A $47 Million Cigarette

In 2006, a ballot initiative to add $2.60 to a pack of cigarettes sold in California went down in flames as Big Tobacco pumped $67 million into the state to defeat the measure. The June 5^th ballot measure, Proposition 29, sought a more modest $1-a-pack charge, a tax that would generate approximately $735 million a year. The funds were not to go into the very-deficit-needy general fund, but would be used to pay for healthcare and other related programs directed at preventing smoking and curing the many ailments that are caused or accelerated by smoking (cancer research alone would generate an estimated 15,000 new jobs for the local economy), all very serious drains on the entire healthcare system.

Smoking has always increased healthcare costs, making private insurance more expensive and the underlying social safety nets (Medicare and Medicaid) push near the breaking point, amplified with that other national crisis, obesity. “With one exception, the studies find the annual medical costs of smoking to constitute approximately 6-8% of American personal health expenditures. The exception, a recent study, found much larger attributable expenditures. The lower estimates may reflect the limitation of analysis to costs associated with the principal smoking-related diseases. The higher estimate derives from analysis of smoking-attributable differences in all medical costs. However, the finding from the most recent study, also considering all medical costs, fell in the 6-8% range.” According to one highly-respected study (http://www.ncbi.nlm.nih.gov/pmc/articles/PMC1763946/). This tax measure was simply one way for taxpayers to defer some of those costs and place them directly on the users that cause the problem.

Supporters of the legislation successfully raised almost $9 million dollars to fund a campaign that, when individual voters are polled on the question of the tax, is heavily favored: “Indeed, arguing the goals of Proposition 29 would be a losing strategy for the tobacco industry since a vast majority of Californians support an increase in the state cigarette tax (currently one of the lowest in the nation), understanding that it will benefit public health.” Los Angeles Times, June 1^st. Donors include the American Cancer Society, the American Lung Association, the American Heart Association and even large individual donors like Lance Armstrong and New York’s Mayor Michael Bloomberg.

But on the other side of the equation is Big Tobacco, which mustered almost $40 million to defeat the initiative. “The tobacco industry’s campaign against Proposition 29 is a case study for how corporations attack generally good initiatives that are harmful to their business interests, especially by diverting the discussion away from the initiative’s true purpose. This classic "red herring" strategy strives to confuse voters…” write LA Times editorial contributors Sherry Lansing and Kriistina Vuori in the LA Times, June 1^st. The ads in question spoke about new taxes, the massive bureaucracy that would be created and how there were no specific allocations or mandates for cancer research. Ads with individuals from seemingly neutral-sounding associations spoke with all-sincerity about the evils of big government, including one gentleman touted as a respected family physician, dressed in an appropriate white lab coat as he denounced the ballot initiative. Of course, there was no statement of how these individuals and/or their organizations were compensated or where the funding for such entities may have come from.

Big Tobacco admitted that two of the major contributors were R.J. Reynolds and Philip Morris but claimed that many other “independent” organizations joined their cause. Really? Opponents included the Small Business Action Committee, the California Chamber of Commerce, the California Taxpayers Association (Cal Tax) and Americans for Tax Reform. NBC’s local affiliate in San Francisco “followed the money trail” citing reports from campaign-finance-tracking maplight.org and publicly available information, and here are some of its findings as reported on June 4^th: “Maplight.org’s analysis of California’s Secretary of State campaign finance records shows that Philip Morris gave the Small Business Action Committee in California $500,000 in 2010. That’s about a third of the entire receipts of $1.47 million received by the Small Business Action Committee in 2010.

“Since 2010 Philip Morris also gave two different political action committees associated with the California Chamber of Commerce, JOBSPAC and CALBUSPAC, more than $2 million, including $109,500 just last week… Both the Small Business Action Committee and the California Chamber of Commerce are listed on the ‘No On 29’ website…

“Searching through the 62 million documents that make up the Legacy Tobacco Documents online, we discovered dozens of papers that detail big money contributions and cozy relationships between the tobacco industry and some of the same groups now opposing Proposition 29… For example, the California Taxpayers Association or Cal Tax opposes the initiative. We discovered evidence that the organization has been affiliated with RJ Reynolds Tobacco Company for more than three decades…

“Then there is another letter dated May 19, 1999 from the president of Americans For Tax Reform, Grover Norquist. In the letter Norquist asks Philip Morris’ Manager of Public Affairs, Kirk Blalock, for a quarter of a million dollars. ‘This is a formal request for $250,000 in general support for the work of Americans for Tax Reform,’ the letter states. ‘Americans for Tax Reform opposes any and all tax increases and fights onerous regulations on both the federal and state level.’”

In the end, the voters were sharply divided (confused), but the extraordinarily lopsided level of pernicious contributions seemingly intended to mislead and misinform suggest that once again, America is governed more by those with hidden agendas and the huge dollars necessary to push their campaigns than by the issues themselves. The measure failed by the slimmest of votes, 50.8% against, 49.2% in favor. Do you think that Big Tobacco’s leading an advertising campaign, misleading at best, that outspent healthcare proponent by about a four-to-one margin had anything to do with the result? Does that disparity of money always buy votes on issue-related measures?

I’m Peter Dekom, and a society that is governed increasingly by special interests at the expense of the average citizen is a society that is sowing the seeds of its own destruction.

Can Pakistan Survive?

Our drone strikes in Pakistan’s Tribal Districts have been effective in targeting and eliminating Islamist militant leaders, albeit with “collateral” civilian casualties along the way. But there probably isn’t a single voting Pakistani who supports this effort, even when the militants killed are equally determined to bring down the government in Islamabad to replace it with a severe, Sharia-driven theocracy led by Taliban insurgents.

The Pakistani conviction of the good doctor who aided the United States in locating bin Laden is very popular in Pakistan. Our entering Seal team’s entering Pakistani territory (however good the reason) plus our drone strikes have also radicalized Pakistani voters pretty much the same way we might feel if Mexico mounted drone strikes in our western border states or sent its covert army unit to cut down U.S.-based arms suppliers about to smuggle guns to the drug cartels operating all over Mexico. This radicalization has further destabilized a country that could easily self-destruct from internal factionalsim, and the notion of a military take-over (knowing that the military too has sympathies towards radical Islamic elements) is not that far from becoming a reality.

Nowhere is the instability more evident that in Pakistan’s largest city, Karachi (above), a teaming and steaming metropolis of 13 million residents that serves as the country’s major seaport as well as its financial capital. It is also a lawless city where terrorist can hide in plain sight (e.g., Osama bin Laden), where the intelligence community (the nation’s Inter Services Intelligence agency – the ISI – Pakistan’s equivalent of the CIA with a touch of FBI thrown in for good measure) and local police department are well-known to have exceptionally close and supportive connections with the regional Taliban, who are sworn to replace the current secular government with their own vision of religious leadership. It is a city where professional hit men are known to roam the city, offering a professional killing for an average cost of about $700.

As the financial capital and because of many institutions of higher learning which are located here, this is also a city where exceptionally educated people mingle with the destitute, desperate and disparate. Corruption has decimated any meaningful semblance of sustaining a functional city, but as Karachi goes, so goes Pakistan. That fact that the capital city of Islamabad openly acknowledges that the government is sorely absent from the Tribal Districts (actually, the Federally Administered Tribal Areas), including North and South Waziristan (fractious and equally ungovernable Balochistan lies to the immediate south), suggests that severe militancy is concentrated only in this region. But rampant instability and insurgent attacks in fact take place over the entire nation, and the realities in Karachi suggest that this city may actually be at the heart of it all.

That militants are able to operate openly and freely in Karachi is an indicator that the entire nation is teetering on the brink of total collapse, a particularly dangerous reality given their rather significant storehouse of missiles and nuclear warheads and a history of sharing the underlying technology to rogue nations like North Korea and Iran. A collapsed Pakistan would spread its pernicious disease to the entire region, threatening an already-dysfunctional Afghanistan, a desperate Bangladesh and even their relatively stable “enemy to the south,” India.

One wag has expressed that our efforts at embracing Pakistan as an ally in the fight against Taliban and other Islamist terrorism has become more akin to breaking up with a bad girlfriend, who has spent years openly cheating on us… or like trying to kill cockroaches by stepping on them whenever we seem them emerge from the cracks. Neither strategy has been particularly effective, and as we press our losing cause in Afghanistan with “effective” anti-Taliban drone strikes in Pakistan, we seem to be arming the proselytizing militants with actions and statements that makes their radical recruiting efforts that much more effective, generating an increasing positive sentiment towards extremists even among less-accepting voters, strongly moving away from the U.S. position.

The latest news? “A suspected U.S. drone strike in northwestern Pakistan on [the] morning [of June 4^th] killed 15 militants and wounded three others, a local government official said, the third such deadly attack in as many days… The drone fired at least six missiles at a militant compound near the town of Mir Ali in the North Waziristan region near the Afghanistan border, government official Muhammad Amir told CNN… North Waziristan is one of seven districts in Pakistan's tribal region. The area is widely believed to be the operating base for the Haqqani [Taliban] network and other militant groups that have attacked international troops in neighboring Afghanistan… [The June 4^th] attack is the 21st suspected drone strike in Pakistan this year. U.S. officials rarely discuss the CIA's drone program in Pakistan, though privately they have said the covert strikes are legal and an effective tactic in the fight against extremists.” CNN.com, June 4^th. Wonder who really won this one? And if Pakistan does fall, what happens to those nukes?

I’m Peter Dekom, and the good news on the effectiveness of this drone strike is only punctuated with the bad news of the overall impact of our policies in the region.

P.S. 334 – Manhattan

It’s sad reading about the impact of local budget cuts on higher education. In my own California, the once-treasured system of colleges and universities is slowly being reduced to a shadow of its former self, cutting programs, increasing class size, reducing the level of what is actually being required of students as a result, and facing additional cuts that some in the system may force the closing of entire schools. As California faces Governor Jerry Brown’s new set of ballot propositions to increase taxes at almost every level, the consequences of not raising such funds can be seen in a system that is already reeling from student-killing tuition increases and quality reductions of staggering proportions. New taxes, if approved, will re-fund $300 million in lost revenues to the system; failing to pass the legislation will de-fund a further $300 million to an already impaired operation.

“‘I’d be lying if I said what we offer students hasn’t been changed and that there hasn’t been a degradation of the learning environment,’ said Timothy White, the chancellor of the University of California, Riverside, which has had record growth in recent years. Last year, plans to open a medical school on the campus were shelved after state budget cuts. While there are more students than ever, the number of academic advisers has dropped to 300, from 500 a few years ago, for more than 18,000 undergraduates. Courses that used to require four writing assignments now demand half that because professors have fewer assistants to help them with grading papers, something other campuses have implemented as well...

“Chancellor White and others say the concerns about the budget cuts are beyond academic. For generations, the universities have been economic engines for the state, graduating hundreds of thousands of students each year. At every level, the universities are receiving more applicants than ever. But without more state money, colleges are struggling to find room for eligible students… Nathan Brostrom, executive vice president of business operations for the University of California, said the system was now in the middle of the worst financial crisis since the Great Depression. In the last year, the state has cut $750 million from the system’s budget. This year, for the first time, the system receives more money from tuition than from state aid — but that only makes up for roughly a quarter of the cuts from the state. Over all, the budget is the same as was in 2007, when there were 75,000 fewer students enrolled.” New York Times, June 1^st.

Across the land, political pressures responding to economic reality have continuously reduced the overall quality of American education. Over the years, our secondary school students have dropped from first to seventeenth in science scores against developed nations and to twenty-fifth in math. As job growth has stalled (with a slightly higher unemployment level) while global competition and educational standards increased, it is clear that the Americans without the necessary skill-sets not only will have a harder time getting a job, but when they do, the attributable pay scale and career potential will fall to well below that of prior generations.

Opponents cite bloated administrative costs, excessive pay for those at the top, unsustainable tenure and retirement benefits and waste throughout the system. I wish I could deny that such issues exist, but with about 13,000 separate public school districts around the United States covering our nation’s primary and secondary schools, waste and the prioritization of political teaching issues (e.g., school prayer, creationism vs. evolution, etc.) over learning are rampant, and the ability to weed out under-performing teachers has become almost impossible. Clearly reform is mandatory, but again, political pressures seem to push against the possibility of massive reform until the systems begin to collapse and file for bankruptcy. Meanwhile, the innocents in the mix, the students themselves, are forced to pay with their lives and careers by reason of the failures of their parents and grandparents to provide them with a competitive education.

To those who claim that we need to force fiscal responsibility onto basic and post-secondary public education even if there are abundant casualties along the way, I point to the harsh reality that America cannot grow its way back to prosperity, much less service massive budget deficits we have incurred, unless American workers earn enough in the global marketplace to cover those expectations. And most certainly we cannot reach that level of value-added without a vastly stronger educational system. Impossible!

But even in the public school system, the rich get richer. I’ve already blogged about the powerful private schools where high tuition all but eliminates anyone other than this nation’s wealthiest students. But even in the public school system, where parents have the financial ability to upgrade their local public schools with additional cash or other economically-valuable support, the impact on the students and the performance of the subject schools skyrockets, providing a long-term advantage to such students because their parents have money. “Each fall, parents at the Anderson School [P.S. 334], a highly regarded K-8 on [Manhattan’s] Upper West Side for gifted and talented students, receive letters from the PTA emblazoned with the school’s elegant ‘A’ logo. Though Anderson indulges in the usual trappings of public-school fund-raising — bake sales, book fairs, auctions — this letter is blunter: It urges parents to simply write a check. And it suggests an amount: This school year, it was $1,300.” NY Times. Generally, the aggregate raised is over $1 million per annum. Oh and the picture above is of the highly successful Middle School Math Team en route to the statewide competition.

New York City is only representative of what is happening all over the United States – except in the average or below average income areas where public schools are left to twist in the storm. And what public schools can do in elite neighborhoods is indeed impressive: “They are [NYC] schools like Public School 6 on East 82nd Street, where big donors can have their children’s names engraved on plaques on chairs in the auditorium. Its PTA raised $973,518 last school year. Or P.S. 290, also on East 82nd, a popular school widely praised for its writing program, where the PTA raised $949,759 in the 2009-10 school year.

“Or P.S. 87, a coveted Upper West Side elementary a stone’s throw from the Museum of Natural History, where the parents’ association brought in $1.57 million in that same period: about $800,000 in fund-raising, the other $700,000 from the fees the association charged for the after-school programs… At a time when the city’s schools have had their financing cut by an average of 13.7 percent over the past five years, the money has buffered these schools from the hard choices many others have had to make. In a system where many parents’ associations raise no money at all, these schools have earned a special name among parents and school consultants: ‘public privates.’” NY Times.

On the other hand, educational systems can go the other way, providing vouchers for students to fend for themselves, sometimes able to grab the very few spots open at prestigious academies, or, more likely, to seek out schools with a clear emphasis on religious doctrines over academic values, forgetting about quality standards altogether. “Louisiana is embarking on the nation's boldest experiment in privatizing public education, with the state preparing to shift tens of millions in tax dollars out of the public schools to pay private industry, businesses owners and church pastors to educate children… The school willing to accept the most voucher students -- 314 -- is New Living Word in Ruston, which has a top-ranked basketball team but no library. Students spend most of the day watching TVs in bare-bones classrooms. Each lesson consists of an instructional DVD that intersperses Biblical verses with subjects such chemistry or composition.

“The Upperroom Bible Church Academy in New Orleans, a bunker-like building with no windows or playground, also has plenty of slots open. It seeks to bring in 214 voucher students, worth up to $1.8 million in state funding… At Eternity Christian Academy in Westlake, pastor-turned-principal Marie Carrier hopes to secure extra space to enroll 135 voucher students, though she now has room for just a few dozen. Her first- through eighth-grade students sit in cubicles for much of the day and move at their own pace through Christian workbooks, such as a beginning science text that explains "what God made" on each of the six days of creation. They are not exposed to the theory of evolution.” Huffington Post, June 3^rd.

I write about examples of the destruction of our educational systems – and hence our future – by citing regional or local examples, but the story is repeated all over America. I have shown that no matter how severely legislators wish to cut budgets because of the economically impaired world we all live in, those school districts, colleges and universities that have sufficient funding produce vastly more productive graduates. A recent Harvard University study shows that hard-dollar earnings for students can be directly attributed to providing better teachers: “So, for example, a teacher who is in the top 5 percent, an excellent teacher, we calculate generates about $250,000 or more of additional earnings for their students over their lives in a single classroom of about 28 students.” PBS.org, January 6^th. To see the actual report, please visit: http://obs.rc.fas.harvard.edu/chetty/value_added.html.

Better schools and better teachers in smaller classroom generate a relatively large financial return. Failing to meet that grade dooms the entire United States to a continuing fall among nations in competitiveness, innovation and economic viability. So as we debate school efficiencies and whether or not we should fund education at anywhere near the levels required, we are cutting our own throats, decimating the middle class and dooming future American generations to a quality of life that may even defy mediocrity.

I’m Peter Dekom, and if you really believe in America as a vital and powerful nation, prove it by championing those who are willing to invest in our future.

Should Germany Leave the Euro Zone?

Everyone is talking about whether Greece should remain a part of the Euro Zone. They lied with false financial figures to get in, their citizens (particularly the mega-wealthy) abhor paying taxes, they borrowed themselves silly and have no possible way of generating sufficient economic growth (hey, they’re contracting violently under the new austerity program) to pay back their $170 billion Euro Zone rescue debt. Under almost every perspective, Greece appears to have no viable way to avoid total economic collapse, whether they stay in the Zone or leave. Germans don’t seem to care if Greece falls, however, a notion that is being echoed elsewhere in the European Union.

Even IMF head Christine Lagarde noted she has more sympathy for the impoverished children of Africa that she does for the denizens of Greece: “International Monetary Fund Managing Director Christine Lagarde says she has more sympathy for deprived children in sub-Saharan Africa than for many of those facing poverty in Greece… Greek parents have to take responsibility if their children are being affected by spending cuts and ‘have to pay their tax,’ Lagarde said in an interview with the UK’s Guardian on Saturday…‘I think more of the little kids from a school in a little village in Niger who get teaching two hours a day, sharing one chair for three of them, and who are very keen to get an education,’ Lagarde told the newspaper. ‘I have them in my mind all the time. Because I think they need even more help’ than people in Greece.” Ekathimerini.com, May 26^th. Ouch!

Spain’s banking system is faltering as banks seek bailout funding from the government, and unemployment there has hit an untenable 25%. Italy and Portugal are shuddering under their austerity programs, and France’s newly elected Socialist President, François Hollande, has broken his nation’s lock-step-with Germany-austerity-march by announcing France’ new emphasis of growth over austerity. Germany’s insistence on austerity, her refusal to support any movement to relieve the severe results of austerity which were imposed on various nations as a condition of an EU bailout loan, puts her at odds with the vast majority of EU nations who are mumbling that the austerity mandate is a failure. Germany, with allies like Austria, the Netherlands, and Finland, simply maintains that it could take many years of disciplined austerity before the medicine effects a cure. And since their economy is the bastion of economic strength upon which the rescue packages are based, Germany still calls the shots.

Although two recent regional elections suggest that there are pockets in Germany which are sympathetic to lifting some of the most severe austerity requirements, the vast majority of Germans at all ages are baffled as to why Europeans actually expect them to put their economic well-being at risk any more – particularly in connection with lending their credit rating and financial guarantee to a Euro bond so that other profligate EU members get huge financial benefits (and get to borrow at sustainable rates) while Germans will instantly pay higher interest. The talk in the country is that somehow other Europeans are reaching into the past – where Germany fomented two devastating world wars that each destroyed the continent – to justify why Germany owes this economic sacrifice to the rest of Europe. For most Germans who weren’t even alive during such historical events, the undercurrent truly generates anger and bitterness.

Germany’s prestigious Goethe Institute found: “According to a survey carried out by infratest-dimap that was shown on ARD-Deutschlandtrend (ARD is a German public broadcasting station) three-quarters of all Germans feel that their affluence is being threatened by the euro crisis and the debt crisis. 80 per cent think that the worst is still to come.”

That German Chancellor Angela Merkel has supported the bailouts to date has not been particularly popular with her constituency, and there is great fear that her policies of seeming “generosity” (which other Europeans see as an obligation) will cost her the next election. While it is true that a collapse of additional European nations would seriously undermine Germany’s economy and its share of the euro, Germans simply are unwilling to consider such an eventuality at this time, preferring to press the profligate nations hard, maybe breaking a few along the way, until they are seemingly forced to act at the precipice of some future total economic collapse, a fact which has global markets supremely worried. Germans look longingly at their Swiss neighbors – forever independent – whose currency has appreciated over 20% against the struggling euro (also making Swiss products really expensive).

So the question comes to my mind, seldom discussed in the international press, that if Europeans feel that Germany owes them their economic support to be truly blending into the unitary economy that was significantly architected by Germany itself, and Germany is terrified of that blending because they are the largest and primary source of economic strength for the entire Euro Zone which may undermine their own financial wealth, maybe it is Germany that needs to leave the Zone. After all, in the last 100 years, no good has come from Germany’s being angry at the rest of Europe, and the rest of Europe (with a few small exceptions) being angry at Germany… and isn’t war today fought just as much in the arena of finance and trade as it is with guns and bombs?

I’m Peter Dekom, and this European struggle could easily send the entire global economy back into deep recession.

Bubble, Bubble on the Wall

While Europe is mired in a debt crisis and the United States is unable to move needed legislation through its governmental bodies, many often look enviously at the economic tigers in Asia, particularly India and China. But all is not rosy in those markets either.

We’ve recently looked at India’s contraction of projected economic growth rates, plagued with rising local populist sentiments that block the kind of “next generation” economic reform to level the playing field, remove staggeringly complex bureaucratic demands and regulations and begin to come to grips with paralyzing corruption in the ranks. A weak leading coalition seems powerless to shepherd through the kinds of growth-stimulating change that most educated Indians see as necessary to restart this slowing engine. The parliamentary and state-level stalemates seem to mirror the same kinds of legislative “stoppage” we see in our own House of Representatives and a number of state assemblies.

China too is experiencing economic contraction amid a scandal in one provincial government (Dalian) that means to test the high-level cronyism across the land, but unlike India and the United States where democratic process governs economic change, China’s centrally-directed government is able to act more decisively with little concern for dissent and resistance. Nevertheless, the news is not good: “Retail sales growth of the country’s consumer goods declined to 14.1 percent year-on-year from 15.2 percent in March and the accumulated fixed asset investment fell from 20.9 percent to 20.2 percent, with real estate investment dropping from 23.5 percent to 18.7 percent. The growth rate of exports further declined to 4.9 percent from 8.9 percent in the previous month. Such a momentum, if it continues, will likely drag gross domestic product growth down to 7.8 percent in the second quarter from an 8.1 percent in the first quarter.” ChinaDaily.com, May 31^st.

Faced with what seems like a small drop in growth – from an earlier 9+% forecast to an 8.1% actual first quarter GDP growth number – but a fairly significant fall in mostly urban real estate values (as much as half in some cities), China is about to begin a modest stimulus effort to stabilize their economy. With rising labor costs making Chinese “cheap labor” less than a bargain these days, the emphasis is on internal spending and upgrading the general standard of living and less on increasing exports to an economically impaired world with a decreasing ability to afford imports. Chinese stocks are also trembling, and talk of “the big bubble” is everywhere.

But there is another massive difference between China and the struggling economies in the West. While the stimulus plans in the West – where these have been applied – have uniformly come from increasing deficits within excessively debt-laden governments, China has over $3.3 trillion in foreign currency reserves and is capable of using this surplus to change economic direction without borrowing a dime. As austerity programs in Europe are finding increasing resistance, as governments that embraced such austerity measures with a vengeance are being thrown out of office everywhere but Germany and her Nordic allies, the West too is looking at how to manage debt while refocusing on the longer-term growth that is really required to solve these complex debt-directed issues. But there is one small catch: there isn’t a Western equivalent of a massive currency reserve from which to release needed stimulus dollars or Euros.

When the early economic collapse in 2008/2009 hit the world, most Western powers tolerated some significant levels of deficit stimulus – the United States led the way with trillions of dollars of combined bailout funds for Wall Street and the automotive industry, quantitative easing, mortgage support, etc. – China infused her economy with about $585 billion in government stimulus money. Growth restarted.

Today, China is beginning a smaller effort that is directed both at creating jobs, producing a more efficient infrastructure for future growth and to generate internal consumer demand: “Spooked by a sharply slowing economy, China’s leaders have begun opening the financial spigots to build still more roads and airports and subsidize consumer purchases, reprising measures that enabled the nation to sail mostly unscathed through the last great global recession… [F]inancial analysts and others say the evidence of a new round of major investments, worth $150 billion or more, is strong. The National Development and Reform Commission, the state body that executes economic strategy, has approved scores of major new infrastructure projects since the start of April, including clean-energy ventures like hydropower stations, four new airports and three renovations or expansions of big steel mills.

“That follows accelerated approvals this year for at least two other airports and a subway in Nanjing. And that does not count new projects announced by local governments, apparently with Beijing’s blessing, including highways, sewage treatment plants and a 350 billion renminbi, or $55 billion, investment by state corporations in the Chongqing municipality in south-central China.” New York Times, May 30^th. As China’s dependency on the global marketplace has increased, so has her vulnerability to international economic turmoil. But the Chinese economy is very much like the economies of the West during the Industrial Revolution and the post WWII American economy – growing fast with lots of surplus.

Then the West instituted social safety nets, raising standards that benefited average workers, tapping these economic surplus pools. The United States also leveraged itself in building a seemingly out-of-control, deficit-building military and then compounding that deficit disorder by fighting prolonged and seemingly un-winnable wars in distant lands without raising taxes. The “guns and butter” lessons of Econ 101 were lost on our leaders. Will China follow in that path? Will she slowly erode her currency reserves to improve the lives of her people or will raw efficiency win out over humanitarian vectors? Will she scrap her policy of avoiding military intervention except in her own direct border and internal disputes? Time will tell, but her focus on improving the lives of her people suggests that at least part of what took down Western budget surpluses will also be China’s story. It is simply the cycle we call history.

I’m Peter Dekom, and while China grapples with how to combine her commitment to long-term growth with the rising standard of living for her people, our own government is seemingly unable to readjust its priorities to cope with a decline in our own ability to sustain growth.

Adding Insult to India

India has one of the most dynamic economies on earth. Punctuated by a large number of solid educational institutions, from the legendary Indian Institutes of Technology – the most selective engineering schools on earth – to a rising standard among all of her colleges and universities to a a shared fluency in English (the only language that is spoken uniformly across India, at least among the educated classes), India has a young and most-often optimistic population that truly believes their time is coming if not here already. Ever since 1991, when the Narasima Rao (1921-2004, pictured above) government normalized the currency to trade freely in international markets, privatized major segments of industry and opened the door to international investment, India has experienced some of the highest economic growth rates on the planet. With more conservative banks and financial institutions, as over-leveraging plagued most of the Western world sending economies crashing in 2008 and the years following, India escaped relatively unscathed.

But Indian politics (which, despite a massive “international” perception, is primarily governed by local issues), a proclivity towards government corruption that permeates almost every nook and cranny of elected and appointed office bolstered by a regulatory bureaucracy where permits are required for almost any activity and vast pools of administrative discretion invite payoffs, and local control of infrastructure and core industries necessary to sustain growth have taken the recently projected 9% annual GDP growth and dropped it, by some estimates, by as much as a third. The Indian growth engine may be running out of steam. Indeed, with about 400+ million of her 1.2 billion people part of the economic success inherent in the growth statistics, elections are often governed by the populist (and anti-business) demands of the vast remaining majority.

“India is desperate for investment in mining, roads, ports, urban housing and other areas, but Indian businesses and foreign investors are starting to shy away. Indian corporations, unable to obtain governmental licenses or permissions for projects, are investing overseas instead. Foreigners are also pulling back; their investment in Indian stocks and bonds totaled only $16 billion in the last fiscal year, compared with $30 billion the year before. The trend accelerated in recent months after the Finance Ministry, trying to stem a rising budget deficit, proposed a raft of new taxes on foreign institutions doing business in India.

“‘A quiet crisis of confidence is building up,’ said Pratap Bhanu Mehta, president of the Center for Policy Research in New Delhi. ‘There is no certainty over the regulatory regime. There is no certainty over the tax regime.’… Indians have long thrived amid adversity, often by creatively — at times, illegally — subverting onerous regulations with a workaround ethos that has spurred economic activity. Even today, industries like pharmaceuticals, information technology and consumer goods, which do not need many licenses and official approvals, are prospering. But those sectors tied to the government, including mining, construction and manufacturing, are struggling.” New York Times, May 29^th.

With power at the top split in a seemingly unworkable coalition – known as the United Progressive Alliance led by Sonja Gandhi’s Congress Party – the direction from above lacks the clout to effect the kind of change necessary to rekindle economic growth. Gandhi’s Prime Minister, Manmohan Singh, an economist known for his abilities to generate economic reform, has been stymied by powerful local interests, often xenophobic and populist, in his efforts to stimulate new growth and investment. “In December, Mr. Singh’s cabinet announced that foreign retailers like Walmart would be allowed for the first time to open stores in the country with local partners. But Mr. Singh was forced to reverse course after an ally, Mamata Banerjee, the chief minister of the state of West Bengal, balked and threatened to bring down the government.

“Then in March, facing pressures to raise revenues and stem the rising fiscal deficit, Pranab Mukherjee, the finance minister, released a budget that proposed new taxes on foreign entities in India, including levies on past deals that the Indian Supreme Court had ruled were not taxable in the country. Foreign investors were stunned, and analysts say the outflow of capital is one reason the rupee has tumbled 13 percent since the end of February…. ‘We are fed up and our investors are not keen to even talk about India,’ said a senior executive at an American bank in Mumbai, asking not to be identified so he could speak bluntly. ‘They are sick and tired.’” NY Times. With headlines screaming about a litany of major bribery and corruption scandals, the central government is further hindered from passing the kinds of next-level economic reforms needed to restart this massive economy.

Make no mistake that India’s readjusted projected growth rates, between 6% and 7%, are still staggeringly high by Western standards, but the slowdown in India’s and China’s earlier growth will most definitely put a damper on global economic recovery. With Europe mired in a debt crisis and the United States facing November elections with very different potential economic directions, instability and anxiety seem to be what are concerning finance ministers from almost every nation on earth these days. While India will probably restart its economic reform movement… someday… it may require a major downward fall in hard money generated before the road blocks to the next generation of necessary economic reforms are able to begin to be lifted.

I’m Peter Dekom, and the economic vagaries of distant nations often have a direct and immediate impact on our own near-term economic prospects.

Cracks in the BRICS

With the debt crisis in Europe pulling international investment capital back to the home countries where cash flow shortages are putting new demands on available funds, the global investment community has retracted what had been obvious growth-oriented investments in the so-called BRIC nations (Brazil, Russia, India and China… and if you want to add an “S,” South Africa), growth tigers with either strong raw material assets or massive manufacturing capacity (or both). Consumer demand has fallen for manufactures and service skills as increasingly large segments of the global economy are experiencing continuing high unemployment and contracting discretionary income.

Additionally, each of these nations has its own set of individual problems that is putting a damper on their economic projections. China has experienced a real estate bubble, rising labor costs, a decline in net exports and a stock market that reflects the malaise. India’s ineffectual coalition government is unable to push much needed reforms to attract declining foreign investment and new job creation in heavier industries needed for growth and is facing increasing global competition for “soft” Internet-linked logistics and service industries overseas. Brazil finds itself without either a sufficiently educated class of managers and professionals or the available capital to take advantage of the growth inherent in her vast and newly discovered off-shore oil fields. Political instability and an internal struggle between the incumbent regime and wealthy oligarchs has put a damper on free investment in Russia, and South Africa’s mineral rich resources suffer much the same fate as Brazil in the lack of capital and talent to expand to meet its obvious potential.

But at least Russia, Brazil, and South Africa have the underlying values inherent in their vast holdings of exportable natural resources. India and China, which base their wealth on value-added services or manufacturing, do not enjoy remotely the same level value of such abundant raw materials in the calculation of their perceived overall global worth. In the next few days, I will deal with more details on India and China, but today, the focus is on the new moniker for perceived global value, which unfortunately does not include these latter two giants in the equation.

In the word of stressed and indebted-beyond-reason economies, we have the PIIGS – Portugal, Ireland, Italy, Greece & Spain. And up to now, in the search for the “new” wealth centers we’ve had the BRICS (noted above), but there is an increasing contingency of economic experts who believe that the notion of the BRICS’ underlying value proposition is no longer relevant if they don’t have the underlying natural wealth. Instead, these economists are focusing on commodities-rich nations who are able to take advantage of their wealth of raw materials, the so-called CARBS nations: Canada (oil & gas), Australia (iron ore and coal), Russia (oil and gas), Brazil (oil, gas and agricultural products) and South Africa (minerals and precious metals).

Why these choices? “There are three main types of economies - providers of commodities, labor or consumption. CARBS markets are providers of commodities and Citi[group] specifically refers to CARBS as countries that ‘combine very large commodity assets with high stock market liquidity’... With 29% of global landmass and only 6% of the world’s population the[se] countries become significant exporters. Commodity exporters like Saudi Arabia and Mexico are not part of the CARBS because they lack equity market liquidity.” BusinessInsider.com, November 11^th.

In terms of exports, here are the hard CARBS numbers according to BusinessInsider.com: Canada - Commodities as % of exports: 74%, Commodities as % of GDP, 17%, Australia - Commodities as % of exports: 60%, Commodities as % of GDP: 8%, Russia - Commodities as % of exports: 92%, Commodities as % of GDP: 23%, Brazil - Commodities as % of exports: 47%, Commodities as % of GDP: 15%, and South Africa - Commodities as % of exports: 64%, Commodities as % of GDP: 10%. In short, they have vast quantities of exportable raw materials that are in high demand, are able to implement such exports, and a marketplace that allows them to monetize efficiently and generate the kind of asset values that create long-term, sustainable wealth.

In a world desperate to determine where the future of economic growth may be, new trends, new analyses and watching previous assumptions fail will constantly generate new centers of the perceived future of global value. For us in the United States, we are innovators, often sitting on the edge of the new-next technology, but with our refusal to support our educational system and fund much-needed new research, all sitting in a valley of crumbling and innovation-impairing infrastructure, how much longer will we be able make that claim? With around a mere 2% of our labor force employed in our lucrative agricultural sector, we need additional businesses that can generate global values and employ millions of American workers. For the most part, except coal and some pockets of natural gas, we’ve already extracted and consumed or exported our raw material wealth years ago. So our wealth has to be based on the excellence of our value-added skills. And exactly what are we going to do about that? Let others pass us by and waive?

I’m Peter Dekom, and getting to the top and staying on top require two completely different sets of effort in the tough world of global competition.

Bad Choices in Syria

As Syria announces the release of 500 political prisoners from recent protests, it clear that the Assad regime is reeling from its egregious misstep in Houla (near Homs) where more than 100 men, women and way too many children (almost half the victims) were slaughtered by government forces in late May. The government tried to pin the assault on rebels, but this misdirection fooled no one. The U.N. Security Council strongly condemned the killings (without laying blame), but the Geneva-based U.N. Human Rights Council (which lacks the ability to impose sanctions) went one step farther on June 1^st and voted to investigate the slaughter and identify those responsible, laying the groundwork for possible future war crimes prosecution. Claiming a bias in the Human Rights Council’s investigation of the perpetrators as backers of the incumbent regime, Russia, China and Cuba voted against the resolution.

“The massacre in Houla was different in scale, but not in nature, from what has been happening in this part of Syria throughout this year. The pattern: the army shells a rebel-held area; then the paramilitary shabiha, ‘the ghosts,’ go in, cutting throats… Often, when a Sunni area is attacked, the shabiha come from the neighbouring Shia and Alawite villages. Pro-democracy activists accuse the regime of deliberately recruiting death squads like this to fuel sectarian hatred. That way, it is claimed, the minorities who now support President Bashar al-Assad will fear what will happen to them if they abandon him.” BBC.co.uk, May 31^st. With a litany of nations, including the United States, many Western powers, Japan, and Turkey expelling the Syrian ambassadors to those nations, effectively severing diplomatic ties, the big question remains: is the Assad regime finally on the ropes?

The answer is exceptionally complex. Genocide and cruelty, indiscriminate shelling and mass executions are pushing the known death toll of innocent civilians towards the 10,000 mark, and the United Nations observers have indicated a complete failure of the purported ceasefire. Clearly, this is a complete justification for global intervention. But so many questions abound in figuring a solution, many hinging on (i) Russian resistance to external interference, blocking U.N. Security Council action and protecting a nation in which Russia has invested heavily and sold massive amounts of military hardware and (ii) strong support for Assad by the nearby Shiite theocracy, Iran (with an Iran/Shiite-friendly Iraq in between).

The Assad regime and most of the top military commanders (as well as many in the well-heeled moneyed classes) are Alawites, a small minority religious sect affiliated with Shiites in a country where the majority of citizens, particularly at the bottom of the socioeconomic ladder, are Sunnis with deep and long-standing disaffection for Shiites and their ilk. If military aid were poured into Syria, where would it be directed? Is there a sufficiently organized and large enough group within Syria effectively to use that aid to topple the regime without generating the kind of lawless, internecine, factionalism that would only accelerate the slaughter? For detailed analysis of the competing factions within Syrian, please go back and read my March 15 blog, Exactly Who is the Opposition in Syria? Who would replace the Assad family at the top of the country, even if only in a transitional period?

Assuming a regime change, what happens to the rights and safety of the minority Alawites and Shiites in an otherwise angry Sunni nation, even those religious minorities who have had nothing to do with the government’s turning on its own people? How about the 10% Christian minority? “Less well known is the position taken by the Russian Orthodox Church, which fears that Christian minorities, many of them Orthodox, will be swept away by a wave of Islamic fundamentalism unleashed by the Arab Spring.” New York Times, May 31^st. And trust me, the church is pushing Vladimir Putin to stand strong in support of the Assad regime, a clear roadblock to such a severe Islamist government. Can Putin defy the church without assurances that the Christian minority would remain safe? But if an orderly transition is not facilitated with Russian involvement, aren’t those same Christians even more at risk given the likely sectarian violence that could befall Syria if the Assads were pulled down from within?

Further, by regional standards, Syrian women have been granted more rights and greater freedom than in more conservative Arab nations. If the regime change results in the imposition of theocratic rule or the application of exceptionally conservative and harsh Sharia law, would these gains in women’s rights be crushed? What about sending peace-keeping forces into Syria to stop the genocide? Syrian military forces are equipped with very significant levels of top-of-the-line Russian planes, missiles, tanks, anti-aircraft weapons and large numbers of well-trained forces. This isn’t Saddam Hussein’s Iraq. Assuming the Assad regime maintains control of its military (remembering that the senior officers are abundantly Alawites too), this battle-hardened force would hardly be a pushover.

If Russia (and to a lesser extent China) continues to block a U.N.-led military intervention, exactly who would take the lead in moving external military forces into Syria? How do you think another U.S.-led invasion of an Arab country would go over in the region? Would that force us into a direct shooting war with Iran as well? As budget pressures force Congress and the President to rethink military expenditures, the possibility of a long “boots on the ground” commitment of significant U.S. forces to another distant military venture seems almost untenable. Clearly, such an American military intervention only works if the U.S. is a part of, but not majority or leader of, a multinational force with strong local backing.

Syria hangs on because of Russia. Aside from blocking U.N. sanctions through its threatened veto of any necessary Security Council resolutions to send in U.N. troops, Russian President Putin’s (pictured above) close ties to the Assads and, despite a denial that current supplies provide munitions to Syria, Russia’s willingness to keep supply lines open sustain an ogre who has long-since lost any semblance of legitimacy in the eyes of the rest of the world. But Bashar al-Assad and his cronies remain profoundly vulnerable from being removed by internal Syrian forces. Army factions may already be considering escalating the levels of defections we have seen from troops no longer willing to murder their fellow Syrians. Could Russia lose its ally and any hope of a relationship with Syria’s next government anyway? So Russia is faced with its own international and internal truths.

Russian credibility is definitely suffering in the eyes of most of the international community. Her own southern regions are heavily populated with Muslims angry at Putin’s rather complete support of a Sunni-murdering despot. Dissent within Russia is at an all-time high (a double-edged sword in Putin’s eyes; perhaps he identifies with al-Assad). With Russian support to the Assad regime withdrawn, the probability of Assad’s removal (or abdication) improves immeasurably. International pressure, on the surface and behind the scenes, should continue until President Vladimir Putin makes the decision to pull the plug on support for Syria as it now stands… perhaps stepping back from vetoing a U.N. military response. And for Mr. Putin, that single decision could move him from a perception of a greedy and unfeeling goat… to the hero who solved the Syrian crisis. But without Russian support… or at least a willingness to let the rest of the world act… the United States currently has nothing but bad choices in Syria.

I’m Peter Dekom, and a call to immediate action in Syria requires painful preplanning to avoid our rather abysmal recent experiences with the law of unintended consequences.