclave in the south and the Islamic State (IS) running riot in the centre and in Syria. The delusion that a new West Asia was in the build flies in the face of the current situation. In the interim, radical Islam has spread its tentacles from Pakistan through Afghanistan, into the Levant, Yemen, Somalia and all of the Maghreb. The IS has swept from Syria into Iraq in a maelstrom of destruction. No political Islam or civilisational impulse here, just rabid intolerance.

In its wake it has disrupted the correlation of political forces in the region as the US seeks a quick blocking entente with Iran; Syria sees in the situation an opportunity to settle scores with the insurgency raging within; Shia organisations find common cause to offset the IS; Sunni states carry a cloaked bias towards the IS to the extent that recent reports suggest funding by Turkey, Saudi Arabia and Qatar; and terror organisations in Afghanistan and Pakistan welcome the new leadership that has displaced al Qaeda. As the fanatical outburst of xenophobia stretches south, west and eastward the IS’ influence has manifested in the fertile jihadist breeding grounds of Afghanistan and Pakistan. Many perceptive analysts have noted that Pakistan today represents a very dangerous condition as its establishment nurtures fundamentalist and terrorist organisations as instruments of their misshapen policies in Afghanistan and Kashmir. The essence of Pakistan’s rogue links will unmistakably seduce the IS, underscoring the distressing probability of extending its reach into a nuclear arsenal. These anarchic conditions have set into motion a refugee crisis that, unfortunately, no nation is willing to provide permanent relief to or even recognise.

The linkage between extreme nationalism, protectionism and authoritarian government is historically unassailable and its impact on the world as a rising force of global disarray is unmistakable. Civil society in Russia, China, Turkey, Iran and elsewhere is in retreat, greatly pressured by governments fearful of an empowered citizenry and liberal thinking amongst them (the question is will the US take a slant in this direction?). Disinformation is now galvanised by the use of social media and international relations are marred by large scale cyber-attacks. States, quite openly, ‘loan’ tens of millions of dollars to nationalist parties in countries such as France, Hungary, Romania, etc to dislocate politics through electoral means.

Arbitrary laws constrain foreign entities into narrower channels of activity under increasing pressure. Misperceptions commonly provide the controllable framework not only for public discourse but also, as recent history in Iraq and Afghanistan has demonstrated, for intelligence services to weave “alternate facts.”

With the quickening of changed power relations, already apparent in the larger context of Brexit and the growing bonhomie between the US and Russia, the pulling away from multilateral alliances and the potential for new strategic orientation would appear to be the new norm. The strategic unleashing of Japan and its ramifications for stability in the Asia-Pacific could well redefine the power balance in the region. And lurking in the shadows is the real possibility of nuclear weapons falling into the hands of radical Islamic terrorists, which along with the only comparable danger, in terms of scale of destruction, is environmental catastrophe; both must be seen for what they are, and perhaps, provide the imperative for unified response.

All the while what appeared to be an accepted ‘post-internet globalised world view’ is rapidly confronted by an absolutist conception of national sovereignty. The shaping influence of this complex of events that have so far been deliberated deliberated has just begun to loom large over the new century. More than anything else, it separates the world of the 20th century from the 21st. Efforts to cope with this globe splitting xenophobic embrace, particularly for a large developing nation such as India, is not just to rapidly advance its internal pattern of growth, development, demand and consumption but also to ensure that its security is in no way jeopardised through either appeasement or due lack of preparation. This will remain an abiding balancing act to master in the remaining years of this century.

* Vijay Shankar
Former Commander-in-Chief, Strategic Forces Command of India

By Lisa Ferdinando

US Defense Secretary Jim Mattis highlighted the U.S. commitment to NATO on Wednesday, stressing the alliance’s importance in regional and global security while calling on nations to meet their military funding commitments.

“For seven decades the world has watched NATO become the most successful and powerful military alliance in modern history,” Mattis said in prepared remarks to a NATO defense ministerial meeting in Brussels.

He told the assembled defense leaders that NATO, with its members’ shared commitment, will remain what President Dwight D. Eisenhower described as a “valuable, necessary, and constructive force.”

Evolving Security Challenges

Mattis, who as a Marine Corps general served as NATO’s supreme allied commander for transformation, noted how the security landscape has changed in recent years, to include threats from Russia as well as the Islamic State of Iraq and Syria.

“The year 2014 awakened us to a new reality: Russia used force to alter the borders of one of its sovereign neighbors, and on Turkey’s border ISIS emerged and introduced a ruthless breed of terror, intent on seizing territory and establishing a caliphate,” he said.

While some in the 28-member alliance “have looked away in denial of what is happening,” he said, NATO needs to adapt to meet the changing security situations.

“For despite the threats from the east and south, we have failed to fill gaps in our NATO Response Force or to adapt to modem threats, or increase the readiness of much of our force structure,” he said.

The transatlantic alliance is built on the common defense of its members, Mattis pointed out. It arose out of strategic necessity and now must now evolve for that same reason, he said.

“Our community of nations is under threat on multiple fronts as the arc of insecurity builds on NATO’s periphery and beyond,” he said. “We must act in the interests of our ‘democratic islands of stability’ if we are to live up to our responsibilities as guardians for our nations and sentinels watching for threats.”

The transatlantic bond is “essential to countering Islamic extremism, to blocking Russia’s efforts to weaken democracies, and to addressing a more assertive China,” he said.

NATO, he said, must tighten its decision cycle both in determining the actions of the alliance and in resourcing those decisions with robust and interoperable capabilities, he said.

Balancing Collaboration and Confrontation: Russia

How the alliance responds to threats and provocation is “not lost on any nation, not least the nation to our east, nor on its leader,” Mattis said.

“While the United States and the alliance seek to engage Russia, we must at the same time defend ourselves if Russia chooses to act contrary to international law,” he said.

The United States, the defense secretary said, remains willing to keep open political channels of cooperation and de-escalate tensions.

“We remain open to opportunities to restore a cooperative relationship with Moscow, while being realistic in our expectations and ensuring our diplomats negotiate from a position of strength,” Mattis said.

“We are not willing, however, to surrender the values of this alliance nor let Russia, through its actions, speak louder than anyone in this room,” he said.

The United States will stand firm against the threats, the defense secretary said. “We will buttress this alliance and defend ourselves, even as we watch for a Russia that lives up to its commitments in the NATO-Russia Founding Act,” Mattis said.

He added, “Balancing collaboration and confrontation is admittedly an uncomfortable strategic equation.”

Meeting Two Percent Defense Target

Mattis called on alliance members to meet the goal of spending two percent of their respective country’s GDP on defense. Only Britain, Estonia, Greece, Poland and the United States have done so, the defense secretary said.

The American taxpayer must not continue to carry a “disproportionate share of the defense of Western values,” Mattis said.

“Americans cannot care more for your children’s future security than you do,” he said. “Disregard for military readiness demonstrates a lack of respect for ourselves, for the alliance, and for the freedoms we inherited, which are now clearly threatened.”

Immediate and steady progress toward the goal of meeting the two-percent target must become a reality, if NATO is to remain a credible alliance and able to adequately defend itself, the defense secretary said.

US Commitment in Europe

The United States under U.S. Operation Atlantic Resolve, he pointed out, is moving armored units into the Baltic States, Poland, Romania and Bulgaria to support and supplement NATO’s commitment to deterrence.

The United States will soon join the Britain, Canada and Germany in leading combined and enhanced forward presence defensive forces in Poland and the Baltic States, the defense secretary said.

“In so doing our nations are demonstrating the trans-Atlantic bond, standing up for our values, and recognizing that the freedoms we hold dear are worth defending,” Mattis said.

PRESIDENT TRUMP: Thank you very much. Thank you. Today I have the honor of welcoming my friend, Prime Minister Benjamin Netanyahu, to the White House. With this visit, the United States again reaffirms our unbreakable bond with our cherished ally, Israel. The partnership between our two countries built on our shared values has advanced the cause of human freedom, dignity and peace. These are the building blocks of democracy.

The state of Israel is a symbol to the world of resilience in the face of oppression — I can think of no other state that’s gone through what they’ve gone — and of survival in the face of genocide. We will never forget what the Jewish people have endured.

Your perseverance in the face of hostility, your open democracy in the face of violence, and your success in the face of tall odds is truly inspirational. The security challenges faced by Israel are enormous, including the threat of Iran’s nuclear ambitions, which I’ve talked a lot about. One of the worst deals I’ve ever seen is the Iran deal. My administration has already imposed new sanctions on Iran, and I will do more to prevent Iran from ever developing — I mean ever — a nuclear weapon.

Our security assistance to Israel is currently at an all-time high, ensuring that Israel has the ability to defend itself from threats of which there are unfortunately many. Both of our countries will continue and grow. We have a long history of cooperation in the fight against terrorism and the fight against those who do not value human life. America and Israel are two nations that cherish the value of all human life.

This is one more reason why I reject unfair and one-sided actions against Israel at the United Nations — just treated Israel, in my opinion, very, very unfairly — or other international forums, as well as boycotts that target Israel. Our administration is committed to working with Israel and our common allies in the region towards greater security and stability. That includes working toward a peace agreement between Israel and the Palestinians. The United States will encourage a peace and, really, a great peace deal. We’ll be working on it very, very diligently. Very important to me also — something we want to do. But it is the parties themselves who must directly negotiate such an agreement. We’ll be beside them; we’ll be working with them.

As with any successful negotiation, both sides will have to make compromises. You know that, right? (Laughter.)

PRIME MINISTER NETANYAHU: Both sides.

PRESIDENT TRUMP: I want the Israeli people to know that the United States stands with Israel in the struggle against terrorism. As you know, Mr. Prime Minister, our two nations will always condemn terrorist acts. Peace requires nations to uphold the dignity of human life and to be a voice for all of those who are endangered and forgotten.

Those are the ideals to which we all, and will always, aspire and commit. This will be the first of many productive meetings. And I, again, Mr. Prime Minister, thank you very much for being with us today.

Mr. Prime Minister, thank you.

PRIME MINISTER NETANYAHU: President Trump, thank you for the truly warm hospitality you and Melania have shown me, my wife Sara, our entire delegation. I deeply value your friendship. To me, to the state of Israel, it was so clearly evident in the words you just spoke — Israel has no better ally than the United States. And I want to assure you, the United States has no better ally than Israel.

Our alliance has been remarkably strong, but under your leadership I’m confident it will get even stronger. I look forward to working with you to dramatically upgrade our alliance in every field — in security, in technology, in cyber and trade, and so many others. And I certainly welcome your forthright call to ensure that Israel is treated fairly in international forums, and that the slander and boycotts of Israel are resisted mightily by the power and moral position of the United States of America.

As you have said, our alliance is based on a deep bond of common values and common interests. And, increasingly, those values and interests are under attack by one malevolent force: radical Islamic terror. Mr. President, you’ve shown great clarity and courage in confronting this challenge head-on. You call for confronting Iran’s terrorist regime, preventing Iran from realizing this terrible deal into a nuclear arsenal. And you have said that the United States is committed to preventing Iran from getting nuclear weapons. You call for the defeat of ISIS. Under your leadership, I believe we can reverse the rising tide of radical Islam. And in this great task, as in so many others, Israel stands with you and I stand with you.

Mr. President, in rolling back militant Islam, we can seize an historic opportunity — because, for the first time in my lifetime, and for the first time in the life of my country, Arab countries in the region do not see Israel as an enemy, but, increasingly, as an ally. And I believe that under your leadership, this change in our region creates an unprecedented opportunity to strengthen security and advance peace.

Let us seize this moment together. Let us bolster security. Let us seek new avenues of peace. And let us bring the remarkable alliance between Israel and the United States to even greater heights.

Thank you. Thank you, Mr. President.

PRESIDENT TRUMP: Thank you. Again, thank you.

We’ll take a couple of questions. David Brody, Christian Broadcasting. David.

Q Thank you, Mr. President, Mr. Prime Minister. Both of you have criticized the Iran nuclear deal, and at times even called for its repeal. I’m wondering if you’re concerned at all as it relates to not just the National Security Advisor, Michael Flynn, who is recently no longer here, but also some of those events that have been going on with communication in Russia — if that is going to hamper this deal at all, and whether or not it would keep Iran from becoming a nuclear state.

And secondly, on the settlement issue, are you both on the same page? How do you exactly term that as it relates to the settlement issue? Thank you.

PRESIDENT TRUMP: Michael Flynn, General Flynn is a wonderful man. I think he’s been treated very, very unfairly by the media — as I call it, the fake media, in many cases. And I think it’s really a sad thing that he was treated so badly. I think, in addition to that, from intelligence — papers are being leaked, things are being leaked. It’s criminal actions, criminal act, and it’s been going on for a long time — before me. But now it’s really going on, and people are trying to cover up for a terrible loss that the Democrats had under Hillary Clinton.

I think it’s very, very unfair what’s happened to General Flynn, the way he was treated, and the documents and papers that were illegally — I stress that — illegally leaked. Very, very unfair.

As far as settlements, I’d like to see you hold back on settlements for a little bit. We’ll work something out. But I would like to see a deal be made. I think a deal will be made. I know that every President would like to. Most of them have not started until late because they never thought it was possible. And it wasn’t possible because they didn’t do it.

But Bibi and I have known each other a long time — a smart man, great negotiator. And I think we’re going to make a deal. It might be a bigger and better deal than people in this room even understand. That’s a possibility. So let’s see what we do.

PRIME MINISTER NETANYAHU: Let’s try it.

PRESIDENT TRUMP: Doesn’t sound too optimistic, but — (laughter) — he’s a good negotiator.

PRIME MINISTER NETANYAHU: That’s the “art of the deal.” (Laughter.)

PRESIDENT TRUMP: I also want to thank — I also want to thank — Sara, could you please stand up? You’re so lovely and you’ve been so nice to Melania. I appreciate it very much. (Applause.) Thank you.

Your turn.

PRIME MINISTER NETANYAHU: Yes, please. Go ahead.

Q Thank you very much. Mr. President, in your vision for the new Middle East peace, are you ready to give up the notion of two-state solution that was adopted by previous administration? And will you be willing to hear different ideas from the Prime Minister, as some of his partners are asking him to do, for example, annexation of parts of the West Bank and unrestricted settlement constructions? And one more question: Are you going to fulfill your promise to move the U.S. embassy in Israel to Jerusalem? And if so, when?

And, Mr. Prime Minister, did you come here tonight to tell the President that you’re backing off the two-state solution?

Thank you.

PRESIDENT TRUMP: So I’m looking at two-state and one-state, and I like the one that both parties like. (Laughter.) I’m very happy with the one that both parties like. I can live with either one.

I thought for a while the two-state looked like it may be the easier of the two. But honestly, if Bibi and if the Palestinians — if Israel and the Palestinians are happy, I’m happy with the one they like the best.

As far as the embassy moving to Jerusalem, I’d love to see that happen. We’re looking at it very, very strongly. We’re looking at it with great care — great care, believe me. And we’ll see what happens. Okay?

PRIME MINISTER NETANYAHU: Thank you. I read yesterday that an American official said that if you ask five people what two states would look like, you’d get eight different answers. Mr. President, if you ask five Israelis, you’d get 12 different answers. (Laughter.)

But rather than deal with labels, I want to deal with substance. It’s something I’ve hoped to do for years in a world that’s absolutely fixated on labels and not on substance. So here’s the substance: There are two prerequisites for peace that I laid out two years — several years ago, and they haven’t changed.

First, the Palestinians must recognize the Jewish state. They have to stop calling for Israel’s destruction. They have to stop educating their people for Israel’s destruction.

Second, in any peace agreement, Israel must retain the overriding security control over the entire area west of the Jordan River. Because if we don’t, we know what will happen — because otherwise we’ll get another radical Islamic terrorist state in the Palestinian areas exploding the peace, exploding the Middle East.

Now, unfortunately, the Palestinians vehemently reject both prerequisites for peace. First, they continue to call for Israel’s destruction — inside their schools, inside their mosques, inside the textbooks. You have to read it to believe it.

They even deny, Mr. President, our historical connection to our homeland. And I suppose you have to ask yourself: Why do – – why are Jews called Jews? Well, the Chinese are called Chinese because they come from China. The Japanese are called Japanese because they come from Japan. Well, Jews are called Jews because they come from Judea. This is our ancestral homeland. Jews are not foreign colonialists in Judea.

So, unfortunately, the Palestinians not only deny the past, they also poison the present. They name public squares in honor of mass murderers who murdered Israelis, and I have to say also murdered Americans. They fund — they pay monthly salaries to the families of murderers, like the family of the terrorist who killed Taylor Force, a wonderful young American, a West Point graduate, who was stabbed to death while visiting Israel.

So this is the source of the conflict — the persistent Palestinian refusal to recognize the Jewish state in any boundary; this persistent rejection. That’s the reason we don’t have peace. Now, that has to change. I want it to change. Not only have I not abandoned these two prerequisites of peace; they’ve become even more important because of the rising tide of fanaticism that has swept the Middle East and has also, unfortunately, infected Palestinian society.

So I want this to change. I want those two prerequisites of peace — substance, not labels — I want them reinstated. But if anyone believes that I, as Prime Minister of Israel, responsible for the security of my country, would blindly walk into a Palestinian terrorist state that seeks the destruction of my country, they’re gravely mistaken.

The two prerequisites of peace — recognition of the Jewish state, and Israel’s security needs west of the Jordan — they remain pertinent. We have to look for new ways, new ideas on how to reinstate them and how to move peace forward. And I believe that the great opportunity for peace comes from a regional approach from involving our newfound Arab partners in the pursuit of a broader peace and peace with the Palestinians.

And I greatly look forward to discussing this in detail with you, Mr. President, because I think that if we work together, we have a shot.

PRESIDENT TRUMP: And we have been discussing that, and it is something that is very different, hasn’t been discussed before. And it’s actually a much bigger deal, a much more important deal, in a sense. It would take in many, many countries and it would cover a very large territory. So I didn’t know you were going to be mentioning that, but that’s — now that you did, I think it’s a terrific thing and I think we have some pretty good cooperation from people that in the past would never, ever have even thought about doing this. So we’ll see how that works out.

Katie from Townhall. Where’s Katie? Right there. Katie.

Q Thank you, Mr. President. You said in your earlier remarks that both sides will have to make compromises when it comes to a peace deal. You’ve mentioned a halt on settlements. Can you lay out a few more specific compromises that you have in mind, both for the Israelis and for the Palestinians?

And, Mr. Prime Minister, what expectations do you have from the new administration about how to either amend the Iran nuclear agreement or how to dismantle it altogether, and how to overall work with the new administration to combat Iran’s increased aggression, not only in the last couple of months but the past couple of years as well?

PRESIDENT TRUMP: It’s actually an interesting question. I think that the Israelis are going to have to show some flexibility, which is hard, it’s hard to do. They’re going to have to show the fact that they really want to make a deal. I think our new concept that we’ve been discussing actually for a while is something that allows them to show more flexibility than they have in the past because you have a lot bigger canvas to play with. And I think they’ll do that.

I think they very much would like to make a deal or I wouldn’t be happy and I wouldn’t be here and I wouldn’t be as optimistic as I am. I really think they — I can tell you from the standpoint of Bibi and from the standpoint of Israel, I really believe they want to make a deal and they’d like to see the big deal.

I think the Palestinians have to get rid of some of that hate that they’re taught from a very young age. They’re taught tremendous hate. I’ve seen what they’re taught. And you can talk about flexibility there too, but it starts at a very young age and it starts in the school room. And they have to acknowledge Israel — they’re going to have to do that. There’s no way a deal can be made if they’re not ready to acknowledge a very, very great and important country. And I think they’re going to be willing to do that also. But now I also believe we’re going to have, Katie, other players at a very high level, and I think it might make it easier on both the Palestinians and Israel to get something done.

Okay? Thank you. Very interesting question. Thank you.

PRIME MINISTER NETANYAHU: You asked about Iran. One thing is preventing Iran from getting nuclear weapons — something that President Trump and I think are deeply committed to do. And we are obviously going to discuss that.

I think, beyond that, President Trump has led a very important effort in the past few weeks, just coming into the presidency. He pointed out there are violations, Iranian violations on ballistic missile tests. By the way, these ballistic missiles are inscribed in Hebrew, “Israel must be destroyed.” The Palestinian — rather the Iranian Foreign Minister Zarif said, well, our ballistic missiles are not intended against any country. No. They write on the missile in Hebrew, “Israel must be destroyed.”

So challenging Iran on its violations of ballistic missiles, imposing sanctions on Hezbollah, preventing them, making them pay for the terrorism that they foment throughout the Middle East and beyond, well beyond — I think that’s a change that is clearly evident since President Trump took office. I welcome that. I think it’s — let me say this very openly: I think it’s long overdue, and I think that if we work together — and not just the United States and Israel, but so many others in the region who see eye to eye on the great magnitude and danger of the Iranian threat, then I think we can roll back Iran’s aggression and danger. And that’s something that is important for Israel, the Arab states, but I think it’s vitally important for America. These guys are developing ICBMs. They’re developing — they want to get to a nuclear arsenal, not a bomb, a hundred bombs. And they want to have the ability to launch them everywhere on Earth, and including, and especially, eventually, the United States.

So this is something that is important for all of us. I welcome the change, and I intend to work with President Trump very closely so that we can thwart this danger.

PRESIDENT TRUMP: Great. Do you have somebody?

PRIME MINISTER NETANYAHU: Moav (ph)?

Q Mr. President, since your election campaign and even after your victory, we’ve seen a sharp rise in anti-Semitic incidents across the United States. And I wonder what you say to those among the Jewish community in the States, and in Israel, and maybe around the world who believe and feel that your administration is playing with xenophobia and maybe racist tones.

And, Mr. Prime Minister, do you agree to what the President just said about the need for Israel to restrain or to stop settlement activity in the West Bank? And a quick follow-up on my friend’s questions — simple question: Do you back off from your vision to the end of the conflict of two-state solution as you laid out in Bar-Ilan speech, or you still support it? Thank you.

PRESIDENT TRUMP: Well, I just want to say that we are very honored by the victory that we had — 306 Electoral College votes. We were not supposed to crack 220. You know that, right? There was no way to 221, but then they said there’s no way to 270. And there’s tremendous enthusiasm out there.

I will say that we are going to have peace in this country. We are going to stop crime in this country. We are going to do everything within our power to stop long-simmering racism and every other thing that’s going on, because lot of bad things have been taking place over a long period of time.

I think one of the reasons I won the election is we have a very, very divided nation. Very divided. And, hopefully, I’ll be able to do something about that. And, you know, it was something that was very important to me.

As far as people — Jewish people — so many friends, a daughter who happens to be here right now, a son-in-law, and three beautiful grandchildren. I think that you’re going to see a lot different United States of America over the next three, four, or eight years. I think a lot of good things are happening, and you’re going to see a lot of love. You’re going to see a lot of love. Okay? Thank you.

PRIME MINISTER NETANYAHU: I believe that the issue of the settlements is not the core of the conflict, nor does it really drive the conflict. I think it’s an issue, it has to be resolved in the context of peace negotiations. And I think we also are going to speak about it, President Trump and I, so we can arrive at an understanding so we don’t keep on bumping into each other all the time on this issue. And we’re going to discuss this.

On the question you said, you just came back with your question to the problem that I said. It’s the label. What does Abu Mazen mean by two states, okay? What does he mean? A state that doesn’t recognize the Jewish state? A state that basically is open for attack against Israel? What are we talking about? Are we talking about Costa Rica, or are we talking about another Iran?

So obviously it means different things. I told you what are the conditions that I believe are necessary for an agreement: It’s the recognition of the Jewish state and it’s Israel’s — Israel’s — security control of the entire area. Otherwise we’re just fantasizing. Otherwise we’ll get another failed state, another terrorist Islamist dictatorship that will not work for peace but work to destroy us but also destroy any hope — any hope — for a peaceful future for our people.

So I’ve been very clear about those conditions, and they haven’t changed. I haven’t changed. If you read what I said eight years ago, it’s exactly that. And I repeated that again, and again, and again. If you want to deal with labels, deal with labels. I’ll deal with substance.

And finally, if I can respond to something that I know from personal experience. I’ve known President Trump for many years, and to allude to him, or to his people — his team, some of whom I’ve known for many years, too. Can I reveal, Jared, how long we’ve known you? (Laughter.) Well, he was never small. He was always big. He was always tall.

But I’ve known the President and I’ve known his family and his team for a long time, and there is no greater supporter of the Jewish people and the Jewish state than President Donald Trump. I think we should put that to rest.

PRESIDENT TRUMP: Thank you very much. Very nice. I appreciate that very much.

PRIME MINISTER NETANYAHU: Thank you.

By Joyce Karam

US President Donald Trump broke with his last three predecessors Wednesday by forgoing the US commitment to a two-state solution between the Israelis and Palestinians. Instead, he offered a regional approach to negotiating peace and achieving what he called a “great deal.”

Trump, ahead of his first official meeting with Israeli Prime Minister Benjamin Netanyahu, veered away in a joint press conference at the White House from the long-established US commitment to a two-state solution. “I’m looking at two states and one state,” Trump said, adding: “I like the one that both parties like. I can live with either one.”

But that divergence could be designed to meet Netanyahu’s two conditions for any peace deal, which he stated at the press conference as recognition by the Palestinians of Israel as a Jewish state, and security guarantees and full Israeli control in the Jordan Valley.

Trump stuck, however, with previous US parameters such as a hold on settlement expansion. “I’d like to see you hold back on settlements for a little bit,” he told Netanyahu.

Trump backtracked on a commitment to move the US Embassy to Jerusalem, and called on Israel to “show some flexibilty… to show they really want to make a deal.” He called on the Palestinian leadership “to get rid of some of the hate that they’re taught from a very young age.”

Beyond those prerequisites, Trump focused on a regional umbrella for peacemaking, saying: “I also believe that we’re going to have other players at a very high level, and I think it might make it easier on Palestinians and others.”

Trump, in typical fashion, boasted about the “big deal” he can achieve. “The United States will encourage a peace, and really a great peace deal. We’ll be working on it very diligently… but it is the parties themselves who must directly negotiate such an agreement.”

Netanyahu showered Trump with praise, declaring: “There is no greater friend than Donald Trump to the State of Israel.” He touted Trump’s hardline policies on counterterrorism and curbing Iran’s influence.

“Under your leadership, I believe we can reverse the rising tide of radical Islam… rolling back radical Islam, we can seize an historic opportunity because for the first time in my lifetime and for the first time in the life of my country, Arab countries in the region do not see Israel as an enemy.”

US observers who dealt with the peace process had different reactions to the Trump-Netanyahu remarks. Martin Indyk, a former US envoy to the peace process, tweeted: “Trump is treating the Palestinians like China: put Taiwan on table; take the Palestinian state off the table? If so it won’t work. The Chinese are too strong; the Palestinians are too weak.”

Robert Danin noted that “the Trump-Netanyahu press conference precedes their meeting,” which “suggests their comments have been tightly coordinated in advance.”
While it is too early to tell if the new Trump approach will work, or if it will be another failed US attempt to make peace in the Middle East, there will be “a lot of love, a lot of love” for Israel from his administration, he quipped.

A patch of land in an ancient valley on Mars that appears to have been flooded by water in the not-too-distant past has been discovered by researchers from Trinity College Dublin. In doing so, they have pinpointed a prime target to begin searching for past life forms on the Red Planet.

The findings have just been published in Geophysical Research Letters, by Dr Mary Bourke from Trinity, and her colleague, Professor Heather Viles, from the University of Oxford.

Dr Bourke said: “On Earth, desert dunefields are periodically flooded by water in areas of fluctuating groundwater, and where lakes, rivers and coasts are found in proximity. These periodic floods leave tell-tale patterns behind them.”

“You can imagine our excitement when we scanned satellite images of an area on Mars and saw this same patterned calling card, suggesting that water had been present in the relatively recent past.”

In a remote sensing study of the Namib Desert, the researchers had previously noted these patterns — ‘arcuate striations’ — on the surface between migrating sand dunes. Fieldwork subsequently showed that these arcuate striations resulted from dune sediments that had been geochemically cemented by salts left behind by evaporating groundwater. These dune sediments later become relatively immobile, which means they are left behind as the dunes continue to migrate downwind.

Dr Bourke added: “Following our work in Namibia, we hypothesise that on Mars, similar arcuate striations exposed on the surface between dunes are also indications of fluctuating levels of salty groundwater, during a time when dunes were actively migrating down the valley.”

“These findings are hugely significant. Firstly, the Martian sand dunes show evidence that water may have been active near Mars’ equator — potentially in the not-too-distant past. And secondly, this location is now a potential geological target for detecting past life forms on the Red Planet, which is important to those involved in selecting sites for future missions.”

Obesity, or a high fat diet, can lead to changes in the immune system similar to those observed with aging. That’s what research published this week in Experimental Physiology suggests.

The research was carried out by scientists at Liverpool John Moores University in the United Kingdom and the Institute of Food Science, Technology and Nutrition of the Spanish National Research Council (ICTAN-CSIC), the University Complutense of Madrid and the Research Institute of the Hospital 12 de Octubre, in Spain.

These findings are useful as they help scientists understand the impact of obesity on our body’s ability to fight infection. They also found that it was possible to reverse some of these effects by supplementing the diet with unsaturated fatty acids found in vegetable oils, such as olive or fish oils.

Obesity affects one in four adults in the UK and can lead to a number of serious and potentially life-threatening conditions, such as type 2 diabetes, coronary heart disease, some types of cancer, and stroke. The researchers fed mice a high-fat diet, causing them to become obese. Signs of oxidative stress and certain properties of immune cells indicated aging of the immune system. These obese mice were then split into groups and received food supplemented either with 2-hydroxyoleic acid or omega-3 fatty acids for eight weeks.

Author Dr. Fatima Perez de Heredia from Liverpool John Moores University said, “This is the first study, at least to our knowledge, to suggest the efficacy of 2-hydroxyoleic acid for reversing obesity-associated immune alterations and improving oxidative stress.”

A rare masterpiece by the German painter Georg Baselitz (estimated £6.5m-8.5m) is set to break the record for the artist at auction when offered at Sotheby’s Contemporary Art Evening Auction in London on 8 March 2017. Mit Roter Fahne (With Red Flag), 1965, from the artist’s ground-breaking ‘Heroes’ series, is a painting that cemented the artist’s reputation as one of the most provocative and compelling voices of the post-war era, Art Daily said.

Baselitz’s striking canvas is one of an outstanding group of 17 works by German artists to feature in Sotheby’s flagship contemporary auction in London, representing around a quarter of lots on offer. Further highlights include Gerhard Richter’s desolately beautiful Eisberg (estimate: £8-12m; dedicated release available here), Anselm Kiefer’s monumental Athanor (estimate: £1.5-2.5m), Sigmar Polke’s Pop-inspired Die Schmiede (estimate: £1-1.5 million), a major painting by Martin Kippenberger (estimate: £3-4 million), alongside key works by Wolfgang Tillmans, Albert Oehlen, Thomas Schütte, Günther Förg, Günther Uecker and Michael Krebber.

Alex Branczik, Sotheby’s Head of Contemporary Art, Europe said “Seismic moments of social and political change in history have always created seismic changes in art, something we undoubtedly see in post-war Germany. Many of these artists tackled challenging; some might say profound, subject matter, while at the same time creating new visual languages which redefined European art history.”

The Growth of German Contemporary The market for German contemporary art has gone from strength to strength in recent years, led by the £30.4m ($46.3m) achieved for Gerhard Richter’s Abstraktes Bild at Sotheby’s London in 2015, a record for any living European artist. Richter is just one from a wave of German post-war masters defining today’s contemporary art market.

• Over the last 5 years there has been a 31% increase in the number of bidders on German Contemporary Art at Sotheby’s auctions worldwide.
• In Sotheby’s flagship Evening London contemporary sales in 2016, around 20% of the works offered were by German artists.
• At Sotheby’s October 2016 ‘Frieze Week’ sales in London, the 9 works offered by German artists accounted for 43.3% (£20.76m) of the overall sale total.
• In the last two years alone, new auction records have been set for Wolfgang Tilmans, Gerhard Richter, Albert Oehlen, Thomas Schütte, Georg Baselitz, Martin Kippenberger, Günther Uecker, Sigmar Polke, Michael Krebber and Günther Förg.

The decline of manufacturing employment in industrialised countries has hit some cities hard. This column looks at perhaps the best-known case – Detroit – where residents have deserted the neighbourhoods closest to the central business district in favour of the suburbs, despite the longer commute. Redeveloping these areas requires coordination between multiple developers, residents, and the city governments that facilitate permits and public services. The authors propose the introduction of ‘development guarantees’ to ease the coordination problems.

By Raymond Owens, Esteban Rossi-Hansberg and Pierre-Daniel Sarte*

The decline of manufacturing employment in industrialised countries has left behind an urban shadow: a number of cities with slowly declining populations and income per capita. There are many examples, but perhaps the most iconic is the city of Detroit, a city where Ford invented the automotive production line and which still hosts the headquarters of the main US car-manufacturing firms. Detroit’s population has declined by roughly two thirds since the 1950s, when it peaked at 1.8 million. This decline has likely created frustration and dissatisfaction among some of the residents that still live there; more so because it has left large sections of Detroit dilapidated and vacant, and led to severe financial problems for its government. The city filed for Chapter 9 bankruptcy in 2013 (see Sugrue 2015 for an interesting account of Detroit’s economic history).

During the last half-century, the decline of Detroit, and many other Rust Belt cities, coincided with the fast growth of other US cities. San Jose, for example, grew by a factor of ten between 1950 and 2010 (from less than 100,000 people to more than one million). Why was the considerable urban infrastructure of Detroit wasted while, at the same time, new cities were being built from the ground up? Why did the city decline in a way that distorted its urban form to make it less attractive and viable?

Distorted Detroit

Detroit’s current distorted form is evident. A successful downtown area, with hundreds of thousands of jobs, is surrounded by blight – neighbourhoods composed largely of vacant buildings, or vacant lots that are a holdover from recently demolished properties. These residential areas, built before 1930, used to be occupied by blue-collar and some white-collar workers. Now, they are mostly empty. Downtown workers live primarily in areas located farther away from the centre, in suburbs that are well connected to downtown Detroit via a number of radial highways. This urban structure is surprising because it violates some of the basic principles of urban economics and urban design, namely, the principle that states that residential areas locate close to business areas to minimise the commuting needs of residents. This is particularly so if these areas are empty and the jobs in the downtown business centre do not generate any negative externalities, such as pollution. In other words, why is it that we do not see residential developers convert these vacant areas into thriving residential neighbourhoods? Would these newly developed residential areas be able to substitute for some of the successful outlying suburbs in the Detroit metro area, but offer a shorter commute? The answer is important, since it can explain why the massive urban investments of the past are being wasted.

Developers and residents: A problem of coordination

In a new paper, we rationalise this urban outcome using neighbourhood residential externalities (Owens et al. 2017). Agents want to live close to other residents, since dense communities improve neighbourhood amenities. Local amenities generated by density can range from reductions in crime, to a greater variety of restaurants and other local services, to cheaper and better local government services. Independent of the particular form of these amenities, they are all facilitated by neighbourhood density. Of course, denser neighbourhoods are also more expensive and the additional availability of workers can have effects on local wages. Agents trade off all of these effects when they decide where to live. We argue that the scale required to successfully develop these neighbourhoods is too large for a single developer to undertake. As a result, developers do not internalise the residential externalities. Thus, development requires coordination between multiple developers, residents, and potentially the city governments that facilitate permits and public services.

This basic coordination problem between multiple residential developers and residents leads to two potential neighbourhood equilibria. Given the characteristics of the rest of the city, a neighbourhood can be developed or vacant. The vacant equilibrium is one in which no developer or resident has individual incentives to enter the neighbourhood, so no one does. In the coordination equilibrium, individual incentives lead enough developers to enter, making the neighbourhood viable for residents and profitable for developers. That said, the ease of coordination varies depending on the characteristics of the city. For example, the radial roads built throughout the mid-20th century increased the number of developers that were required to make today’s vacant areas viable, thereby making coordination more challenging.

Using a variety of data for Detroit’s metropolitan area, we quantify our spatial model and compute the parameters and local characteristics that rationalise the reality of Detroit today.¹ We interpret the urban structure of Detroit as having 52 census tracts that are in the vacant equilibrium. Our interpretation is that they switched from the development to the vacant equilibrium sometime in the 1960s after the Detroit riots. We trace the main reasons behind the switch in part to ‘white flight’ and the loss of blue-collar manufacturing employment in the city proper, which started in the 1950s and accelerated afterwards, as well as the construction of the radial highways system. All of these factors increased the required scale to make these neighbourhoods viable and, therefore, the number of active developers and residents that needed to coordinate.

Our proposal: Development guarantees

One advantage of having a fully specified model that can rationalise Detroit’s misshapen urban form is that we can use it as a laboratory to evaluate visions for the city that have been proposed by stakeholders. Another advantage is that we can use it to design alternative policies that potentially benefit the city to an even greater degree. We propose ‘development guarantees’ as our policy instrument. This policy would require the city government, or some other party with credible access to funds, to guarantee a sufficient level of residential development in a neighbourhood. As a result, private developers and residents would have individual incentives to enter, and the neighbourhood would move to the equilibrium with coordination. Importantly, the development guarantees would have to be large enough, but if they were, they would ultimately require no actual investment by the guarantor. Our model allows us to compute the level of guarantees required to move any of the 52 vacant census tracts in the city to an equilibrium with coordination. It also allows us to compute the corresponding changes in population and land rents that result from this move.

We use this exercise to evaluate various policies proposed by Detroit Future City (DFC), a leading civic organisation. We then design an alternative policy that coordinates the same number of tracks as DFC, but ones that our model implies will be more successful in generating benefits. Overall, these policies can generate substantial positive returns. The DFC proposal yields more than $100 million per year in additional rents, while our policy generates almost twice that. The government guarantees required to achieve these outcomes total only about half of the measured gains in land rents. We find that a considerable fraction of the gains in business rents would be accrue to locations outside the administrative area of the city of Detroit. Therefore, sharing the tax revenue increases from these policies across municipalities, as well as the cost (or risk) of implementing them, seems important.

Even though the gains in rents that result from our proposed policy are impressive, they do not generate a large number of new residents in the city. The DFC policy attracts some 7,000 new residents while our policy adds about 12,000. These numbers are not negligible, but they certainly fall short of returning the city to its heyday. They improve Detroit’s urban form, but they do not bring back manufacturing employment. Still, they can help limit the waste that resulted from the structural transformation and shocks that declining urban areas across the world have experienced, and are likely to experience in the future. We can do better – much better – in managing urban decline.

About the authors*:
Raymond Owens, Senior Economist and Research Advisor, Federal Reserve Bank of Richmond

Esteban Rossi-Hansberg, Theodore A. Wells ’29 Professor of Economics, Princeton University

Pierre-Daniel Sarte, Senior Advisor, Federal Reserve Bank of Richmond

References:
Owens, R, E Rossi-Hansberg and P Sarte (2017), “Rethinking Detroit,” working paper, Princeton University.

Redding, S and E Rossi-Hansberg (2017), “Quantitative Spatial Economics,” Annual Review of Economics, forthcoming.

Sugrue, T (2015), “From Motor City to Motor Metropolis: How the Automobile Industry Reshaped Urban America”, Automobile in American Life and Society, Henry Ford Museum and University of Michigan.

Endnotes:
[1] See Redding and Rossi-Hansberg (2017) for a review of the literature on spatial quantitative economics