Tag: India

Wednesday Links

  • Signals indicate that the market just might be on the rebound. That’s great,  but it’s important not to get ahead of ourselves, says Johan Norberg.  “We must never forget that the light at the end of the tunnel can be an approaching train.”
  • Michael Cannon continues his debate in the LA Times: The dirty little secret is that “Obama-care” isn’t about reducing health care costs or making coverage more secure. It’s about robbing Peter to pay Paul.

Pakistan: More Aid, More Waste, More Fraud?

Pakistan long has tottered on the edge of being a failed state:  created amidst a bloody partition from India, suffered under ineffective democratic rule and disastrous military rule, destabilized through military suppression of East Pakistan (now Bangladesh) by dominant West Pakistan, dismembered in a losing war with India, misgoverned by a corrupt and wastrel government, linked to the most extremist Afghan factions during the Soviet occupation, allied with the later Taliban regime, and now destabilized by the war in Afghanistan.  Along the way the regime built nuclear weapons, turned a blind eye to A.Q. Khan’s proliferation market, suppressed democracy, tolerated religious persecution, elected Asif Ali “Mr. Ten Percent” Zardari as president, and wasted billions of dollars in foreign (and especially American) aid.

Still the aid continues to flow.  But even the Obama administration has some concerns about ensuring that history does not repeat itself.  Reports the New York Times:

As the United States prepares to triple its aid package to Pakistan — to a proposed $1.5 billion over the next year — Obama administration officials are debating how much of the assistance should go directly to a government that has been widely accused of corruption, American and Pakistani officials say. A procession of Obama administration economic experts have visited Islamabad, the capital, in recent weeks to try to ensure both that the money will not be wasted by the government and that it will be more effective in winning the good will of a public increasingly hostile to the United States, according to officials involved with the project.

…The overhaul of American assistance, led by the State Department, comes amid increased urgency about an economic crisis that is intensifying social unrest in Pakistan, and about the willingness of the government there to sustain its fight against a raging insurgency in the northwest. It follows an assessment within the Obama administration that the amount of nonmilitary aid to the country in the past few years was inadequate and favored American contractors rather than Pakistani recipients, according to several of the American officials involved.

Rather than pouring more good money after bad, the U.S. should lift tariff barriers on Pakistani goods.  What the Pakistani people need is not more misnamed “foreign aid” funneled through corrupt and inefficient bureaucracies, but jobs.  Trade, not aid, will help create real, productive work, rather than political patronage positions.

Second, Islamabad needs to liberalize its own economy.  As P.T. Bauer presciently first argued decades ago–and as is widely recognized today–the greatest barriers to development in poorer states is internal.  Countries like Pakistan make entrepreneurship, business formation, and job creation well-nigh impossible.  Business success requires political influence.  The result is poverty and, understandably, political and social unrest.  More than a half century experience with foreign “aid” demonstrates that money from abroad at best masks the consequences of underdevelopment.  More often such transfers actually hinder development, by strengthening the very governments and policies which stand in the way of economic growth.

Even military assistance has been misused.  Reported the New York Times two years ago:

After the United States has spent more than $5 billion in a largely failed effort to bolster the Pakistani military effort against Al Qaeda and the Taliban, some American officials now acknowledge that there were too few controls over the money. The strategy to improve the Pakistani military, they said, needs to be completely revamped. In interviews in Islamabad and Washington, Bush administration and military officials said they believed that much of the American money was not making its way to frontline Pakistani units. Money has been diverted to help finance weapons systems designed to counter India, not Al Qaeda or the Taliban, the officials said, adding that the United States has paid tens of millions of dollars in inflated Pakistani reimbursement claims for fuel, ammunition and other costs.

Writing blank checks to regimes like that in Pakistan is counterproductive in the long term.  Extremists pose a threat less because they offer an attractive alternative and more because people are fed up with decades of misrule by the existing authorities.  Alas, U.S. “aid” not only buttresses those authorities, but ties America to them, transferring their unpopularity to Washington.  The administration needs do better than simply toss more money at the same people while hoping that they will do better this time.

More Evidence on America’s Socialism

KPMG has released its annual survey of personal income tax rates around the world. The survey covers 86 countries, including all the high-income nations and many middle- and lower-income nations, such as Brazil, China, and India.

The chart shows the top personal income tax rates in 2009 for national governments, per the KPMG study. The current top U.S. rate is 35 percent, which is substantially above the 86-country average of 28.9 percent. The Obama administration plans to let the U.S. rate jump to 39.6 percent in 2011, which would be almost 11 points higher than the international average.

Worse still, the United States has state income taxes with rates up to 10 percent that are piled on top of the federal tax. Some of the nations in the survey (e.g. Canada) also have subnational income taxes, but many, or  most, of them do not.

Finally, note that supporters of government health care expansion have been eyeing further increases in the top U.S. tax rate above 40 percent. Alas, we need more of the Global Tax Revolution to sweep across our shores.

Bringing the States Back In

afghanistanIt’s an annoying, hackneyed trope of foreign policy types to say “if you want to understand X, you have to understand Y.”  That said, let me engage in a little bit of it.

What’s going on in Afghanistan, we’re supposed to believe, is about terrorism, failed states, economic development, counterinsurgency, counterterrorism, human rights, and some other stuff.  And to an extent, it is about each of those things.  But to my mind, if you want to get a handle on what’s driving events over there, and on its historical status as a plaything of regional and extraregional powers, you ought to read this article in today’s Wall Street Journal.

The themes that permeate the article are familiar: States as the primary actors in international politics, their uncertainty about other states’ intentions, the fundamental zero-sumness of security competition…somebody should cook up a theory or two on this stuff.

Eventually–although in fairness, God only knows when–we’re going to leave Afghanistan.  When that happens, India and Pakistan are still going to live in the neighborhood.  They’d each prefer to have lots of influence in Afghanistan, and to preclude the other from having too much.  Accordingly, they’re both trying to set up structures and relationships that would, in the ideal scenario, let them control Afghanistan.  In a less-than-ideal scenario, they’d like enough influence to undermine the other’s control of the country.  Until you grasp that nettle, you’re really just fumbling around in the dark.

Find a solution for that in your COIN manual.

Other Countries as Ends-in-Themselves

Here in Babylon on the Potomac, most foreign policy discussions begin and end with the United States: How can we extend our control of the world?  Who is challenging us?  What problems might, say, a rising China, pose to American primacy?  We are, as Madeleine Albright asserted, the “indispensable nation.”  One popular scholar recently advanced the theory that the U.S. government is, and should be, the world’s government.  There’s a real refusal to recognize that we are, as a simple matter of fact, isolated by the blessings of geography and power.  We’re just not a 19th century continental European power, no matter how much we threat-inflate and conceive of ourselves as the only source of order in a disorderly world.

You’d think we’d be inclined to recognize the luxury that our isolation affords us, but you’d be wrong.  Consequently, in discussions about the rise of China, for example, U.S. analysts generally pose the question as a simple U.S. vs. China confrontation: How quickly can they challenge us?  Where should our “red lines” be?  Which allies will support us?  If our strategists were smart, they’d be thinking more creatively about offloading responsibility to countries that live more closely to China, and waiting to see how things progress.  While the ChiCom menace tends to get represented as ten feet tall in these discussions, the Chinese have a host of significant problems, including the internal unrest that has been on display recently, among others.

china-india-exerciseHigh on the list of “other problems” is China’s relationship with countries like India.  Much more so than the United States, countries like India and Japan have a lot to lose, potentially, from China’s rise.  Liberal international relations thinkers are right to point out the positive-sumness of economic relations between potential adversaries.  Economic ties between China and Taiwan, China and the U.S., China and Japan, are also positive forces that can help to moderate security competition.  That said, security itself is zero-sum.  Either you control your sea lines of communication or else another country does.  If another country does, bad things can happen to you, as, for example, Japan remembers all too well.

All of which is a long-winded way of introducing this excellent article by James Lamont and Amy Kazmin in the Financial Times.  Lamont and Kazmin highlight the growing unease in New Delhi about China.  Unease tends to crop up when a big powerful neighbor does things like claim whole provinces of your country as its own territory, as China does with the Indian province of Arunachal Pradesh.  (For more on this subject, see my talk on Capitol Hill from May 2008: video here.)

In fairness, the Bush administration did some smart things on this front, like trying to improve ties with India.  For years, U.S.-India relations had been tainted by a cold war mindset where we resented their association with the Non-aligned Movement.  (I think the India nuclear deal has a lot of downsides, but the intentions underpinning it were smart ones.)  Similarly, the Bush administration signed a joint agreement with Japan stating that a peaceful resolution of the Taiwan dispute is a “common strategic objective.”

But the important part will be beyond getting other countries to accept our goodies (the India nuclear deal) or sign a statement of interest (the joint Japan-US statement on Taiwan).  Those countries would rather, ceteris paribus, stand tall against China from over the shoulder of the United States.  The only way that we will get to a point where the countries with the most to lose pay the most for a hedge against China is for the United States to credibly commit to do less.  And on that front, there is a lot more work to be done.

Finally, an Ally That Doesn’t Wait for America

Washington’s willingness to toss security guarantees about the globe like party favors has encouraged other nations to do little for their own defense.  From the European, Japanese, and South Korean standpoint, why spend more when the Americans will take care of you?

But it looks like Australia takes a different view, and is willing to do more to defend itself and its region.  Reports the Daily Telegraph:

The latest defence White Paper recommends buying 100 advanced F-35 jet fighters and 12 powerful submarines equipped with cruise missiles, a capability which no other country in the region is believed to possess.

The “potential instability” caused by the emergence of China and India as major world powers was cited as the most pressing reason for this military build-up. In particular, Australian defence planners are believed to be concerned about China’s growing naval strength and America’s possible retreat as a global power in the decades ahead.

Chinese officials say their country’s growing power threatens no-one. Behind the scenes, Beijing is thought to be unhappy about Australia’s White Paper, with one Chinese academic saying it was “typical of a Western Cold War mentality”.

But the Chinese navy has almost doubled the number of secret, long-distance patrols conducted by its submarines in the past year. The reach of its navy is extending into Australian waters. China is also acquiring new amphibious assault ships that can transport a battalion of troops.

So instead of calling Washington to deal with Beijing, the Australians are building up their own navy.  Novel approach!  Now, how can we implant a bit of the Aussie character in America’s other friends around the globe?

Buy American Hurts Most Americans

Earlier today, Doug Bandow weighed in with some commentary on the problems that Buy American provisions are creating for both Canadian and American businesses. Let me reinforce his view that such rules are anachronistic and self-defeating with some thoughts from a forthcoming paper of mine about the incongruity between modern commercial reality and trade policies that have failed to keep pace.

Even though President Obama implored, “If you are considering buying a car, I hope it will be an American car,” it is nearly impossible to determine objectively what makes an American car. The auto industry provides a famous example, but is really just one of many that transcends national boundaries and renders obsolete the notion of international competition as a contest between “our” producers and “their” producers. The same holds true for industries throughout the manufacturing sector.

Dell is a well known American brand and Nokia a popular Finnish brand, but neither makes its products in the United States or Finland, respectively. Some components of products bearing the logos of these internationally recognized brands might be produced in the “home country.” But with much greater frequency nowadays, component production and assembly operations are performed in different locations across the global factory floor. As IBM’s chief executive officer put it: “State borders define less and less the boundaries of corporate thinking or practice.”

The distinction between what is and what isn’t American or Finnish or Chinese or Indian has been blurred by foreign direct investment, cross-ownership, equity tie-ins, and transnational supply chains. In the United States, foreign and domestic value-added is so entangled in so many different products that even the Buy American provisions in the recently-enacted American Recovery and Reinvestment Act of 2009, struggle to define an American product without conceding the inanity of the objective.

The Buy American Act restricts the purchase of supplies that are not domestic end products.  For manufactured end products, the Buy American Act uses a two-part test to define a domestic end product: (1) The article must be manufactured in the United States; and (2) The cost of domestic components must exceed 50 percent of the cost of all the components. Thus, the operational definition of an American product includes the recognition that “purebred” American products are increasingly rare.

Shake your head and chuckle as you learn that even the “DNA” of the U.S. steel industry, which pushed for adoption of the most restrictive Buy American provisions and which has been the manufacturing sector’s most vocal proponent of trade barriers over the years, is difficult to decipher nowadays. The largest U.S. producer of steel is the majority Indian-owned company Arcelor-Mittal. The largest “German” producer, Thyssen-Krupp, is in the process of completing a $3.7 billion green field investment in a carbon and stainless steel production facility in Alabama, which will create an estimated 2,700 permanent jobs. And most of the carbon steel shipped from U.S. rolling mills—as finished hot-rolled or cold-rolled steel, or as pipe and tube—is produced in places like Canada, Brazil and Russia, and as such is disqualified from use in U.S. government procurement projects for failure to meet the statutory definition of American-made steel.

Whereas a generation ago the cost of a product bearing the logo of an American company may have comprised exclusively U.S. labor, materials, and overhead, today that is much less likely to be the case. Today, that product is more likely to reflect foreign value-added, regardless of whether the product was “completed” in the United States or abroad. Accordingly, Buy American rules and trade barriers of any kind (as appealing to politicians as they may be) hurt most American businesses, workers, and consumers.

It’s time to wake up and scrap these stupid rules.