June 25th 1950. What motivated Kim Il Sung to invade South Korea

“The reasons for the outbreak of the Korean War remain a mystery, we can only speculate about the motivations for the North Korean attack in 1950” (Stoessinger 2011, 63). As far as I have been able to find no public reason was given by Kim Il Sung as to his motivations for sending North Korean troops flooding over the 38th parallel on that fateful June morning. Stoessinger offers four potential reasons behind the North Korean invasion. The two reasons he determined the most probable involved Stalin pulling the strings and ordering the invasion. The first reason is the one that was held by Harry Truman in that he was seeing how much resistance he would get if he tried to expand his Communist agenda into South Korea. “Truman, for example, justified his decision to enter the Korean War in 1950 as a way to deter the Soviet Union, which he saw as the architect of the conflict, from future acts of aggression that could touch off a World War III” (Dallek 2010). The second was that Stalin wanted to cause trouble for China. The third and less likely possibility in Stoessinger’s view was that China was the one who pushed Kim Il Sung into this fight. Stoessinger saw that the least likely option was the Kim Il Sung acted on his own. This essay will attempt to show that this last possibility is actually one that should be given more credit by analyzing the geopolitical landscape of the Korean Peninsula in the few years leading up to the war. It will also show which of the modern theories on the causes of war apply to this situation.

In order to understand the geopolitics of the area one must know the history of the two leaders of the divided Korean Peninsula at the time of the war. James Stokesbury provides a very good brief history of each man in his Short History of the Korean War (1988). South Korean president Syngman Rhee and North Korean Chief of State, Kim Il Sung, both had revolutionary histories within Korea. Both were involved in the 1919 failed uprising against the Japanese occupation of Korea. Each man went into exile following the event, where their paths diverged very dramatically. Rhee went back to the US where he had earned a PhD during his first round of exile at the turn of the century. Sung went north into Manchuria and possibly into the Soviet Union. “His official biography says he organized the Anti-Japanese Guerrilla Army in Manchuria, but there have been suggestions that he went instead to the Soviet Union and fought in the Red Army and even that he was in Stalingrad in 1942” (Stokesbury 1988). What is known for certain is that when he returned to North Korea following the war he was a devoted communist who held Stalin in great regard. Quite differently, Rhee did not return from the United States a devotee of democracy and capitalism, however he was devoutly anti-Communist. He ended up ruling the South quite autocratically despite the support from the US.

Once the line of demarcation was settled between the US and Russia during the negotiations for Russia to enter the war against Japan all key players appeared to be at peace with the solution. The US had always intended that Korea would eventually be reunited but it wasn’t in a hurry as it had enough to worry about getting Japan and Western Europe back in shape following the war. Eventually the UN took on the problem of reunification but it too could not broker an agreement with the Russians who wanted to ensure a Communist government on its border. In the end both the US and Russians pulled out of the two Koreas and both governments left behind saw the other as illegitimate. Both leaders expounded frequently denouncing the other and threatening to remove each other from power.

The Russians set about in getting North Korea established with its own military offering up tanks, aircraft, heavy artillery to name just some. As well it helped the North Koreans to build an effective well disciplined army. They wanted to ensure that if the south did invade that Sung was prepared to defend himself. Whether they actually were preparing him to assault the south is possible, but not a certainty. Meanwhile Rhee’s rhetoric made the US very nervous. As such they wanted to ensure that he would not invade the north as that was a problem they did not need, nor were prepared for at the time. “Syngman Rhee had never made any secret of his ambition to use the army offensively to unify the country, and the Americans, in their desire not to let him do so had structured an army that was not much good for heavy combat” (Stokesbury 1988). Unfortunately this left the south unable to defend itself either. Clearly the US did not see Sung as any more credible as Rhee in his threats, and that Russia would likely keep him in check.

At the beginning of 1950 Korea was divided with two leaders who despised each other, had complete conviction that their government was the only legitimate one and revolutionary backgrounds where they each participated in leadership roles. Where they differed is that Sung had a well equipped and well trained military at his disposal where Rhee did not. The only thing between Sung and the ability to invade was the Americans. By this time though, the Americans had been making policy decisions that did not include protecting either Formosa (Taiwan) or Korea from invasion. “…on January 12, Secretary of State Dean Acheson repeated the President’s views and again excluded South Korea from the U.S. defense perimeter” (Stokesbury 1988). With this additional information it is entirely conceivable that Kim Il Sung would have made a unilateral decision to invade the south. He knew Stalin well and his views on expanding communism which would give him comfort that Stalin would have no problem with such an invasion on the off chance he did not tell him what he was planning. Even if it was Stalin’s plan that Sung would invade the south he would have had a more than willing accomplice where no “ordering the attack” would have been required. Unfortunately for Sung, or Stalin for that matter, is that despite the Acheson speech the US would intervene once it was clear that the south was being routed.

In this particular case two theory classes stand out as applying to the outbreak of the Korean conflict in so far as Sung’s decision to launch the invasion. First is the psychological class. “With regard to the problem of the outbreak of war, the case studies indicate the crucial importance of the personalities of leaders” (Stoessinger 2011, 401). The strong feelings and beliefs of the leaders on both sides of the 38th parallel played a major role in the escalation of rhetoric and tensions in the years leading up to the war, as did their revolutionary history. Rhee knew he was in no position to invade but continued to threaten the north thus employing on of the pillars of psychological war theories of distraction. “Rhee was vigorously calling for war against the north, perhaps to take people’s minds off the real failure of his government to improve their lives substantially” (Stokesbury 1988). That said though, each leader felt passionately that the other was the embodiment of the evil keeping Korea from being united under one government and wanted more than anything to be the hero that reunited the peninsula which is decidedly a psychological feature.

The second class would be the information theories. As passionate as Rhee was about invading the north he knew he was not in a position to stand up to the stronger north at that time. Sung understood he had a superior army that gave him a distinct advantage. His intelligence was technically correct in that the US did not include Korea in its security strategy of the time other than continuing to advise them on their military buildup. He incorrectly predicted that the US would not change its mind when faced with the reality of the situation and the long term consequences of not coming to Korea’s defense thus extending the war for the first time while pushing the North Korean’s back across the 38th parallel.

Throughout the 3 ½ years the conflict went on there were many decisions that extended the war longer than the original plans of any of the leaders. Each of these could be analyzed as a separate “cause of the next phase” of the war. However the initial spark that started the war was the invasion on June 25th, 1950. It was driven by the personalities of the two leaders of the Korean countries and their interaction with each other. Clearly how the US and Russia treated their respective wards played a big role as well, but had the two leaders been less contentious it is likely that the balance of power on the peninsula would have shaped up differently.

WORKS CITED

Dallek, Robert. "The Tyranny of Metaphor." Foreign Policy. November 2010. http://www.foreignpolicy.com/articles/2010/10/11/the_tyranny_of_metaphor?page=full (accessed January 4, 2011).

Stoessinger, John G. Why Nations Go To War. Boston, MA: Wadsworth, Cengage Learning, 2011.

Stokesbury, James L. A Short History of the Korean War. New York, NY: Harper Collins e-books, 1988.

Russia and the Caucasus/Caspian Region

Where there are fossil fuels that more than one country can claim rights to the geopolitics of the region becomes extremely complex.  Add in a terrorist element and the stakes become even higher. The Caspian Basin has a number of countries which are taking advantage of the rich oil and natural gas reserves, including Russia, Azerbaijan, Turkmenistan and Kazakhstan. In addition players such as Georgia, Armenia and Turkey get into the mix as countries where the fuel can efficiently transit to make it out to the open ocean for distribution around the world. Russia is clearly the big power player on the block and has been very keen on exercising its influence in the region to affect “pipeline politics”. That said though Russia has been dealing with its own political troubles in the region with the terror and separatist movements in the Caucasus Mountain regions of Chechnya, North Ossetia, Ingushetia, Karbardino-Balkaria and Dagastan. How Russia handles both its oil wealth, its internal security and its relations with it's neighbors is key to not only their own security policies but also those of the US and Europe.

Terrorism has been a feature in the northern Caucasus region for some time now and has resulted in harsh military crackdowns by the Russians in the Chechnya region on several occasions. This issue is far from being resolved. “Russia faces what one of President Putin’s senior political advisers calls an ‘‘underground fire’’ in the North Caucasus—made worse by the unending war in Chechnya—and its vulnerability to major terrorist incidents in that region and across Russia remains high” (Council on Foreign Relations Independent Task Force 2006, 31). The region has a large Muslim population leading many to believe that the terrorism is a result of growing Islamic extremism. However surveys of the young men (often the target of extremist recruiting) show that there is very little to support that notion. In an extensive study by Gerber and Mendleson (2009) it was clear that most men between the ages of 16 and 49 were not moved by the extreme Islamist notions. They are, however, very concerned about the extreme poverty, lack of jobs and corruption within their local governments. Should Islamic militant organizations act first on addressing the social needs of these regions, much like the Islamic Brotherhood does in Egypt (Marsot 2007), the sympathies for such movements can shift. This area is key for Russian energy transit to market and so terrorist activity in the area must be addressed as well as the social and economic depravity of the area. Russia has the opportunity here to take a positive approach to strong influence and long term stability it she addresses the root causes of the trouble here instead of the hard handed military approach while there is still time and the central government is still looked upon in a favorable light.

Russia hasn’t only been using a heavy hand within its own territory but also as a means to affect energy policies of its neighbors. “Russia is now using energy transfers “as a weapon” in its efforts to impose new pricing structures in Ukraine and Belarus, with deleterious impact upon contracted supply to the EU market…” (R. Craig Nation 2007, 9). These policies have understandably made the West nervous and as such as increased their determination to bypass Russia for delivery of the oil from the Caspian region. Two pipelines have been built using Georgia as a transit zone to the Black Sea. Russia has long been very nervous about Georgia’s western leanings and in 2008 "Sergei Lavrov, the Russian foreign minister, accused Washington of ‘infiltrating the post-Soviet space ever more actively: Ukraine and Georgia are graphic examples’…” (German 2009). Russia launched an invasion of Georgia in August of 2008 in an effort to undermine investor confidence in the stability of the region. If nothing else it did succeed to slow down investment and building in the region by showing how easily the Russian Army was able to get to the crucial pipelines (German 2009).

Russia and the West are involved in a new miniature “cold war” over energy security in the Caucasus and Caspian regions. Both are vying to influence post Soviet nations and have a strong say over their policies. The Russian government also has personal reasons for this as well. “To become a high official of the Kremlin is to become a part owner of some of the world’s largest corporations; to lose one’s official post means a potentially gigantic loss of personal wealth, or worse” (Council on Foreign Relations Independent Task Force 2006, 19). With state ownership of the energy companies, Russia has the very combustible combination of military power along with personal wealth considerations which make it a very unpredictable and volatile force in the region. Europe's heavy need for the energy produced in this region any adverse actions by Russia are seen as critical security issues for the US and NATO.

 

Barany, Zoltan. "Superpresidentialism and the Military: The Russian Variant." Presidental Studies Quarterly 38, no. 2 (March 2007): 14-38.

Cimbala, Stephen J. "New START or Not? U.S.- Russian Nuclear Arms Reductions in Perspective." Comparative Strategy 29, no. 3 (2010): 260-277.

Council on Foreign Relations Independent Task Force. Russia's Wrong Direction: What The United States Can And Should Do. Independent Task Force Findings, New York, NY: Council on Foreign Relations, 2006.

Gerber, Theodore P., and Sarah E. Mendelson. "Security through Sociology: The North Caucasus and the Global Counterinsurgency Paradigm." Studies in Conflict and Terrorism 32, no. 9 (2009): 831-851.

German, Tracey C. "Pipeline Politics: Georgia and Energy Security." Small Wars and Insurgencies 20, no. 2 (2009): 344 - 362.

International Institute for Security Studies. "Timeline of Georgian-Russian Relations." Georgian-Russian Dialog. November 5, 2010. http://www.iiss.org/programmes/russia-and-eurasia/about/georgian-russian-dialogue/timeline-of-georgian-russian-relations/ (accessed December 26, 2010).

International Institute for Stragegic Studies. "Russian Foregin Policy." IISS Strategic Comments 13, no. 3 (April 2007): 1-2.

Marsot, Afaf Luti Al-Sayyid. A History of Egypt: From the Arab Conquest to the Present. Second. Cambridge UK: Cambridge University Press, 2007.

R. Craig Nation, Dmitri Trenin. Russian Security Strategy Under Putin: U.S. And Russian Perspectives. Conference Presentations, Carlisle, PA: Strategic Studies Inistitute, 2007.

Future of US Defense Strategy

I am sorry it has been so long.  Life got away from me last month between school, work and holidays.  The next few months will also be busy so I am expecting only once a month posting for now.  Hopefully after I am through the next three months of heavy class load I will be able to pick up the pace again.  Thanks for your patience.

The United States became the sole global power in many respects after the fall of the Soviet Union in 1991.  This includes the economic, political and military spheres.  No other country in the world had the resources to immediately compete or provide a balancing force to the US in any of these realms.  What makes this situation vastly different from previous global powers, such as the Romans or Ottoman empires, is the incredible near instant global reach that the US has to project all three of these spheres of power to any part of the world.  Thanks to the communication technology boom of the last 30 years though people, both governmental and non-governmental, can look at the US and how it is using its power with as much ease.  This fundamentally changes the defense picture for the United States.  While the US is unmatched in a head to head match between traditional military forces anywhere in the world, non-traditional enemies have surfaced requiring the US to rethink how it approaches defense in the twenty first century.  This thinking will need to embrace not only the military aspects of defense but recognize that defense of this country includes economic, environmental and political components as well.

Military threats of the twenty first century include new threats that change how the military must think about enemies and tactical methods of warfare. Traditionally defense policies have been built almost completely around military power and the ability to either project that power outward to respond to threats, or build defenses to prevent other powers from attacking the home front.  In the 1990’s most military planning focused around these efforts.   In Christopher Lambs review of how the US is attempting to transform its defense strategy he points out that in the 1990’s most of the Pentagon planning was built around two traditional threats, North Korea and Iraq (Lamb 2005).  Both of these scenarios revolve around traditional armies facing each other on the battlefield. “The greatest problem traditional militaries face today is that they are organized to wage big wars and have difficulty orienting themselves to fight small ones” (Arquilla 2010, 63). Non-traditional threats appeared to either be off the radar for the pentagon or just not given precedence in defense strategy planning.  In the early nineties the US had a brief taste of non-traditional warfare when they were engaged in Somalia and armed street gangs that blended into the public were causing all kinds of havoc for both the US Army and UN coalition troops.  The US did not understand how to fight this type of war and simply withdrew when the political will to fight collapsed after the Blackhawk incident.  It took the September 11 attacks to really bring home that the US could be attacked on its own soil from non-traditional actors who could inflict significant damage.  Even then though, the US felt it could deal with the organizations in a traditional way.  It was not until the military had been bogged down in Iraq and Afghanistan for five years that the establishment realized that major changes were necessary to defeat this new type of enemy.  Transforming the military has taken on new meaning with the lessons that have been learned from Iraq and Afghanistan.

Combating terrorism and non-state actors is not entirely a military affair.  One of the key components to disabling terror organizations is removing the availability of resources and locations to arm, train and rest.  Initially it was thought that government support of the group was necessary for them to establish safe havens, but this isn’t necessarily true anymore.  All they need are small locations that normally are not targeted (ie a mosque or school), which any attack against will result in serious PR and public opinion fallout (Innes 2009).  Yemen is a good example of a country that is trying to combat Al Quaeda infrastructure.  The US cannot send troops to every location in the world that potential terror groups are arming, in most cases without the support of the local government.  This is where the US needs to lead in building relationships with states where these groups find enough local support to thrive and coordinate.  The US can provide valuable advice and training to help each countries domestic resources combat these groups such that they will no longer be able to be a threat to the US and its allies.In addition the US must continue to build, and in some cases repair, its relationships with traditional allies, such as those in Europe, Middle East and the far east.  Non-state actors remain a threat to all nations in the world so building relationships can help to confine the mobility, arming, and funding capability of these organizations.

Building strong alliances is also key to dealing with other non-traditional threats to US security.  “Going forward, the purpose of alliances in U.S. national security policy must be fourfold: To generate capabilities that amplify American power; to create a basis of legitimacy for the exercise of American power; to avert impulses to counterbalance American power; and to steer partners away from strategic apathy or excessive self-reliance” (Sherwood-Randall 2006, v).  One example of a non-traditional threat that applies to why the second and third policy goals quoted above are important is the current Wikileaks phenomena.  In this case a single person, through the use of his company has exposed both US defense documentation and confidential foreign policy cables in an attempt to “expose” the US as a coercive force to the world.  When the US began to act more unilaterally under the Bush administration many of these alliances were undermined and traditional supporters of the US found it impossible to go along with US policy. “She [Condoleeza Rice] expressed the strongest disdain for those who believe that the legitimate exercise of American power derives from the support of other states or international institutions, concluding that the foreign policy of a Republican administration would “proceed from the firm ground of the national interest, not from the interests of an illusory international community” (Sherwood-Randall 2006, 6).  View was consistent with the foreign policy decisions made by the Bush administration through the first term of his presidency.  Unfortunately, this process served to undermine the legitimacy with which the US operates.  This adds fuel to the fire of people like Julian Assange, founder of Wikileaks, to undermine the US and put American citizens at risk.  Strong alliances help us fight such asymmetrical threats both by minimizing the impact of such disclosures and by providing public support for US policies throughout the world. 

The notion of national defense also needs to be expanded to include both economic and social aspects as well.  American companies have a global presence today and protecting their ability to function in a global economy means that the American people have jobs and opportunity.  This helps us to address home grown terror threats as well as helping to provide continued domestic legitimacy for our government.  There are also threats to American well being through climate change and disease pandemics to name a few.  Each of these require coordination with the international community.  The US has the resources and the standing to provide strong leadership in this area and, in the end, serve our national interests through becoming a strong leader in the global community.  “The largest states, when they help to provide these shared public goods, act as leaders by helping groups of nations to create and achieve shared goals – the very definition of leadership” (Nye 2008).  Through working on these shared goals the US will also continue to build legitimacy for the power we wield.  This has the additional benefit of deterring other nations from challenging the US national interests through more coercive means.  China is both a rising military and economic power and has shown signs of wanting to establish itself as the global leader through some minor saber rattling and economic policy.  Like the US though they too are dependent on the rest of the world to support their methods in order to gain that power.  Strong ties with the global community can help keep that in check while also allowing China to continue to grow economically and be a key player in the world order, thus ensuring stability for all.

The above only addresses a segment of the threats that the US must concern itself in the coming decades.  That said it is clear that the US needs to take a more holistic and global approach to addressing its defense needs in the coming decades.  There will need to be a lot of cross coordination and a change of culture that will need to be addressed.  Government agencies are generally very resistant to fundamental changes such as what is required here.  There will be significant challenges to addressing how information is shared, how joint coordination among military branches as well as civilian services are handled and how cross national coordination is completed.  Traditional stove pipe organizations are no longer suited for the type of cross functional threats that face the US today.  While challenging these issues are not impossible to overcome.  Transparency of decision making processes and education as to the reasons why these changes are necessary help to smooth such transitions.  A recognition that it will take time and strong leadership not just at the presidential level, but also at all levels of interaction is important as well.  The US has the potential to be the defining force in the world for the foreseeable future if it approaches its role in the world with humility and respect for all the people it interacts with.

Arquilla, John. "The New Rules of War." Foreign Policy, March/April 2010: 60-67.

Innes, Michael. "The Safe Haven Myth." Foreign Policy Online. October 12, 2009. http://www.foreignpolicy.com/articles/2009/10/12/the_safe_haven_myth?page=0,0 (accessed December 10, 2010).

Lamb, Christopher J. Transformation Defense. Washington D.C.: National Defense University Press, 2005.

Nye, Joseph S. "Recovering American Leadership." Survival 50, no. 1 (Februrary - March 2008): 55-68.

Sherwood-Randall, Elizabeth. Alliances and American National Security. Mongraph, Carlisle, PA: Strategic Studies Institute: US Army War College, 2006.

Global finance and how to handle instability.

“… capitalism requires the possibility of failure”  (The Economist Special Report, 2009, The uneven contest).  Our country was built on the idea that if you took a chance and ran for your dream it is possible you could make it.  There was never a promise that you were guaranteed it though.  The financial markets are a means for some to achieve their dream.  However, as our lives have become intertwined with institutions and states our dreams have become intertwined.  “When the financial system fails, everyone suffers”  (The Economist Special Report, 2009, Greed – and fear).  When the system fails there is always an outcry for regulation and to clamp down on those whose percieved incompetence caused the average person harm.  While this has the over tones of a sense of justice, severe regulation results in stagnation and continued economic hardship.  Take a look at the IMF regulations put on South Korea during the 1997 crisis, or Japan’s own internal regulations that led them to the “lost decade” where growth was non-existent. There is a middle ground however.

There are two places where governments and institutions can attack the problem of financial crisises.  There is crisis mitigation where steps are taken to prevent a crisis, and crisis management where steps to taken to handle a crisis in progress.  For mitigation we must realize that the financial markets are global and therefore require a global solution.  This means that there needs to be agreement at the level of the World Bank or IMF for rules that are backed by international law.  These rules need to allow for innovation and growth so they can’t really be focused on specific instruments and possibly institutions.  An example of a rule that would likely help would be that the financial products be completely transparent.  As Martin Wolf pointed out in his interveiw on Fixing Global Finance (2009), the CDO’s at the heart of the current crisis were opaque.  While buyers knew that they were made up of mortgages across a wide variety of markets, there was little information about the distribution of mortgages across the traunches or how those mortgages were created.  There was no information showing that many mortgages were made with no supporting documentation insuring income or ability to pay.  Had this information been available buyers would have been better informed as to the risk they were taking. “The presumption should be for transparency” (The Economist Special Report, 2009, Fixing finance).

The second mitigation course I think should be done is that, in the interest of transparency, is that all assumptions about a product should be included in the documentation and a risk analysis of what would happen if these assumptions were to fail.  This is not a novel concept.  Businesses do this all the time when making decisions on what products to market and develop.  It is a key part of the decision making process to understand completely where your risks are and how you will respond to them if they come true.  Few people thought the housing market would fail and so they just ignored that it was an assumption and treated it as if it were law.   That is when Mr. Soros term of “refexivity” comes in to play.  “Once people come to believe that house prices never fall, they will buy too much property—and house prices will fall” (The Economist Special Report, 2009, When markets turn).  It is key that it is legally required for companies to provide full disclosure of these assumptions and the make up of their product thus that they could be held responsible if they did not provide potential buyers with all critical material to make responsible decisions.  When evaluating specific products the regulating body should be looking for those that are showing signs of increasing transaction volumes, with a very strong lense on the products that are touting “high returns with low risk”.  That is always a big red flag.

In the area of crisis management we must get out of the knee-jerk reactions and panic decisions.  This may lead to some quick relief, but it is usually at the cost of long term financial pain.  “… regulators need to re-establish the idea that intervention is based on rules” (The Economist Special Report, 2009, The uneven contest).  One thing countries can do is establish a “lender of last resort” for businesses within their borders.  I am not talking about the bailouts that we have seen for the last two years.  When the markets fail credit seizes up.  Businesses in good health suddenly do not have access to the short term credit they need to innovate and grow.  As a result they contract and lay off workers.  This creates the cycle where less money goes into the system thus creating more uncertainty, even less credit, and more tightening.  There needs to be a place where healthy businesses that were financially stable at the outset of the crisis, to be able to get credit when the private sector lenders are going through their period of shock.  There needs to be a known planned process on how to feed cash into this lending institution in a predictable way so as not to increase inflation.  This would help the private sector businesses whether the storm and keep jobs in place and dampen the viscious cycle of reducing demand.

While these are just some high level ideas on how we can deal with crisis moving forward the authors of our reading make two other important notes.  “Time after time the market seems to have found ways to work around regulation” (The Economist Special Report, 2009, The uneven contest).  This is the reason for more general rules that apply across the board.  The more specific they are made the easier they will be to work around.  Also, “Given the financial system’s fallibility, regulation is bound to be fallible too” (The Economist Special Report, 2009, The uneven contest).  No one is perfect.  And when you are dealing with products that are completely new there is the very real possibility that regulators will miss something.  This is the reason that there will never be perfect mitigation and the need for planned management is required.  Global finance is here to stay and it can be a hugely positive force in global development and personal wealth.  But it can go astray and the mob hysteria around the so called “low risk, high return” products.

References and further reading:

Krugman, P. (2010, May 6). A Money To Far. Retrieved October 28, 2010, from New York Times Opinion: http://www.nytimes.com/2010/05/07/opinion/07krugman.html

Neuman, S. (2010, October 20). Could Drastic Euro-Style Spending Cuts Happen Here? Retrieved October 30, 2010, from NPR Business and Economy: http://www.npr.org/templates/story/story.php?storyId=130690626

Roubini, N. (2008). The Coming Financial Pandemic. Foreign Policy , 165, 44-48.

Stiglitz, J. E. (2009, November/December). Death Cometh for the Green Back. The National Interest .

The Economist Special Report. (2009, January 22). Fixing Finance. Retrieved October 28, 2010, from The Economist: http://www.economist.com/node/12957769

The Economist Special Report. (2009, January 22). Greed - and fear: The golden age of finaince collapsed under its own contradictions. Retrieved October 28, 2010, from The Economist: http://www.economist.com/node/12957709

The Economist Special Report. (2009, January 22). The uneven contest: Financial regulation is essential. That does not make it easy. Retrieved October 29, 2010, from The Economist: http://www.economist.com/node/12957717

The Economist Special Report. (2009, January 22). When markets turn. Retrieved October 28, 2010, from The Economist: http://www.economist.com/node/12957745

Vandewalle, D. (2006). A History of Modern Libya. Cambridge UK: Cambridge University Press.

Wolf, M. (2009, March 5). Fixing Global Finance. (N. Chandra, Interviewer) YaleGlobal.

International Finance and Business in the "Wild West" of Globalization

The subject of this week’s post could just as easily be “To Regulate or Not to Regulate?  And if we wanted to, could we?”  The decade leading up to the 2008 financial meltdown, or The Great Recession as the press is now tagging it, saw unprecedented growth in the internationalization of business and finance.  International corporations not only extended their supply chains throughout the world but also moved entire business units such as payroll and customer support to other countries where labor was less expensive.  Even more dramatic was the incredible rise in purely financial trading that occurred across international borders. “Financial integration and generally open governments have encouraged growth in cross border investment during that time as well, from $200 billion in 1990 to nearly $1.5 trillion in 2008”  (ATKearney, 2010, p.5).  With relatively little in the way of international regulation there is a bit of the Wild West feel to the international markets in the past decade.  Not only have private business and financial institutions been involved in the global financial frenzy but governement investments, soveriegn wealth funds, have increased to an estimated $3 tillion in assets through investment in foreign companies and financial products  (Halliday, 2008). And the 2008 meltdown showed the world just how much the average person was impacted by the actions and risks companies and financial institutions would engage in.  How the democratic governments react to the public pressures  vs the pressure put on them by the business elites will really determine the future of the global political order.

What makes the 2008 melt down interesting is that the hardest hit countries were the richest and most democratic nations in the world.  Europe and the United States have been experiencing quite a bit of public backlash to the crisis and the subsequent fallout to the general public.  Unemployment is running at about 10% in the US, which after having spent a number of years at all time unemployment lows of approximately 5% feels terrible to the general public.  Also a large number of people are facing the loss of their homes due to the combination of variable rate interest  loans to high risk borrowers and the high unemployment.  Public perception both in the US and Europe is that their democratically elected government who is supposed to represent them is “in bed” with the financial and corporate elites that they believe to be responsible for their current hardship. Public funds were used to “bail out” the banks and other financial institutions who were on the brink of collapse.  Good arguments can be made either way if these were necessary to stave off the next Great Depression or if they were an over panicked reaction by the goverments. Whether or not they were the right thing to do will make little difference moving forward as the public percieves them as a violation of their trust.  The public does not take kindly to being asked to make sacrafices, see the various protests and strikes in Europe, to help get government balance sheets in order following the bailouts of the elites.  In the US the public is taking its anger out in the midterm elections where it is expected that the balance of power in the House of Representatives and possibly the Senate will shift to the Republicans.

The governements of these nations know they are under great pressure to “just fix it” from the public.  What options are available?  The first option is to appeal to the nationalistic rehtoric and start closing the doors to international interactions.   “… national governments in a troubled economy might take actions to protect local interests that run counter to the strategy of a global corporation”  (ATKearney, 2010, p.8) .  As an example ATKearney points to the amendment to the TARP package which was to prohibit recipients of funds from outsourcing service functions (i.e. payroll or customer service) to other countries  (ATKearney, 2010).   Congress is responding to the public pressure to create jobs and bring them back in country.  There is a valid argument though that by paying extra wages for US workers, these companies will cease to be competitive and have to shut down or contract, thus adding to the unemployment process.  This is a hard sell though when the public is bombarded by the extraordinary salaries made by many of the corporate CEO’s.  ” Multinational chief executives 30 years ago made 35 times the wages of an average employee; today it is more than 350 times. The crisis has focused attention on the obscene inequities of this era - the world's 1,100 richest people have almost twice the assets of the poorest 2.5bn”  (Rothkopf, Change is in the Air for Financial Superclass, 2008).  Many companies, especially financial companies who have limited fixed assets, would likely just move to countries where there is less regulation thus reducing the cost of doing business.

A second option governments have is to strengthen the international institutions ability to regulate international commerce.  This is much easier said than done as there are two major forces acting against any coherent regulation.  First is that getting the majority of nations within these institutions to agree on any real form of regulation is a huge challenge.    Countries that have continued to see growth through the crisis, i.e. China and India, will pull a great deal of leverage in trying to keep the international community from controlling their financial futures. “The top creators of great new personal fortunes are in China, India and Russia. It seems unavoidable that the transatlantic elite that have been the habitués of Davos will be rivaled in influence by the Asian contingent - a group that has as little appetite for the Alpine gabfest as for the values and priorities of the western financial super-class” (Rothkopf, Change is in the Air for Financial Superclass, 2008). In addition the growing power of sovereign wealth funds means that not only would private business be regulated but states as well.  With the fundamental rule of sovereignty reining supreme within the international institutions they are unlikely to gain any real strength in enforcement of regulations. 

Europe, hard hit with the challenges of national balance sheets due to the shared currency, is evaluating stronger changes to regulation of state economies and business within the Union.  They are much more likely to get agreement on trade and currency regulation within the EU as it is a much stronger institution and has fewer cultural hurdles to overcome.  In the US though, the call for the government to fix the problem is balanced also by a call for less government at the same time.  Likely scenario is that not much will change in the long term.  There may be some legislation that will be passed to appease the public by looking like they are putting the crunch on corporations, but at the first sign of the economy becoming worse or more job losses that practice will be stopped in the interest of getting the economy to grow again.  The combination of the weakness of international institutions and the political and financial power of the elites to ensure that there is little that national governments can do to regulate.  The one hope for holding these corporations accountable is in the public themselves to pressure businesses and only support those businesses who behave with an outlook towards the public good.

Further Reading and References:

ATKearney. (2010). Globalization Enters a New Era: What Course Will It Take. Corporate Finance Review , 14 (5), 5-11.

Cowen, T. (2008, April 27). Freer Trade Could Fill the World's Rice Bowl. Retrieved October 16, 2010, from New York Times World Business: http://www.nytimes.com/2008/04/27/business/worldbusiness/27view.html?_r=1&scp=1&sq=Freer%20Trade%20Could%20Fill%20the%20World's%20Rice%20Bowl&st=Search

Gilpin, R. (1987). The Political Economy of International Relations. Princeton, NJ: Princeton University Press.

Halliday, F. (2008, March 5). Sovereign Wealth Funds: power vs. principle. Retrieved October 16, 2010, from openDemocracy: http://www.opendemocracy.net/article/globalisation/global_politics/stolen_wealth_funds

Rodrik, D. (2009, March 11). Project Syndicate. Retrieved October 16, 2010, from Blame the Economists, Not the Economics: http://www.project-syndicate.org/commentary/rodrik29/English

Rothkopf, D. (2008, May 15). Change is in the Air for Financial Superclass. Retrieved October 15, 2010, from Carnegie Endowment for International Peace: http://www.carnegieendowment.org/publications/index.cfm?fa=view&id=20162

Rothkopf, D. (2008, May 14). Superclass and the Inequity of Globalization. Retrieved October 15, 2010, from Carnegie Endowment for International Peace: http://www.carnegieendowment.org/publications/index.cfm?fa=view&id=20161

Rothkopf, D. (2008, May 4). They're Global Citizens. They're Hugely Rich and They Pull the Strings. Retrieved October 15, 2010, from Carnegie Endowment for International Peace: http://www.carnegieendowment.org/publications/index.cfm?fa=view&id=20096

Free Speech on Trial

Today there are two court cases involving freedom of speech in the western democracies that beg the question about if there should be boundaries around free speech.  The first is the trial of Dutch Parliamentary Minister Geert Wilders (BBC News Europe 2010).  He is on trial for inciting hate through speeches and public writings.  The second case is Snyder v. Phelps in the US Supreme Court (US Supreme Court 2010).  In this case Phelps is the pastor of a church which has been protesting at the funerals of fallen US service men and women claiming that their deaths are punishment for the US toleration of homosexuality.  Snyder, the father of one of the servicemen is claiming that the protests caused emotional harm to his family at a time when they were vulnerable and violated his first amendment rights of freedom of peaceful assembly.   Both of these cases can have far reaching impacts no matter which way they are decided.

The Netherlands, as is much of Europe, is going through a transition.  For much of its history the Netherlands has been pretty homogeneous in racial and religious makeup.  However in the past couple of decades instability in the Middle East has resulted in a large migration of Muslim immigrants and refugees throughout Europe.   Many in Europe see this as a threat to their way of life.  This can be seen in the recent acceptance of laws banning the wearing of Burqas in public (Castle 2010).    Wilders has said that the trial “… will not deter him from his mission, which is to stop the "Islamisation" of the Netherlands” (BBC News Europe 2010).  He has called for a ban on immigration of Muslims as well as for the banning of the Koran, which he refers to as a “facist book”.  What makes his case so visible is that he is in a key position within the Dutch government as the key lynchpin in a coalition of minority parties that combined control 76 of the 150 seats in the parliament.  The Netherlands is also a place which has a keen awareness of what happens when a zealot preaching hate starts to gain power.  Anne Frank’s house sits on a canal right in the heart of Amsterdam.  Just a short train ride away you are in Arnhem where some of the bloodiest battles of World War II took place (the location for the movie A Bridge To Far).  Reminders are everywhere of the dark days of the 30’s and 40’s when hatred of minorities ran wild and death was the result for anyone who tried to defend them.  Even for those who tried to just wait out the storm starvation and mass destruction where a way of life.  One can understand the fears of allowing that kind of hate to overtake the country once again.  Currently the trial is on hold as Mr. Wilders has called for the judicial panel be replaced as he feels he cannot get a fair trial following a comment from the head judge (BBC News Europe 2010).

In the US the case of Snyder v. Phelps is of a different nature.  It is about if freedom of speech is allowed everywhere at all times no matter what the impact is to those around.  Phelps and his small congregation of 30 members would travel around the country to funerals of fallen soldiers to launch protests claiming that “The Lord no longer builds the American house; nor does the Lord watch over and protect America. These soldiers are dying for the homosexual and other sins of America.  God is now America's enemy, and God Himself is fighting against America” (Westboro Baptist Church 2010).  This month alone they plan 19 protests at funerals throughout the country (Westboro Baptist Church 2010).  In the case of Snyder V. Phelps there are three questions being considered.  First is if the previous Supreme Court ruling in Hustler Magazine v. Fallwell apply to private citizens (US Supreme Court 1988).  In this case it was ruled that Hustler Magazine did not engage in wrong doing by printing a parody comic showing Mr. Fallwell in a clearly fictional situation no matter how tasteless it was.  The ruling states:   “We conclude that public figures and public officials may not recover for the tort of intentional infliction of emotional distress by reason of publications such as the one here at issue without showing in addition that the publication contains a false statement of fact which was made with "actual malice," i. e., with knowledge that the statement was false or with reckless disregard as to whether or not it was true” and that “Here it is clear that respondent Falwell is a "public figure" for purposes of First Amendment law” (US Supreme Court 1988).  In this case the family of the fallen soldier are clearly not public figures so the court must rule if it also applies to private citizens as well. 

The second question “Does the First Amendment's freedom of speech tenet trump the First Amendment's freedom of religion and peaceful assembly?” (US Supreme Court 2010).  The last question is “Does an individual attending a family member’s funeral constitute a captive audience who is entitled to state protection from unwanted communication?” (US Supreme Court 2010).  I was not able to find if the protesters had been granted permission, or for that matter required any permission, to gather across the street from the locations where the funerals are being held.  It is a tough question about the captive audience because the word “captive” here applies to emotional captivity.  While one may have the physical ability to leave the location where the offensive speech is taking place they may not have the emotional ability to leave in the time of grieving.   

In a time where we are seeing more demagogues pondering for our attention as weariness from war and a sluggish economy drag on, the lack of respect and responsibility with speech is becoming more apparent.  Freedom is a wonderful thing and we are blessed to have a constitution and rule of law to protect that.  At the same time, though, free speech comes with great responsibility.  Each of these people involved in all of these cases deserve the right to have their opinions and to speak about them.  However there are constructive ways to make your point and destructive ways.  With the availability of instant information what people say become sound bites that are spread the world over in an instant and a great deal of context could be lost.  As we see today in our political discourse people run with snippets of information and fail to grasp the full meaning of issues and the long term impacts of their decisions.  In both of these cases the respective courts must grapple with the long term impacts of whichever way they decide.  We as listeners though also have a responsibility to educate ourselves on what these and other demagogues are saying as they try to appeal to the emotional sides of issues.  They are counting that by playing to the emotional side that the people they are talking to won’t question and learn about all sides.  In a society of free speech I feel I have a duty to dig deeper and not take what is said for granted.  I also feel I have a responsibility to use my power of free speech for good and show respect to others in the way I communicate my message.  I hope I do that.  Please feel free to share your opinion on these cases or on our basic freedoms.  I look forward to what you have to say.

Here is a news report on the arguments presented today 10-6.  As soon as the official transcript is posted I will add that.  http://www.cnn.com/2010/CRIME/10/06/washington.free.speech.trial/index.html?hpt=Sbin]

And here is the official transcript in today's arguments of Snyder vs. Phelps
http://www.supremecourt.gov/oral_arguments/argument_transcripts/09-751.pdf

BBC News Europe. Dutch anti-Islam MP Geert Wilders goes on Trial. October 4, 2010. http://www.bbc.co.uk/news/world-europe-11464025 (accessed October 6, 2010).

Castle, Stephen. "Belgium Moves to Ban Burqas Worn in Public." New York Times, March 31, 2010: http://www.nytimes.com/2010/04/01/world/europe/01iht-brussels.html.

US Supreme Court. 09-751 Synder v. Phelps. March 8, 2010. http://www.supremecourt.gov/qp/09-00751qp.pdf (accessed October 2010, 2010).

—. Hustler Magazine, Inc. v. Falwell. February 24, 1988. http://scholar.google.com/scholar_case?case=5069891851949874011&hl=en&as_sdt=2&as_vis=1&oi=scholarr (accessed October 6, 2010).

Westboro Baptist Church. Westboro Baptist Church Picket Schedule. October 1, 2010. http://www.godhatesfags.com/schedule.html (accessed October 6, 2010).

Afghanistan, why we are losing the people.

Today I finished a book that has left me in tears.  In all of my readings of the issues in the world that have touched me none struck me at my heart like this one has.  Anna Badkhen’s journal of her trip to Northern Afghanistan (Waiting for the Taliban: A Journey through Northern Afghanistan originally published in segments in Foreign Policy magazine, now available for Kindle at Amazon.com) takes you right into the hearts and minds of the people who have endured centuries of constant fighting.  Ms. Badkhen is no stranger to war.  She first reported from this area of Afghanistan for the San Francisco Chronicle in 2001.  She has also covered such theaters as Iraq, Palestine and Israel, Chechnya and Somalia.  One would expect her to be hardened against the atrocities and living conditions found in such zones.  However, through this work you see how strongly her heart is touched.  You experience the sublime in how they make it through each day with violence surrounding them, as well as the absurdity of the promises made and broken by those who promised to support them.  Most of all though it brings to light how a militant organization can thrive and win the hearts of those that had once loathed them through the simple act of providing some kind of order in their lives lived in fear.  How she manages to keep her head together through all of this is a testament to her strength and, I would suspect, her strong belief that what she has to say will in the end help those who suffer as a result of these battles.

This book does not attempt to condemn the US for engaging in this war in the first place and must not be construed as a commentary of such.  It simply tries to show you life in Northern Afghanistan and how the people of this region view what has happened in the last decade.  In 2001 the US military swept in and literally removed the Taliban, with the help of the Northern Alliance, out of areas of northern Afghanistan.  Many of the people there rejoiced in this as they believed that their lot in life would get better.  Many promises were made both by the US military, by aid agencies and by the newly elected democratic government of Afghanistan as to the aid they would receive and how their lives would change.  The Taliban mean while has been pushed south into areas such as Kandahar and so did the resources to fight them.  Quite simply the north was forgotten by everyone.  What aid did arrive was in the form of playgrounds or a school building.  Note, there were no books, desks, supplies or even teachers so the buildings remain empty.  In a couple cases an entire village would get an electric generator, but the people in the village both did not have the money or the ability to get fuel to run them.  Very clearly those who did contribute didn’t understand the capabilities of the regions they put stuff in so much of it went to waste.  To make matters worse the government implored refugees who had run over the borders to come home, promising them a new and prosperous life.  To quote Badkhen “I imagine the indigence of these refugees easily.  In Camp Shahraqi Mawjirin, I have met families whom the Afghan government had dumped in a tract of salty desert, where nothing will ever grow, where there are no jobs, no electricity, no doctors” (461-463).   Their children were dying of cold at an astonishing rate.  The local official for the Ministry of Refugees and Repatriation can’t do much for them as he was only given 400 blankets for over 220,000 refugees by the government.  What little he can do comes out of his own pocket. 

Besides the abject poverty once again several militant groups, not just Taliban, have started fighting over the meager resources and brought back up age old feuds.   The Pashtuns, who make up most of the Taliban.  One of the reasons they welcome them back is the fear of ethnic violence from the Hazara.  This feud goes way back in history and both sides have committed amazing atrocities.  But the militias provide protection where the government does not.  As one person she interviewed mentioned, the Taliban brought order which is better than the anarchy that exists today.  They can’t understand how the US has pumped billions of dollars not only into their own supplies and personnel for the war, but into the Afghan government and yet they are still dying from lack of basic security and services.  They don’t understand how the US can support a government that they see as entirely corrupt.  In fact, Transparency International 2009 Corruption Perception Index had Afghanistan as the second most corrupt country in the world only ahead of Somalia (Transparency International 2009).  The people of northern Afghanistan are not asking to be made rich all of a sudden and have cars, and TV’s etc.  They are simply asking for enough rule of law and basic services (running clean water, electricity and health care) so they can have a fighting chance at making a decent life for their children.  They just want to live in peace.  And when they see the world’s most powerful economic force and military force make promises and walk away without fulfilling them, it is no wonder that they start to resent us.

So what is to be done?  Do we give up and pull out?  The ramifications of this are far graver than the abject poverty that embraces these people today.  Given Pakistan’s current problems with its government and similar corruption and poverty issues it is not out of this world to project that those two countries could easily become Somalia on steroids.  The anarchy and poverty of Northern Afghanistan make the region ripe for a number of ethnic and anti government demagogues to take advantage of the people and build up a conglomeration of warlords once again, Al Qaeda being one of them.  If this spills into Pakistan you suddenly have a country with nuclear weapons in that mix.  Yes it would save us money, and in the short term save some of our service men’s lives.  It wouldn’t be long though before that regional instability will foster another major terror attack and we have to consider that in our policy. 

History has shown that insurgencies can be beaten.  In Brian Connable’s study on historical insurgencies (Connable 2010) he offers a bit of hope that we can beat this down and achieve a stable Afghanistan.  It involves one very key ingredient though that is in short supply in the US: patience.  The root causes of what allows an insurgency to grab hold must be addressed.  In this case it is the abject poverty, the corruption of the federal government and the reconciliation between ethnic groups that have been victims of mutually induced atrocities.  This won’t be cheap and requires a long term commitment and likely some American lives.  One must ask though if we are willing to spend that now or wait until we experience an attack far worse than 9/11 to start all over again?

Sources:

Badkhen, Anna. Waiting for the Taliban: A Journey through Northern Afghanistan. Las Vegas, NV: AmazonEncore, 2010.

Connable, Ben. How Insurgencies End. 2010. http://www.rand.org/pubs/monographs/MG965/ (accessed 1 2010, October).

Transparency International. 2009 Corruption Perception Index. 2009. http://www.transparency.org/policy_research/surveys_indices/cpi/2009/cpi_2009_table (accessed October 1, 2010).