Rouille

New site

2005-09-08T22:13:00.000+02:00

If you've found this site, you probably know where I write now, but here it is once again:

European Tribune

And, as always, my diaries on Dailykos:

Jerome a Paris

No, I am not silent!

2005-01-25T23:02:00.000+01:00

I have not posted here lately, but this is only because I have been posting over at Moon of Alabama (usually with cross posts over at Kos. I am also contributing to Le Speakeasy and invite to check all of these fine sites out.

Social Security for dummies

2004-12-12T10:22:00.000+01:00

Behind the discussions about the future of Social Security, the situation of the Trust Fund, the requirement for personal retirement accounts and other such financial instruments, you have some basic reality-based facts that are sometimes forgotten.

Below (the fold) is a simplified description of the social security problems that we face and how not to solve them - in non-financial terms.

Imagine the USA as a big family; with no interaction with the outside world (we'll get to that part later): you have 1 senior citizen, 4 working age people, and 1 kid.

The working age citizens provide all the goods and services needed by everybody:
- 1 provides the basic stuff - food, housing, etc ; let's call him/her the construction sector
- 1 takes care of Senior and Junior; let's call him/her the nurse/teacher
- 2 crank out TVs for everybody's leisure and entertainement; let's call them the TV guys and let's say that they produce 3 TVs each (one per person)

The first important thing to note in this model is that at all times, this group is self-sustaining: all the work needed at any time is done at that moment by someone within the group, and all work done is consumed by someone.
The other important thing to note is that 4 people work to provide for the needs of 6 people. In effect, one third of their work is taken from them at any time to provide for the needs of the non-workers, i.e. Junior and Senior.

In the real world, the same thing happens on a larger scale, and these transfers can take 3 main forms:
- intra-family transfers: you feed your kids, pay for their education, your parents live with you, etc...
- government: you pay taxes and the government either spends it (schools) or redistributes it (social security)
- financial instruments: people can save, or spend their savings (via bonds and shares). Saving means that you store your work for future use. In practice, bonds and shares are a "tax" on your current work: a portion of your work is used to pay off debt or to pay dividends to shareholders. This is still you working and someone else (Senior, usually) enjoying the fruits of that work. "Dividends" sound better, but they still are really a tax on your work.

In any case, whatever form the transfers take, they should not hide that basic fact: 4 people work and 6 people live off that work.

Now take our family 50 years from now. It is now composed of 7 people: 2 seniors, 4 working age people, and 1 kid. 4 people working, 3 not, but all still with needs.
What happens now?
The construction guy still does that. With a little bit of effort, he is still able to make all that's needed for 7 people instead of 6
1 and a half workers are now needed to take care of junior and the 2 seniors (there is little room for productivity improvements there) which leaves:
1 and a half workers to crank out TVs. If there has been no improvement, that's only 4.5 TVs for 7 people. In order to have 1 TV per person, you would need each worker to be able to make 4.66 TVs instead of 3. Over 50 years, that does not sound impossible.

So, if you forget about productivity improvements, this is why you have the cries about social security crisis: either you have fewer TVs, or you find a better way to make more, or you will take less good care of seniors and junior. What should be done?

- the simplest (and pretty realistic) solution is to say that TV production has made such progress that 1,5 workers crank out as much (or more) stuff than 2 guys used to, so there are enough TVs for everybody and there is NO crisis. A larger portion of work goes into caring for the dependents (42% now instead of 33%), but that only reflects changing needs;

- if productivity increases are not enough, you can either take less good care of the dependents (only 1 worker to take care of the 3) and keep on cranking out TVs as you used to (2 workers), or you can decide to take care of your family and reduce your consumption of TVs. A slight variation is to say that you save up one TV today, mothball it and use it in 2050. in that case, you have 5 TVs for 6 people now and 5.5 for 7 in 2050 which might after all be sufficient in both cases.

To get back to the social security debate, the first item is hoping the growth will be strong enough to solve the funding requirements of social security, while the second item amounts to solving the problem by either reducing SS payouts or increasing payroll taxes.

It does not change the fact that 4 people are working to fulfill the needs of 7 people. If you expect to give only one third of your work for the non-workers, they will live less well, relatively. If you give 42%, they will live as they expected to, but you will be relatively worse off. This is the unavoidable reality of an aging population - if less people work, either they are taken care of by those that do, who then have less for themselves, or they are not taken care of (or any combination in between, of course)

Now bring in the outside world into our little model. There are two easy ways the outside world can help improve the situation:

- one is immigration. Bring in one more person of working age into the community, and presto, you can crank out again as many TVs in 2050 as you used to without any increase in productivity AND take care of everybody (including the newbie);

- the other is inter-temporal trade through international investment. You give today one of your TVs to foreigners (you have 5 for 6 people) in exchange for 1.5 TVs in 2050. With no increase in productivity, you can take care ofthe dependents as you'd like (1.5 workers) and with your own production (1.5 workers making 4.5 TVs) you end up with 6 TVs for 7 people, close to what you would get now. You make a small reduction in your living standards now to improve your lot later.
As other countries are at earlier stages of development (and have faster growing population), it makes sense to think that they will be able to crank out 1.5 TVs in the future and give them to you as a fair price for having given them 1 TV a while before. in a more realistic sense, you don't actually give TVs today - you take time to go to other countries to build factories there or to teach them to do it, and get a portion of future production for you as a payment

To keep on consuming as much as you want in the future, you either need to get more workers in the future, or you must save now and invest in a place with more workers. (Getting productivity increase would basically mean that you need to invest in new, smarter ways to build TVs yourself, which means spending some effort now to do that, which will reduce you current TV production in the expectation of increasing your future one - it's still saving to invest).

As you can see, there are two issues: one is the size of the pie, and the other is the sharing of the pie. The size of the pie depends on productivity growth, which in turn, depends on investment, which in turn depends on saving. Saving means working now and storing up that work for future use. Mothballing a TV is the dumb kind of savings; producing fewer TVs but taking the time to invent new, better ways to make TVs (or teaching others to do it for you) is the smart kind of savings.

The claims of the SS privatisers is that they will make the pie grow faster by unleashing market forces that will be able to make those smart investments. But is this true?
First of all, note that private accounts do not provide additional savings if they come instead of the existing public saving so they will not provide MORE investment. Will it be smarter? Smart will come from the people making investment decisions. If you accept the hypothesis that private investments are smarter than government investments, then you should reduce government spending, not reduce government funding.

As I wrote last week about the falling dollar, the current problem of the USA is that they consume too much and rely on foreign lending for their investments. If the solution is to save more now (especially to invest in other countries in order to have the returns when needed, in a few decades' time), this government is worsening the problem rather than helping to solve it, by spending like a drunk sailor and increasing the country's external debt at a time when it should be accumulating foreign assets for future needs.

To get back to our "family" - half the TVs are already being provided by the outside world, and the only reason they are doing it is because the 2 two US "TV workers" are busy - one making guns and shooting them off at or near others, and the other writing IOUs as fast as his hands can do so. Is this sustainable?

(Foreigners might actually welcome SS privatisation, because it will mean that the TV workers will target their guns at their Seniors to get them to work a bit more instead of at them...)

Falling dollar, offshoring and the coming crunch

2004-12-05T16:02:00.000+01:00

you can now read daily articles such as The China price about the threat to the US's manufacturing capacity from China's ability to be 30-50% cheaper.

Meanwhile, articles such as this NYT piece (A Field Guide to the Falling Dollar) are becoming daily occurences, all warning about the dollar's likely decline and basically saying that the only uncertainty is whether this decline will be rapid (bad) or slow (better).

These issues are inextricably linked and I'd like to provide my view on the subject. It's a bit long, but I hope you will find it worthwhile.

What these two things have in common is that they are the simple reflection of the real underlying cause of all the current unbalances in the world economy - the USA consume more than they produce, and they rely on the rest of the world to provide the difference.

The USA have the amazing privilege of having their currency serve as the main currency of international trade and reserve - which means that others are willing to hold dollars even if they do not intend to use them to buy things from the US (which is usually the main reason for buying someone else's currency). This reflects America's economic pre-eminence, as well (and this is often forgotten) as a general trust in the US institutions which means that foreigners expect their dollars to keep their value. This has allowed Americans to borrow money from abroad in pretty much unlimited amounts and at really good terms. This has in turn, mechanically fueled imports (if you have more money than you can spend locally, you spend it elsewhere).

So two first items to remember:

the USA get a really good deal from the rest of the world
US industry is not necessarily uncompetitive; it is structurally too small to fulfill all US needs

The rest of the world has been happy with this deal for various reasons:

for a good part of the world, wracked by inflation, nasty regimes and poor financial institutions, it is simply more convenient, safer and a better deal to keep your savings in dollars than locally;
for everybody, it is really helpful to have a common currency to set prices and trade internationally, knowing that everybody else also accepts it. This has been compounded by the growing use of (mostly US-created) financial instruments backing commercial transactions that all require a common currency to provide liquidity.

The problem is that the USA have abused the system, and the sheer scale of the unbalances are now threatening to bring down the whole thing.

one myth is that foreigners get better returns in the US than elsewhere, thus ensuring that they do want to invest there. This is simply false. The US actually generate more income from their foreign investments than foreigners from their US investments, despite these now being significantly larger. Foreigners now own a growing proportion of T-Bills, which pay little, whereas US investors own good productive assets outside the US (which quite often provide for US demand). These low returns on US purchases are not a problem in normal times, but they do not provide an "objective" reason for further investment in the US economy;
another myth is that it's Europe's "fault" if there are such unbalances, because Europe's economies are too sclerotic, Soviet, rigid, obsolete, etc and thus cannot grow and cannot "pull their weight" (i.e. importing more and "sharing the burden" with the US). Europe is barely a net exporter, but not very far from balance; Europeans live within their means and there is no rational reason to behave differently, so salvation will not come from here. (btw, it's quite a (framing) trick to have managed to call imports a burden, when it really means that others work and you enjoy their labor);
meanwhile, the Asian economies, having built their prosperity on piggybacking the US economy, and developping their economic base by providing for the US needs and imports, are now stuck in the same vicious circle as the US - as they have a mercantilist approach, they keep their currencies pegged to the US dollar to stay competitive, and the way to do that when you have a large surplus of dollars is to either invest in the US or stock them. Obviously, the Asians do not seem to be interested in investing in the US (being busy investing at home - or in China - as quickly as they can), and they recycle these dollars in low-remuneration T-Bonds (rather than cash). With the current deficits, the pile of T-Bonds they own is becoming precariously high;

In any other country in the world, such a situation would have triggered a currency run and a default, Argentine-style, with the IMF and other such institutions coming to the rescue... The only reason this has not happened (other than the main foreign investors almost everywhere are Americans, and they are obviously not going to treat their own country the same as some godless foreign land) is that the Dollar retains its role as a trading currency, and the US has accumulated such a capital of trust in its currency that it can spend a lot of it before it has spent too much.

The difference now is that, for the first time, there is a credible alternative currency for both international trade and reserve: the Euro. It is backed by an economy and trading partner just as big as the US, and by institutions, despite all the criticism and nitpicking from the business press, that are fundamentally sound (rule of law, sound banking regulation, hawkish central bank, balanced trade, reasonable debt position).

At the same time, the US has gone on an amazing spending binge, fuelled by the dot-com bubble, then the real estate bubble and the Bush deficits. The binge has been made possible by Greespan's astonishingly loose monetary policy (and everybody's joyful embrace of debt) and a lot of it has been wasted in military spending which does not profit many and is certainly not recycled into the economy (the economic equivalent of armies and weapons building is to have the people involved dig holes in the sand and refill them - it does not create any value and it ties up a lot of people that could do better things. Up to a point, you can argue of its value as an insurance policy against trouble from the outside, but it is fair to say that the US are far beyond that point).

So there you have it

longstanding overconsumption, a good chunk of it unproductive;
a credible alternative

and you have the result: 4 dollars bought 5 euros in 2001; now they buy 3 euros only.

The ONLY way to solve this crisis is for the US to stop consuming more than it produces. This can come in many ways, of which the falling dollar is only a very indirect one.

A falling dollar, when the US imports twice as much as it exports (yes, double) has initially the following consequences:

increase the cost of imports, expressed in dollars and decrease the cost, in other currencies of exports for foreigners (which is obvious), which leads to an increased trade deficit as the monetary impact is immediate, as imports are immediately more expensive, but cannot be immediately replaced (and in some cases, like oil or many products not manufactured in the US, cannot be replaced at all). And any change in the value of imports has double the impact of a change in exports, as they are twice as big to start with;
create potential losses for foreigners holding assets expressed in dollars. If these assets are productive (US factories or companies) this may not be so important, but if these are paper, liquid, assets (stocks and bonds, especially T-bonds), the investors will start worrying about the return on their investment. If they expect a continuing drop in the value of the US dollars, they may sell to cut their losses, thus creating a self-fulfilling peophecy (remember, you don't just need foreigners to hold on to their T-Bonds, you currently need them to buy an extra 2-billion-dollars worth of them EVERY DAY). A devaluation of the dollar is a default by stealth - you take away a portion of the value for all non-US based investors. A default, even if by stealth, is not trust-inducing, and we have seen that trust is the last thing holding the dollar now;
the likely way to avoid a full scale run on the dollar is then to significantly increase interest rates in the US. This has several effects: (i) it compensates foreigners for the additional risk (from their perspective) of the falling dollar value, (ii) it dampens domestic consumption by making debt more expensive, thus limiting imports and the deficit, thus possibly recreating trust that the US is taking a more sustainable financial path, but (iii) it will have an immediate impact on the real estate market, by making variable-interest mortgages more expensive thus strangling some borrowers (more sellers, including distressed ones) and at the same time reducing the price people are able to pay for houses (less buyers). Real estate being the main source of wealth for most US households, this will have a direct impact on all - no refinancing of your credit card debt by drawing house equity, reduced consumption, more bankruptcies, etc... It will not be pretty.

And when that takes place, the positive effect of a weaker currency will not have had time to kick in, because it takes time to build capacity for export or import substitution, especially if such capacity does not exist at all.

Meanwhile, your weaker currency has the following long term effects:

oil producers, who currently get paid in dollars, are not happy with the continued erosion of the purchasing power of the dollars they get. They spend most of them in Europe, and thus need Euros. They thus expect their oil to at least keep its purchasing power in euros, which means that, if expressed in dollars, the price must go up as the dollar falls. The Europeans don't really care, because the price for them will stay constant in euros. Americans, who have big gas-guzzlers and do not have heavy taxes that could cushion these movements, will feel the increase very directly at the pump; as an absolutely non substitutable import, this will only increase the deficit with no chance of a reduction other than serious reduction in consumption, which will be a consequence of economic hardship rather than going for substitutes (public transport), which are totally unavailable for most Americans.
holders of T-Bonds will need to be convinced to hold on to them - and to keep on buying more of them. The thing is that they are so little diversified tday that any move to change the balance of their reserves (inevitably towards the euro) has an immediate impact for the dollar, as we currently see - and for the interest rates required to keep them happy. Asian central banks may want to hold on longer than others, as they have the incentive of protecting their exports, but others (especially the oil producers of the Middle East and Russia) have growing incentives to bolt out before it gets worse. And Asians may decide on day that enough is enough, and you could have a real meltdown.

To avoid such meltdown, they will want to see the following:

- a commitment by the US to live within their means (this needs not mean zero deficit, but at least shrinking ones). This applies both to the government (the federal budget deficit - which need to be cut seriously) and to consumers (an orderly slowdown in consumption - which requires increased interest rates, again). This is purely domestic stuff - foreigners can do nothing to change that.

This gets me back to outsourcing and offshoring. Offshoring is just a new way to import more - except that it's imports of services instead of imports of goods. It was inevitable that the USA's insatiable demand - a growing portion of which is services - would require foreign input. Tradeable services naturally come into this mix (as opposed to non tradeable ones, such as getting a haircut or cleaning your pool). This movement is not a sign that US workers are uncompetitive as a whole, it simply means - again - that they consume more than they produce. Of course, some sectors may see real job destruction and upheaval due to foreign competition, but others are growing and hiring - tradeable services (banking, insurance, IT) is actually one of the few areas where the US has a trade surplus.

A falling dollar will not "solve" outsourcing if it does not lead to a rebalancing of domestic demand/production, and that will come only through massive changes in domestic consumption patterns.

So, the US can go on blaming foreigners all it wants, it's useless and counter productive. Foreigners have fed the massive overconsumption of the Americans over the past years; the smartest of them have managed to use that fact to build their economies, but they have not created it and they have certainly not repaed as many benefits as the Americans have. America has abused the privileges granted by the status of the dollar as the lone world currency beyond all reasonable repair; now it's time to pay back.

Europe will only marginally suffer, as they have balanced trade, limited exposure to the US market relative to their overall size, and a specialisation in high-quality goods that are not so price-sensitive (German exports worldwide increased by 14% this year despite the falling dollar).

non-China Asia will benefit from the increasing size of the Chinese economy (to which they are a massive net exporter) and will hopefully learn to develop more their domestic markets;

China is the most interesting case; they are likely to bear the brunt of falling US imports; on the other hand, a slowdown is probably eaxactly what they need after the overheating of the past few years; It may relieve the tensions on commodity markets that have seen stupendous increases in Chinese demand in a short time - and the corresponding price increases. The balance may not be so easy to find, but one must not forget that Chinese trade is pretty much balanced (exports to the Us being compensated by massive imports from the rest of Asia) and the country itself is not on an unsustainable export-only growth path as it busily develops its internal market and demand.

Again, the adjustment will fall mostly where it has to - US consumers. And again, this says nothing about the competitivity of US workers - only that when consumption is the priority, production cannot be - but this may well change soon...

EROEI

2004-11-18T23:44:00.000+01:00

Energy Return on Energy Invested discussion

Iraqi casualties

2004-11-14T23:07:00.000+01:00

From the icasualties website, I note 51 dead US soldiers in 5 days.

That means, with the current rules of thumb:

- 1500 dead Iraqi civilians in 5 days - 300 per day - the equivalent of a 9/11 EVERY DAY
- 500 wounded US soldiers - 100 a day. See the recent stories (and below) which refer to the evacuations to Germany, which fit with that number.

Left unsaid:

- how many Iraqis now hate America with their life?
- how long befroe the draft if you lose 3% of your soldiers every month (and who knows what the proportion is for frontline soldiers)??

Where's the outrage?

(At least, the media is starting to mention this. CNN.com's headline is currently Military hospital's workload doubles, with the following lead:

Battle casualties received by doctors at an American military hospital in Germany have more than doubled since the Falluja operation in Iraq began, the facility's commander told reporters Sunday. "Normally, we average 32 patients a day. In the last week, we've had an average of 70," Col. Rhonda Cornum said.

Empire and leverage

2004-11-14T21:22:00.000+01:00

I'd like to point out something completely new in today's world, which is likely to bring new dynamics to all the "empire" discussions - the fact that today's Western world is highly leveraged . Our economies do not work on brute force, brute labor, smple gestures - it's instead a highly choreographed, extremely organised, perpetually going forward exercise in balance. It's like at the circus, when you see a 5-person high column of gymnasts and you marvel at the little boy or girl at the very top standing on one leg while juggling 3 balls - and you forget about the efforts of the 4 gymnasts below. It's very spectacular, genuinely better (as a show) that one guy juggling, and it's a real "win-win" situation: the whole groups is seen as marvelous, even if the competence of the bottom guys is only to be strong, and of the middle ones only to be steady. There still is only one juggler, but through cooperation and a common purpose, the whole group is at a higher state of performance.
This higher "performance", in our world, has been made possible ONLY because we have abandoned "might is right" as a functioning principle and decided to used better tools, such as predictable rules, consistently and evenly applied, specialisation and the trust that totally unknown people will follow the same rules of behavior as you do which such specialisation requires, curiosity, openness, a willingness to accept failure and learn from our mistakes. Of course, this is an idealised description, but it still basically fits our world.
Think about it. Do you worry about how to feed yourself, how to repair your car, about the reality of your wealth although it is only dots of ink on pieces of paper or blinking lights on a screen? This is leverage. This is our world.

One aspect of this world of ours is that we have become responsible, in a strange way, for the situation of "non-leveraged" people around the world. Their "nonleveragedness" is an obstacle to our own "leveragedness" (they don't care about the things we do, they have nothing much to lose in the monetary terms we use and are thus less afraid to break things that have monetary value as we are - they don't care about being efficient, they don't care about joining the rat race - and yet our world is accessible to them and thus susceptible to be acted upon by them) and we must thus change them. In simpler terms, to get richer, we have to make them richer (whether they want it or not) because being so poor they are a danger to us (and this is not incompatible with us having exploited and still exploiting them in many ways - we don't have to make them rich - only richer).

This gets us back to the discussion about our current empire - to maintain our way of life, this neverending quest for efficiency and monetarily measurable wealth, we need to get them to adopt our ways as well, if necessary by force. This use of force is totally at odds with the internal mechanics of the system; leverage requires trust, conviction, openness. Force negates these.

This contradiction is hard to square. The "smart" way to make leverage move forward is to convince people yet out of it that it is worth joining the rat race - this is essentially the European Union's approach - it offers the temptation of economic prosperity to lure countries to what is effectively a corset of institutions, rules, bureaucracy that makes the rat race/wealth creation possible. It also used to be the American approach. The new US attitude to the world (we only care about us - we don't need you in our system - if you are too stupid not to see how great it is, you deserve whatever you will get from us for being in our way) is very dangerous because it forgets that a highly leveraged system is VERY vulnerable to guerilla tactics, terrorism and in general any kind of win-lose or even lose-lose tactic - one side has so much more to lose.

Anyway, I don't know if this all makes sense, but my point is basically that when you're hanging on top of 5 guys juggling, you should not try to start throwing your balls to the tomato-holding guy in the crowd who has just booed you...

Wind, energy and the Nimby syndrome

2004-11-14T15:17:00.000+01:00

I've been meaning to write about wind for a long time and today's NYT gives me a good excuse. You can go read their article on the Nantucket sound offshore project; it gives a good summary of the kind of silly behavior we see around energy production and outlines many of the (real) issues surrounding project development of any kind nowadays.

The immediate reason for the article is that the US Army Corps of engineers produced a detailed assessment (which can be found here ) and which is basically favorable to the project. The coalition against the project (apparently - I have not checked this myself in detail in this case, but it sounds VERY likely from my experience elsewhere - Bostoners or New-Yorkers unhappy with the potential change in their sea view) has seized on this document with various arguments:

- the promoter paid for the study (of course, this is compulsory and a way to avoid the taxpayer to pay for it...) and it thus not impartial;

- the study grants "free" use of a federal resource (the sea bed) which is an unfair advantage;

- the study does not comment on the fact that the project requires subsidies (via the PTC mechanism) to be economic and is thus incomplete.

Now, all these arguments, on the face of it, have a legitimate basis and raise real questions:

- who should pay for (independent) impact assessment studies?
- what is the price for "public" goods and what should be the procedure to allocate and use them?
- what subsidies can be seen as legitimate?

This raises other questions in turn:

- why does it seem that such questions are asked with more intensity for the best projects and seem to be less important for other, more harmful projects?

On the one side, the wind industry, which was started when it was not fully industrialised nor competitive, by idealists who viewed it a a genuinely better source of energy, and were willing to be absolutely transparent about all visible and invisible costs, is still operating under that mindset - and is willing to submit itself to that process because it feels that it can genuinely convince doubters. On the other side, the opponents are most often the secondary-home-owners from the cities, easily lawyered up and procedure-wise, who raise everything they can to oppose projects that might disturb whatever notion of their holiday place they have.

- if we do not to give up our energy consumption (in this case, electricity), a political choice, we have to produce that electricity - and someone has to live with the production units. Who chooses WHAT sources of energy are used, in what proportion? Who decides how the inevitable nuisances are valued? And who chooses who is to carry that burden for others, as these nuisances will not all be borne by all consumers?

Definitely not an easy question. But it easily leads to point the contradictions of those that oppose projects on more or less valid grounds - without opposing energy use itself, it also points to the hypocrisy of those who do not support any of the consequences of their consumption choices, it underlines how easy it is to ignore or discount the not-easily-quantifiable nuisances (air or water pollution, noise, security of supply, security vs terrorism), and it also reminds us that it is easier to make the nuisances fall on those that are less able to defend themselves - the poor, the less educated, etc.

So who decides "impartially"? This should be the topic of a separate thread between the different traditions of France (a strong government, which is able to hire the best minds of its generation, provide them with interesting jobs, and provide strong and highly credible assessments in the name of the "public good") and of anglo-saxons (for lack of a better word - independent studies are provided by hired experts, usually paid by the investor, and whose independence is only guaranteed by their credibility and their track record - whether in the accountancy, technical expertise, legal, etc fields, and who have to manage conflicts of interest with their paymasters (balancing their reputation with their desire to please their clients). The anglo-saxon method is increasingly dominant, both as a result of the worlwide spread of US business methods and the relentless ideological disparaging of government as a wasteful and incompetent entity, but we have seen recently that it is not immune to its own crises... as I said, aonther thread is probably required.

The wind industry has taken a difficult route in that they have decided to face frankly all obstacles from the start, and provide as truthful an accounting of its costs as possible from the start, which sometimes imposes on it costs that are imposed on no other industry (For instance, in France, wind mills are the only type of industrial buildings that are required to pay for their dismantling costs upfront - not provision over the years, but actually pay in cash upfront! They also are the only energy source required to submit to the "Commissions des paysages" (landscape commission - yes, we have that in France) for an impact assessment).
And yet, they are incredibly successful. Most projects have very strong local support (from the farmers - they get nice fees to give up only a few square meters of land - from local authorities - they get taxes, jobs, quite often more tourism, and from the local population, which often end up being very proud of "their" project - modern, "clean", making them nominally self-sufficent, etc...

This works only if you have a sophisticated enough environmentalist movement, not easily hijacked by minority interests or pressure groups. Logically, Germany, where the debate between the "realos" and the "fundis" within the Green party took place many years ago - and where, thankfully, the realos won - is the most developed market for wind in the world. Denmark is similar (I can't comment on the politics of the green movement there, but I imagine it is similarly mature) and both countries have a strong first-mover advantage (and they get most of the jobs in the industry, now several tens of thousands).
Spain, the third largest market is an interesting example of an "enlightened" industrial policy, with strong government regulation which was not fought by the industry as they found ways to profit from it by investing in the sector themselves rather than fighting a rear guard action against the new entrants.
Now that "big industry" is investing in the sector big time (GE and now Siemens on the manufacturing side, Shell, Total, BP and most utilities in Europe and many in the US on the generation and development side, most big banks in the energy finance business) it will be intersting to see how the dynamic evolves.

Wind is a really interesting sector in that

- it encourages total cost accounting ;
- it is already almost competitive with other energy sources even when these do not do that total cost accounting;
- regulation is moving its way (with Kyoto and many other Europe-specific rules);
- big business now believes in the sector - even while applying that total cost accounting

Expect to hear more about it, and not just from rich lawyers complaining about their spoilt view...

Religion

2004-11-11T01:01:00.000+01:00

For me, as I've written before, the biggest problem with religion in public life (it's not a problem in private life, quite the contrary) is that it brings into the debate absolutes, whether the concept of God (all powerful), ot good-vs-evil, Heaven vs Hell, etc. This is not helpful. Bring in absolutes, and you INEVITABLY bring along " the end (absolute) justifies the means", "with-us-or-without-us", etc... which are so dangerous as political tools and as ways to run society in general. Religion - but this is also true of any strong ideology, as communism as shown - is a very potent political tool to channel energies you way by showing the ultimate prize at the "end", and thus enrolling everybody towards that goal.

So I am vehemently hostile to any role for religion in politics. Religion - or similar absolutist ideologies, while a force for cohesion in many societies, has been the cause of the greatest massacres in human history.

Now, as a private matter, I have no problem with religion. It is a (usually) coherent ensemble of moral values, it provides an acceptable answer to the metaphysical questions we all have and it can provide peace and serenity to those that have the faith. In a way, I am envious of people that find their inner peace that way - I cannot (too many unanswered questions for me, too many doubts), but I respect the fact that they do - so long as they do not try to impose their faith on me. Values and morality are for me a question of personal - individual - responsibility. If you get there via religion, that's great - as long as you get there, you are coherent in your acts and your beliefs, and don't impose these values on others.

Putin vs Authoritarianism

2004-11-09T22:20:00.000+01:00

Putin, Authoritarianism and Corruption, by “Anon”

This was published under a pseudonym on JRL here (the link may not work yet as documents are not published immediately on the site, but it is the correct link). I don't fully agree with the conclusions about Putin, but the description of corruption in Russia is vivid, pretty typical, and damning. As the author writes, it is hard to imagine a system where corruption is not a problem nibbling at a fundamentaly healthy system, but the heart of the system.

[I am very grateful to David Johnson for agreeing to include this in JRL under a pseudonym. The reason for concealing my identity is not to protect myself from any criticism over what I say, but because I make some allegations about certain officials. I am not too concerned about the officials referred to in the cases of “Miss X” and “Miss Y”, as one has been retired for several years and the other emigrated. However, “Z” still holds the same position and revealing my identity would greatly facilitate identifying “Z”. For now, I need to protect the guilty. Nonetheless, I am well aware that in polemical exchanges one needs to know who one is opposed to, quite apart from forming a judgment on that person’s own credibility. Accordingly, I am more than happy to say who I am to any reader who has a bona fide wish to know and sends an email to David, who will forward it to me. I simply don’t want my name used in a public forum. David, of course, does know who I am.]

In recent weeks both Transparency International and the World Economic Forum have published reports yet again ranking Russia as one of the most corrupt countries in the world. It is significant, given Russia’s habitual rejection of criticism by outside bodies, that President Putin has said much the same thing. Indeed, he has stated publicly that it is one of the worst dangers to Russia’s stability and territorial integrity, especially in the aftermath of the horror of Beslan in the first week of September. As more and more information becomes available about that disaster from official Russian sources, not just journalists and eyewitnesses showing that the terrorists effortlessly passed through numerous roadblocks and checkpoints in order to get themselves and their munitions to their destination, one can see what he means. Such freedom of movement is inconceivable to anybody who has endured the ceaseless “checks” by traffic police in cities like Moscow and St Petersburg, let alone in places on a war-footing such as the Caucasus, unless, and only unless, bribery played the critical role, at every single checkpoint. (Actually, though we don’t know yet for sure what happened during that dreadful period, it is possible that telefonnoye pravo (telephone orders) were employed. In this ‘system’ a senior official calls all the checkpoints ordering the people manning them to let through, unchecked, vehicles with such-and-such registration plates. This is used, for instance, by military and security personnel transporting stolen building materials to build their luxury homes).

This is reinforced by the revelation that corruption and bribery played vital roles in enabling the alleged suicide bombers get tickets, and evade detection of their explosives, on the two internal flights that were blown up the previous week, killing 90 people. Indeed, corruption on the part of members of the security and law enforcement agencies appears to have been an essential ingredient in just about every terrorism disaster that has befallen Russia in recent years. Chechen terrorists themselves have said as much.

In what must be one of the most surreal comments on the Beslan horror, former head of the KGB (and participant in the failed coup against Gorbachev in 1991), Vladimir Kryuchkov, recently stated that a nation-wide system of informers throughout the civilian population should be rebuilt, as was the case in the Soviet Union: "It is a simple, but significant fact that three trucks filled with people carrying heavy arms managed to drive through the streets of Beslan, and nobody in the town reported it. This type of thing has to be reported … We need to revive the model of the community as assisting the work of the special forces.” (Ilona Vinogradova, “The Return of the Snitch: A Despised Soviet-Era Custom Enjoys a New Vogue After Beslan”, Russia Profile, November 3, 2004, see JRL 8349). Kryuchkov appears to be unaware of his own hideous sense of irony. To whom exactly should the careless citizens of Beslan have reported their suspicions the very law-enforcement agencies that were taking money or had been ordered to direct the terrorists on to their target? He also seems to have overlooked the fact that most of the able-bodied citizens of that town were taking their children to school, such as the 1,300 or so who were at the doomed School Number 1. There probably weren’t many people out on the streets looking for suspicious vehicles.

This recognition of the cancer of corruption within the body politic by President Putin is something that has been overlooked by many of his critics, including the 115 distinguished Western politicians, academics, and others, who recently signed an open letter to the heads of NATO and EU states condemning Putin’s proposals to reform the Russian electoral processes in favour of direct appointments of regional leaders and Duma representation on the basis of party lists. True, on the surface, these steps look like reverses for the Russian democratization process, but I do not believe this is a balanced and comprehensive assessment.

Corruption, and its handmaidens, incompetence and cynicism, are crucial elements in Russian public life and failure to appreciate what this means leads to woefully mistaken expectations, to say nothing of totally inappropriate advice from even well-meaning foreign pundits and politicians. In most developed societies and economies in the West, corruption is a deplorable fact of life to greater or lesser extent, but the core system of governance and administration is, nonetheless, based on rules and procedures that are sound, that work, and are accepted by society as a whole. Corruption in the West is something that attacks a basically healthy system, somewhat as bugs attack healthy organisms. In Russia this is not the case. The system itself is a Potemkin façade, resembling superficially, and based upon lip-service to, internationally standard principles but, in practice, utterly removed from them. The system itself is corrupt and its underlying principles are those of corruption. It is not just a few hundred or thousand policemen and security agency personnel who are corrupt. This disease is everywhere.

A revealing episode that is relevant to this is included in Strobe Talbot’s The Russia Hand, his account of the Clinton-Yeltsin relationship. Talbot tells how he was with then Russian Foreign Minister Igor Ivanov the night Russian troops made their dash to seize the airport at Pristina in Kosovo, thereby triggering the most dangerous confrontation between NATO and the USSR/Russia since the Cuban missile crisis some forty years earlier. Down the corridor from Ivanov’s office, Talbot writes, they could hear the sounds of drunken generals shouting and smashing vodka glasses. It was at that chilling moment, he says, that the American side realized that the Russian Government had lost control of the military. It may not be immediately obvious how this is related to the issue of corruption in public administration. (Further, it is true that this episode took place during Yeltsin’s chaotic period in office, though the determined resistance to Putin’s demands for military reform suggests that little effective control has been re-established since those days). But there is a connection. The military is notoriously corrupt, with well-documented cases of hazing of first-year conscripts by their second-year elders, often resulting in death, suicide and desertion, to say nothing of severe physical and psychological trauma, all made possible by the indifference and abnegation of responsibility by demoralized, underpaid and poorly housed officers. Further, senior officers use conscripts, together with stolen materials, to build themselves large dachas and other facilities. At its worst, it is widely alleged that Russian military personnel sell weapons to, among others, Chechen terrorists, a totally extraordinary and evil practice, if only because this directly leads to the deaths of the traffickers’ own troops. Most people might also call this treasonable behaviour. In such an unchecked corrupt institution, it is therefore not difficult to see why the military leadership should make its own decisions on such matters as taking Pristina airport it is not accountable, and has never been made accountable, to civilian political authority, a crucial characteristic of public sector corruption generally.

But it is not just in such high-profile matters (anti-terrorism, military operations, etc) that corruption flourishes. It is everywhere. I have spent the last nine years living in Russia, mostly employed as a consultant working on a number of projects supported by Tacis, the EU’s technical assistance program for Russia and the so-called Newly Independent States of the FSU. My counterpart organizations the local bodies who were supposed to benefit from the inputs of Russian and EU advisers, like me were various departments within the regional administration of one of Russia’s 89 regions and, later, a section within a federal ministry in Moscow.

During my regional experiences, the then governor of the region was known to be utterly corrupt, in terms of using his position solely for the accumulation of huge personal wealth, was publicly a foul-mouthed drunkard, and was credibly accused of (but never charged with) having ordered the murders and attempted murders of opponents and critics, including regional parliamentary deputies and journalists. Two of his senior deputy governors were arrested by Russian law enforcement agencies for serious financial crimes (theft, embezzlement, smuggling, etc) involving many millions of dollars. Both of them were released and one of them is now in hiding abroad, on Interpol’s wanted list. More recently, under a different governor, another deputy governor was arrested after being secretly filmed accepting a $250,000 bribe to issue a licence to import cars. Reportedly, his initial defence was to claim that he would be getting “only” $50,000 the rest, he said, was intended for his boss.

The use of high public office for personal gain is widespread throughout Russia in municipal, regional and federal bodies of administration. This is why large sums of money change hands to ensure that so-and-so is appointed (or “elected”) to such-and-such a position, where the payback or return on investment - is enormous. Consequently, it is not surprising that middle-level and junior public servants are frequently inept and unqualified for their posts being, rather, part of the overall food chain, protecting their superiors from exposure and being rewarded with a share of the spoils. Nepotism is rampant, as one would expect in a culture where family and personal loyalties have always been valued very highly and certainly more than merit, especially where corrupt and criminal behaviour is the norm. Two examples: When hiring Russian staff for one project team, I wanted to recruit an agricultural specialist. My counterpart helpfully proposed a Miss X as being “ideal”. Miss X turned out to be the official’s daughter who was just graduating from school and whose knowledge of agriculture, as far as I could ascertain, was confined to assisting her granny pickle tomatoes grown at the dacha. The counterpart would not speak to me for two months (thus stopping any possibility of project progress) when I turned down her application.

Later, another official proposed that I take on Miss Y as an interpreter for my EU consultants. I said we already had two, thank you very much, but the official insisted that the entire project would be in danger of being cancelled if I did not comply with this “reasonable” request. When I discovered that Miss Y spoke only Russian I asked how she was supposed to be an interpreter. “You will pay for her to have lessons,” was the answer. Miss Y was, of course, another family connection. On this particular poker hand, I saw that my counterpart was not bluffing, so I compromised. I offered to pay her half the normal minimum rate, saying untruthfully that it was the maximum possible (my lie was fortunately undiscovered) on condition I never saw the woman anywhere near our office. The deal was accepted.

Throughout three years on this particular project, during which time my Russian and foreign colleagues produced over thirty detailed sets of recommendations covering such issues as how to set up an export promotion agency, how to develop international aviation services, how to develop telecommunications infrastructure and services, how to carry out regional legislative reform to improve the investment climate and much, much more, we were treated largely with indifference bordering and often crossing over into contempt and, on several occasions, open abuse. The reason for this was simple. Despite the high standard of our work and we used very experienced practitioners to advise on how to achieve change (including a former government minister, an ex-chief executive of successful airline start-ups, professional development bankers, active businessmen and so forth) nobody in the administration was the slightest bit interested as there was no direct pay-off to the officials. Our reports were ignored and almost certainly never read (yes, they were written in Russian) as the key people were always sick, on leave, traveling on business or just too busy to meet and discuss the issues. However, they were not too busy to demand that we provide computers (highly mobile and saleable items) or, in one case, buy 100 subscriptions to a propaganda newspaper produced by the regional administration, showing what a wonderful chap the then governor was. When I pointed out that there were less than ten of us in my project team and that, anyway, this rag was available free from every kiosk in the region, I was told that my failure to comply with this request would be considered a hostile act. I refused and it was.

In Moscow, working with a part of a major ministry it was a bit more subtle. It was formally disallowed for my colleagues and I to meet any of the decision-makers (deputy ministers upwards) and we were therefore compelled to “work” with a middle-level public servant, whom I shall call “Z”. We were trying to advise the counterpart on a number of key strategic issues relevant to Russia’s overall reform program. We made numerous written proposals on these serious and complex issues. Our counterpart never read or even acknowledged receipt of our proposals and was always too busy to meet us to discuss them (or sick, or on leave, or traveling on business the standard excuses to avoid meetings). In part this was due to the ever more apparent fact that “Z” did not have the technical skills to understand the issues we were addressing and in part because “Z” was not in a position of authority sufficient to voice opinions (hence our frustration at being denied access to those who would understand and who could make decisions).

However, this did not stop “Z” from ordering an assistant to call us (but not to write to us) suggesting that “Z” had moved into a new office and, therefore, it would be appropriate if we would buy a new television as a form of congratulation, or pay for a New Year’s party for “Z’s” staff (at a cost of $3,700), or make other demands of a similar nature. When my EU colleague and I refused to do this and demanded that we had meetings to discuss the matters that we were actually employed to deal with, our counterpart complained to the European Commission that there had been a complete “breakdown of trust” between us and insisted that we be “replaced”. The Commission immediately agreed and so my EU colleague and I were unceremoniously dumped from our project. (Interestingly, this was completely legal, as I have just lost a case for unfair dismissal which I brought to the European Ombudsman’s Office). We were not, however, replaced as our ex-counterpart objected to subsequent EU candidates proposed for our posts. The role of “EU Adviser” is now filled by a Ukrainian, which must be an encouraging sign to the EU-hopefuls in Kiev. Our erstwhile Russian colleagues now work as effective subordinates to “Z”, funded by the Commission, instead of acting as independent experts advising the Government on policy and related issues. They do the work that the counterpart’s civil servants are self-confessedly unable to do themselves, that is, mostly pushing paper around and completely abandoning any strategic and policy analysis. This had been explicitly forbidden in our original terms of reference, drawn up by the Commission and formally agreed by the counterpart, but appears now to have been tacitly accepted as the price for continuing “cooperation”.

There are hundreds and thousands of foreign (and Russian) consultants and experts, funded by Tacis and other bodies, who can tell similar or worse stories. Why does this nonsense and waste of money continue? There are two reasons. One is political: it is better to have the appearance of cooperating with Russia, even though the results are far below expectation, than to say openly that Russia is incapable of absorbing cooperation and assistance effectively. Upper Volta with nuclear weapons (plus oil, gas, timber, consumer markets, etc) is important. Upper Volta without them can safely be reprimanded and sanctioned, if appropriate. The second reason is that it would be an appalling loss of face to admit that billions of dollars of assistance have largely achieved nothing (the purpose of Tacis is to support the transition to democracy and a market economy. In Russia, after more than ten years, there is not much sign of success in either area, at least, not much that can be directly attributed to foreign assistance). So everyone plays the modern variant of the old Soviet game “you pretend to work and we will pretend to pay you.” In the new variant, we work and we get paid, but nothing happens.

Becoming a public servant is a licence to extract large sums of money from the populace and business community. In other words, public service is not a vocation or a well-respected career offering an acceptable material reward (let alone ‘job satisfaction’) in exchange for fulfilling the public sector’s social contract with the citizenry. Rather, it is an opportunity to join a cynical kleptocracy that preys on society. Such opportunities command entrance fees. And, by the way, let us not underestimate the direct, formal rewards to public servants. They do, indeed, earn low salaries, even by Russian standards, but there are many perks end-of-year cash bonuses allocated on a seniority and loyalty basis, apartments, dachas, cars, holidays, foreign travel and much more. In other words, spare no tears for the allegedly underpaid Russian civil servant. He or she as long as appropriate support for the boss is maintained does okay. Paying public servants higher wages will not eradicate corruption. The system is too diseased. (However, it is interesting to note that public servants’ salaries have, in the last few months, been increased by a multiple of up to five times during the same period when benefits for disadvantaged members of society, including war veterans, victims of Chernobyl, pensioners, etc, are having their free transport, medical and other benefits replaced by cash payments, widely considered to be worth a great deal less than the implicit value of the benefits).

All this breeds and sustains an atmosphere of utter cynicism towards, in particular, the population, which is why, in return, the Russian population has no trust whatsoever in the system of Russian public administration. And since competence in a particular discipline within the public service is not required (extracting money and keeping superiors happy are the key survival skills) no wonder that so many Russian public servants have no idea about the issues they are formally responsible for. This is also why nothing works properly, be it security, economic development or whatever.

I believe that President Putin is well aware of the fact that this virus of corruption is endemic throughout the entire country and that public administration is utterly and profoundly incapable of dealing with its real responsibilities. Thus, his proposal to appoint governors, who will be directly and continuously answerable to him (instead of letting drunken gangsters, or the puppets of powerful regional business/criminal cliques, buy election once every four years and spend the interim period looting their regions), and trying to develop a party system, instead of enabling rich individuals to buy their way into the Duma (where they can and do accept or give bribes to ensure appropriate legislation is enacted or blocked in favour of their corporate backers’ interests), may well be a practical move towards cleaning Russia up. Haranguing, harassing and humiliating President Putin for rolling back democracy is missing the point. There is no real democracy in Russia for him to trample on and hasn’t been since Yeltsin ordered tanks to fire on the democratically elected Duma in 1993, an act which the West applauded, or at least tolerated, in a post-Cold War variant of the “better dead than red” school of applied democratic theory.

Putin’s course of action is not without dreadful risk, of course (what if he was succeeded and his powers inherited - by someone like Zhirinovsky, say?), and it is also true that his actions do indeed represent a further tightening of the noose, on top of his other authoritarian moves against the media, NGOs and so forth. Nonetheless, given his background in the Soviet-era KGB and then as head of the successor FSB, it is hardly surprising that his training and experience tells him to resort to increased authoritarianism rather than the anarchic Yeltsin approach. It is not as if Russian history offers alternative and better models of behaviour.

Is there anything the West can do to help? I am not sure that there is, since western countries have not within living memory had to root out endemic corruption on the scale that Putin has to face. We simply don’t know how to do it (and anybody who thinks that measures like increasing public servants’ pay, or ensuring that the law is enforced effectively, will do the trick is living in cloud-cuckoo land). Furthermore, there are, of course, many fine, talented and dedicated public servants (both officials and elected politicians). But every barrel seems to contain a number of very rotten apples and the good guys are sidelined, neutralized or, in more extreme cases, fired or killed. They are unable to fight the virus, so what can we, the generally unwelcome outsiders, do?

Putin’s greatest fear, as he has often stated publicly, is the disintegration of the Russian Federation. He saw how easy it was for the USSR to disappear almost overnight and knows that present-day Russia is equally if not more vulnerable. Such a scenario would be extremely dangerous for the rest of the world, whatever about the consequences for Russia and its people. And the greatest weakness of Russia, and hence threat to its future survival, is the rottenness of the state apparatus built on corruption. Even if there is not much we can do actively to assist, there is, perhaps, one thing we could refrain from. When Putin introduces more authoritarian measures, we are entitled to express our concerns about the possible consequences. But we should stop the knee-jerk instantaneous condemnations that make no effort to understand where he is coming from and what he is trying to achieve. We should call off the attacks on the one Russian leader in the last eighty years who is trying to put an end to this potentially fatal disease, because in this fight, as in the greater war against terror, we should all be on the same side.

That other big year-end decision

2004-10-26T13:38:00.000+02:00

As the USA prepare to vote, I'd like to take a moment to comment on the other momentous decision to be taken in the Western world before the end of this year - the proposed start of negotiations with Turkey for its entry into the European Union (EU).

This decision is due at the next summit of Heads of State on December 17, following the favorable recommendation made by the European Commission on October 6. Despite strong reservations in various European countries (see this good summary (in French) of the debate in France, it is likely that the decision will be taken to start the negotiation process, leading in all likelihood to Turkish membership sometime between 2015 and 2020.

This (pdf) document provides a good overview of the impact of accession in various fields (voting rights, FDI, economic impact, immigration, agricultural subsidies) which shows clearly that the impact is more likely to be political than economic.

This internal EC document (again, pdf) on the impact of enlargement provides the following table:

Enlargement Change in surface population GDP
EU15->EU25 +23% +20% +5%
EU27->EU28* +18% +15% +2%

(*EU27 is EU 25 + Bulgaria and Romania, expected to join the EU soon, Turkey would thus be 28. Croatia is likely to join before but is not included here).

The economic cost is real, but manageable. The political impact is much less predictable and has thus been the main topic of debate. (For American readers, remember that this is not like Mexico joining NAFTA, this is more like Mexico joining the USA as States n°51 thru n°58, with corresponding voting rights, representatives in Congress and so forth).

The main arguments have been the following:

From the Europhile perspective
Europhile here means those favorable to the continued growth of federal political power through the European institutions (the Commission and Parliament), reduced national vetoes, and an increasingly assertive "EU" role in foreign affairs, taxation, etc.

Favorable

- Turkey will provide additional muscle to Europe, thanks to his fast growing population, strong army and potential for growth

- Turkey's borders with Iran, Iraq and Syria will force Europe to become more involved in the Middle East and to beef up its joint policies in foreign affairs

- Turkey's accession will be a shining example of Europe's "soft power" (conflict-resolution via trade and negotiation rather than the use of force), thus ensuring growing positive influence on other neighboring countries, including in the Mediteranean basin and the Middle East, by encouraging them to move towards democracy and market-based economies, with the perpective of closer trade and/or political relations with the EU. It will be also a strong message that Western values are compatible with Islam and that the Western world is not closed to Muslim countries.

- it will be the confirmation that "Europe" is a concept based on shared values and not on geography, thus sending out an optimistic message to the world, showing Europe's confidence in its values and openness to others.

Against

- Turkey is not a part of Europe as a political concept; it should be offered a priviledged status as an associate State but not a seat at the main table of countires whose goal is "ever closer Union" (as per the Rome Treaty which created the European Community in 1957)

- more specifically, the arrival of a large, backward country, largely Middle-Eastern will totally disrupt the decision-processes in the European institutions, making it impossible to find consensus on anything, paralysing the already-strained decision-making process, thus ensuring that Europe becomes little more than a free trade area and an (expensive) ineffectual talking shop

- the cost of bringing in a poor country (whose average GDP per head is only a fourth of the average European level) will be a drag on Europe's resources, preventing it from concentrating its energy on common projects

- the strain of dealing with new Middle East borders at a time when common institutions are not yet in place creates the risk of internal tensions between members which could lead to acrimonious dispute, tension (on a scale even worse than shown last year about Iraq) and thus internal paralysis and possibly the destruction of the existing framework

From the Eurosceptic perspective
Eurosceptic describes here those that are opposed to further European integration, favor the power of Nation States versus the "federal" institutions. They are usually nationalist, but may disagree vehemently on economic issues (some support Europe as an open free-trade area, some are dead against what they see as a purely "capitalist" project)

Favorable

- The inclusion of Turkey in Europe is a positive sign to the world that Islam is compatible with Western values, that a muslim country can be a democracy and a market-based economy and can be accepted as a full-fledged member of "the West"

- Bringing in Turkey will ensure the death of the excessive influence of France and Germany on Europe, ensuring that other view points are represented and heard; in particular it is hoped that Turkey's entry would make the EU more pro-American

- Turkey's entry will bring much needed dynamysm into Europe, thanks to its growing population (compensating the decline in the rest of Europe) and potential for growth

Against

- Turkey is not part of Europe; as an Asian and Muslim country it does not share values or geography with the rest of Europe and thus has nothing to do within Europe's main club

- The risk of massive immigration, increasing influence of islam, involvement in intractable problems at Turkey's borders in the East should not be added to Europe's existing woes

- The cost of bringing in Turkey will force to increase taxes, will cause unemployment and will lead to further growth of the Brussels bureaucracy

As can be seen, some of the arguments are not linked to Turkey's accession per se, but about its likely consequences on the functioning of the European Union. Some of the these arguments are perfectly symmetric and reflect optimism/pessimism on the future ability of Europe to adapt its institutions and to be open to its neighbors in a complex period of rapid economic change, international tension.

Personally, I am a Europhile and favorable to Turkey's accession into Europe. I think that the economic cost will be easily borne by Europe (the reasonable rule that European transfers should never be above 4% of the receiving country's GDP each year ensures that), and that the accession process will provide an amazing boost to Turkey's economy and to its democracy. Immigration is an overblown fear; in fact the example of Spain and Portugal shows that population actually moves back as the prospects in the home country imporve. The big question is that od the future of European institutions. I am actually confident that Turkey's presence into the "meat grinder" of Brussels' bureaucracy and the inertia of such bureaucracy will ensure Europe's growing assertiveness and presence in more and more areas, including on the diplomatic and military scenes; the risk of political paralysis exists, but it is not enough in my view to balance the positive message - optimistic, peaceful and responsible - sent to the world by welcoming the Turks in.

Back to life

2004-10-23T14:26:00.000+02:00

As I wrote here, my life has been somewhat disrupted in recent weeks... Thanks to all that have sent words of encouragement. I hope to come back to a more normal life and to post again here.

Here's hoping!

Reasonable optimism

2004-10-23T14:23:00.000+02:00

(In reply to RGiap over at MoA)

I think it is misguided to blame all evil in the world on the US or its leaders. I don't deny all the ugly things that have been part of US policy (although I must confess I am really surprised to see Solidarosc - the Polish one - as part of that ugliness), but I cannot let pass the fact that you seem to say that this is the only source of evil/ugliness in our world, because it is clearly not.
I know we are on opposite sides of the fence on this, but I'd still say that the US (and the West in general) is one of the most benign forms of dominant power, and it was in particular more benign than all forms of communism pushed by Russia and China (now maybe you also count this as part of Western domination...). I agree that we should set our standards higher than Stalin or Mao, but your posts are so heated that this basic fact (Stalin was worse) seems forgotten.

The reason I am optimistic these days, and upbeat about the US/the West is that our system does not eliminate the possibility of evil - it makes it easier to fight it if it appears. The most vociferous critics of all the misguided US policies of the past half-century came from within the US itself and they prevailed (and for instance John Kerry was instrumental in that process re the Vietnam war, which is one of the reasons I have a lot of respect for him). The lessons from that pretty recent part, as well as current trends within the US lead me to my upbeat diagnosis that the current cancer in the White House is going to be voted out and thouroughly discredited. This is the force of our systems - not that our mistakes are somehow smaller, but that we correct these mistakes faster and end up being stronger for it. If this does not come to pass on Nov. 2, then I agree, we're fucked, and I will let you rant until you run out of breath...

To comment on the extremism vs moderation / passion vs. reason theme, I must say tht I have sadly come to the unpleasant conclusion that it is the extremists that get results when serious change is needed. They bring the issues on the table and force change on the unwilling status quo. Ask kindly and you will be ignored. Of course, at the end of the process, you need credible moderates to actually get to an agreement with the other side...

@ Jérôme
As always, a well-thought out and incisive contribution.
I guess it's important to set the parameters of "moderation" versus "passion" and the their relative efficacity in producing "serious change".
I think that often the changes induced by "true believers" while superficially revolutionary are, in fact, also heavily freighted with an unconscious continuation of the status quo ante. The French, Russian and Chinese revolutions were nothing if not radical in their attempts to root out ancient injustices and illusions, and for that surely are "globally" positive movements in their initial ideals, but each of them also carried within the seeds of involution and degeneration (as, of course, does any human enterprise). Perhaps France is still split between those who think the Revolution went to far, and those who think it didn't go far enough but at least the dialectic is now pretty tame compared to trundling of nobles off to the guillotine. The kind of revolution that I approve of without reservation (well,almost) are those like what has happened in Italy over the last 60 years, and more generally that which is still in progress in Western Europe with its (far from perfect) project at consensual unification and federalist democracy. These are revolutions from the bottom up, produced by people working daily to create and come to terms with their evolving realities, although the contributions of statesman who knew enough to try to create the favorable "initial conditions" were also indispensable. This is a variation on a theme dear to Max Weber: the constant dialectic between the "charismatic" and the "bureaucratic".

Posted by: Hannah K. O'Luthon | October 23, 2004 04:06 AM

@Hannah

thanks for the response on the passion vs reason theme. In my view, there is this association passion/extremism/power vs the reason/moderation/negotiation; which these days I also associate with USA vs Europe: the army solution vs the Brussels bureaucracy solution.

As I am an ardent Europhile, as you may have read already (not passionate, mind you, just ardent:-), you know on what side I put myself... but the again I am also sensitive to the arguments put forward by Kagan and others, that the peaceful, negotiated situation we have in Europe is only possible because the US still works in the "Old" power-is-all frwmework and protects Europe from what would otherwise be irrelevance, inefficiency, invasion or worse. Although I believe that Europe is showing a better way to manage international relations, I don't have a convincing argument against Kagan's - except to say that the Europeans followed a way which was promoted and encouraged by Americans and that the two continents were working together, slowly, haphazardly, to bring such mechanisms to bear in relations with other countries, by the great mechanims of creating precedents. The current US administration is basically throwing down the drain 50 years of precedent and relative regard for international norms which they had largely contributed to shape. It's just such a waste.

The point I started with, "passion" vs. "reason", is the following: "Passion" is certainly more efficient to get to your political goal, but "reason" is more effective to make it last beyond the effect of your passion. Great rulers are those that built lasting institutions, not those that built great empires. Institutions last because there is minimum level of consent from those that live under them, and this usually requires a minimum of consistency in rules, adaptability to the needs of the population and restraint. (Which is why Napoleon is still well-regarded in France, despite his ruinous military campaigns - he left us a working civil code, and an efficient administrative network of prefects and public engineers)
Power does not tolerate restraint.

The US has no external limitation on its power (not completely true, I know, but it has an overwhelming domination, at least militarlily), but it has a lot of internal limits (you know, check and balances...). Let's see these get to work.

What info do we have on Muslims in France?

2004-08-28T23:21:00.000+02:00

- one point is that by law, the State cannot distinguish between citizens by religion or race, etc... so it is actually hard to get specific statistics for various groups. what you have is nationality, but a good chunk of the Muslims in France actually are French, either born here or having received citizenship at some point;

- another is that Renseignements Généraux, a sort of domestic political police (yes, we have that in France), together with DST (the more conventional anti-terrorist and domestic counter-espionage secret service) have been focusing for many years on militant islamic group in France and know them pretty well. People seem to forget that we've had more than a few terrorist attacks in France in the last 20 years (I was shocked, but not surprised, to see, in the State Dept's list of terrorist attacks of the past 30 years (I don't have the link now but will provide it later), there is almost no mention of these attacks) and, after the initial bluster ("we will terrorise the terrorists", as memorably said Charles Pasqua, then Interior Minister, after the first big wave of bombs in Paris in 1986), the long hard unglamorous slog of police work was started. The terrorists behind the 1986 bombings were found, judged and sentenced to jail; the terrorists behind the 1995 series of bombs in Paris were caught and either killed in shootouts or sent to jail (or protected by the UK for one of them...).
And despite everything, police cooperation between the US and France has continued, and I understand that specialised US cops are quite grateful to their French counterparts for their (paid in blood) expertise.

- a lot of the current behavior of muslim populations is also linke to their poor economic and social situation, worsened by a lot of casual racism, upon which foreign preachers prey. France, as a secular state, is struggling to find a way to develop "home-grown" muslim religious leaders - and Tariq Ramadan is an influential voice in that debate.

A few points on Iran as seen from Russia or China

2004-08-28T11:44:00.000+02:00

Just to correct some info on the this article in anti-war about China and Russia's view on Iran.

...(A) Chinese company, Zhuhai Zhenrong Corporation, has just signed a long-term agreement with the current Iranian regime to buy $20 billion worth of liquefied natural gas. Zhenrong also imported 12.4 million tons of crude oil from Iran last year and expects to complete deals soon to develop three Iranian oil fields.

LNG contracts are always over 20 years at least and the headline amount always sounds big. 1b$/y of gas would be, at curent prices 8bcm/y (billion cubic meters). For reference, US production is around 500bcm/y; total LNG trade is around 120bcm/y.
Iran has been trying to do LNG for several years now, but they still have not admitted to themselves that they need Western technology to do that, and must offer something in return (a small piece of the pie), so the projects are going nowhere. The contract with China is more a promise to sell gas eventually than an actual contract, at that stage.

As for Sudan, it is also oil rich, and the holder of the biggest oil development concession from the current regime is China.

True, (although the sale of Sudanese oil production should not be exagerated, it's a small player). China has indeed been trying to court several oil-rich African countries, in order to diversify their oil supplies.

How about Russia?
Well, Russia would vigorously oppose a preemptive attack by Bush-Kerry or the Israelis on the zillion-dollar nuclear power complex the Russians are building at Bushehr.

Officially probably. Unoffocially, they probably would not mind selling the reactor a second time to the Iranians...

As for Iran's oil, Russia doesn't need it. But Russia does depend upon oil "swaps" with Iran to get much of her Caspian region oil to market.

False. It's not Russia that could take advantage of oil swaps with Iran, it's the "oilistans": Turkmenistan (already doind it for small volumes, 10,000b/d) and Kazakhstan (thinking about it, and wiating for Iran to increase the capacity of the pipeline form the coast to Tehran). Russia is quite opposed to such swaps as they create an alternative (i.e. not going through Russia) export route for these otherwise landlocked producers.
These oil swaps actually make a lot of economic sense, as Iranian uses its oil in the North, and produces it in the south. So if you provide (close by) Caspian oil in the North, you do not need to pump oil from the south up north, and you can instead export it (and additional advantage for Iran is that it is a way for them to increase their oil exports without falling foul of OPEC production quotas). There are some limits to these swaps: the capacity of Iran's northern refineries is 800,000 b/d, which would be the absolute cap; and additionnally they are not perfectly suited to the technical specs of Caspian oil, so would require some investments to use it.

The more interesting dynamic between Russia and Iran is on the natural gas side. Russia has 40% of world reserves, and Iran 30%. Russia is the largest gas producer in the world, and has pretty much cornered the European gas market. Iran produces almost no gas, has no market for it (no transport infrastructure), and its biggest asset, the south Pars/ North Field it shares with Qatar, is busily being exploited by Qatar while they dither. Russia is quite happy to keep them in this state of hesitation, powerlessness and "marketlessness" while pretending to help them...

Both Russia and China expect Iran to be a big customer for their armaments.

Now, if Kerry-Bush want to change the regimes of other members of the Organization of the Islamic Conference (OIC) – such as Cameroon, Chad, Gambia, Guinea, Guyana, Mali, Mozambique, Niger, Nigeria, Somalia, and Uganda – neither Russia or China are likely to object...

Cameroon, Chad, (Equatorial) Guinea, Nigeria have (a lot of) oil. Niger has yellowcake...

Has oil production peaked?

2004-08-25T23:38:00.000+02:00

I am still skeptical about claims that we cannot increase production in the medium term. Remember that oil prices have been pretty low in the past 18 years and that CFOs of oil companies, shareholders and outside financiers expect investments to make money at 15$/b (and to break-even at 10$/b) for an investment to be given the green light. Even with today's prices, that mindset has not changed yet - people are still expecting investments to make it with 20$/b oil or less. (there was an article about this in yesterday's FT but I cannot find the link). Wyhen this mindset changes (i.e. when these people are convinced that oil will stay above 30$/b for a bit of time, then you will suddenly see a new burst of investment.
In the short term, expect more problems: fewer wells dug last year in OPEC countries, Oil investment reduced despite record prices.

Some of the world's biggest oil-producing countries have reduced their investment in new capacity despite record oil prices. The Organisation of Petroleum Exporting Countries this week revealed its members drilled 6.5 per cent fewer wells in 2003, suggesting the global supply crunch and high oil prices could last longer than expected, analysts said. The numbers appear to contradict statements by Opec members that they are actively building extra capacity.

"Oil demand has been booming since quarter one 2003, offering Opec - along with rising oil prices - a clear enough signal of tightening market conditions, which the organisation seems to disregard," the Centre for Global Energy Studies (CGES), a London-based consulting firm, said recently.

"Opec has tried to get prices to stay high and now with nearly two years of very strong demand for oil we are really capacity constrained," said Leo Drollas, CGES deputy executive director and chief economist.

Opec's latest annual statistical report, published this week, shows that the number of wells completed in 2003 fell by more than 10 per cent in Kuwait, Venezuela, Qatar, Nigeria and Iran.

Opec members rarely give out complete data on the amount of money they invest in their oil industry, viewing it as a national strategic secret. Information on the number of oil wells completed per year is one of the best rough guides to future oil production as well as to overall investment trends.

Part of the explanation, in particular for Nigeria and Qatar, lies in the fact that companies are drilling fewer but more sophisticated wells. In Iran, Kuwait and Venezuela, investment has been stifled by political disagreements and leaders' eagerness to spend the additional petrodollars on other investments or the enrichment of a powerful minority. But as big consumers such as the US become more desperate for oil, the pressure is growing for countries such as Saudi Arabia and Kuwait to open their doors to international oil companies.

Mohammad Hadi Nejad Hosseinian, Iran's deputy oil minister, blamed Opec's lack of investment on past weak oil prices. "Most Opec countries have been unable to supply extra oil as a result of inadequate investment during the period when oil prices were weak," he said. "Iran expects to rely heavily on foreign investments to implement its ambitious plans [to increase oil production by nearly 2m b/d]."

Opec's capacity has remained at about 31.5m b/d since autumn 2000, though demand increased by 6m b/d and prices recovered from the Asian crisis of the late 1990s during that time, the CGES said. During that time almost three-quarters of the increased capacity needed to satisfy the extra demand came from outside Opec.

But ageing fields, a difficult investment climate in Russia and a dearth of discoveries in other parts of the world mean that consumers will not be able to rely on countries outside Opec for additional oil.

Meanwhile, US demand, which is expected to grow 4 per cent in the next four years, and that of China, forecast to increase 30 per cent, mean the world could be in for a longer period of high oil prices than expected, analysts said.

The International Energy Agency, the Paris-based industry watchdog, expects Opec capacity, excluding Iraq and Venezuela, to grow 2.1m b/d in 2005-2007. But work to achieve this does not appear to have begun.

It can take two years for countries to act on higher oil prices, but this time countries hurt by past boom and bust cycles appear to be taking longer. Opec's hesitancy means it has squandered its spare capacity, the trump card that allows it to play the role of the world's central bank of oil. It has also increased the likelihood that prices will fall only after they have climbed enough to stifle economic growth and, therefore, demand.

Some background on Caspian oil

2004-08-19T00:01:00.000+02:00

There has been a lot more variation in the hype surrounding the Caspian than in the actual reserves... To make it simple, Caspian "oil" is currently based on 5 giant fields:

- Azeri-Chirag-Gunashli (ACG), previously known as AIOC, developed by a consortium led by BP. It is offshore in the Azeri part of the Caspian, not very far from Baku. It has about 4 billion barrels of oil reserves. It is already under production at a lowish level (150,000 b/d) and is about to grow to 800,000 b/d. This oil will be exported via the BTC pipe I mentioned previously

- Shah-Deniz. This is a gas field, also offshore in the Azeri part of the Caspian. It is also developed by a consortium led by BP (different form the previous one). It is currently under development, and is expected to start exporting gas to Turkey in a couple of years (via a pipeline, the SCP, that runs parallel to BTC). The trouble is that Turkey already has too much gas on its market (mostly Russian) and BP et al. are trying to find ways to transport that gas further to Europe, but that's not done yet.

- Tengiz. This is an onshore oil field across and near the Caspian in Kazakhstan. It is developed by ChevronTexaco, with ExxonMobil and Lukoil. It is currently producing close to 250-300 000 b/d, which are exported via the CPC pipeline running from Tengiz to Novorossisk in Russia (paid for mostly by Chevron, but part-owned by Russia and Kazakhstan, and the only pipeline in Russia outside of the control of tha national oil pipeline monopoly Transneft, so a perpetual source of headaches... but before CPC they used railcars (7000) through Russia or barges on the canals to Finland, so it's a nicer kind of headache!). Tengiz is also on is way to increase production to 600-800 000 b/d in a couple of years (all to go through CPC). A lot of sulphur in the field, so Chevron is literally stuck with mountains of sulfur near the produciton site, it's quite a mess. Tengiz is the 6th largest oil field on the planet; with 10+ billion barrels, IIRC.

- Karachaganak. That's a mostly gas field, but with some associated liquids. It's in northwest Kazakhstan near the Russian border. It is developed jointly by ENI (Italy), BG (UK, Lukoil (Russia) and ChevronTexaco. It can only produce gas and liquids simultaneously, which means that both must be sold for the field to produce. Gas is mostly given to Gazprom, the Russian gas monopoly, which controls all the gas pipelines around (and still controls the only gas-processing plant nearby, so the sponsors have to beg Gazprom to take the gas - but they are currently building their own). Oil/liquids are now exported via the CPC through a recently built connecting pipe; about 100,000 b/d now, expected to grow to 250,000 b/d in the near future. It's a huge field, but its prospects are impaired by the gas situation. Fascinating politics...

- Kashagan. This is the biggest discovery of the past 30 years, currently the 5th biggest oil field on the planet (10-15 billion barrels - about the same as all of the remaining US reserves - and it could be even bigger). It's in the Northern Caspian sea, on the Kazakh side. All the majors are in: ExxonMobil, Shell, Total, ENI (who is the operator because Shell did not want Exxon to be it and vice-versa...), ConocoPhilips and the Japanese. BP had a share, whic they sold to the Chinese, but the existing shareholders premepted the sale, creating a big crisis with China last year (Google Kashagan BP Shell China).
No production yet, but expected to reach 1 to 1.5 million b/d in a few years. It's a very difficult field (high pressures; located in a zone which is at different times of the year sea, swamp or ice; and several hundred kms from any town or road). Oil export routes have not been chosen yet, but a combination of BTC and CPC should do at first. Routes to China (strong demand, but no existing transportation) and Iran (the cheapest pipe to build) are likely in 10-15 years, which should be fun to watch as well...

These 5 fields, which are all developed by Western majors under PSAs with some or no local ownership make up the essential of "Caspian oil". Altogether, it will soon be close to 3 million b/d (150 million tons/y), or as much as Iran or Venezuela or Iraq in its better days, plus quite a bit of gas. All of it coming to the Mediterranean markets, partly though Russia, partly through Turkey.

I'll be frank and say that I have a lot of admiration for the oil companies that have managed to develop these fields and found ways to export their oil and make money despite huge technical and bureaucratic obstacles, constant political pressure from all sides and a lot of noise from everybody else. ACG was signed in 1994, Tengiz in 1993, Karachaganak in 1992, so it took a lot of patience to get them on stream, and to get them to make a little bit of money in the meantime.
Of course, this region is not a panacea, it does not change much for the peak oil question, but it buys us a few years of less Middle-east-dependent consumption and it provides for fascinating business and geopolitics case studies...

Control of Oil - II - Security of supply

2004-08-12T23:46:00.000+02:00

1. for an importing country (and its economy), the strategic risk of insufficient supply in times of crisis

Security and reliability of the supply of such a vital commodity as oil are obviously very important goals. But, oil markets are extremely liquid and, unless you are in a serious crisis situation (war, boycott), you will ALWAYS be able to purchase oil in the market at the current price. Conversely, it is also extremely unusual for any player in the market (especially the suppliers) to lock themselves in exclusive arrangements with a single (or a restricted number of) party(ies). Long term supply and purchase contracts do exist, but they usually include some flexibility and, pretty much always, a reference to market prices. In some cases, you will see oil provided by one country to another at below-market conditions (see for instance Chavez’s Venezuela providing supplies to Cuba), but this is a way to provide aid in kind and it has no impact on the overall market – and the recipient cannot be said to have “control” of that supply in any sense.

In times of crisis, security of supply becomes a completely different question. Crisis means that the world oil market effectively breaks down and that it becomes impossible to find the requisite oil at any price.

In the case of war, what will matter is physical control of the production assets and of the supply lines for sufficient volumes for your country and possibly your allies. Fields must be secured, pipelines must be secured, oil terminals and sea lanes must be secured, etc… The history of the past century, and especially the two World Wars, show that this is an essential part of any major war, and it requires the investment of very large military assets. (See “The Prize", by Daniel Yergin, for instance, for a detailed description of the role of oil throughout the 20th century wars). In such a context, pure military might, and military control of the relevant areas, is most relevant.
This means, obviously, that in times of peace, the availability of such military might is a deterrent against any potential foe who would have its own oil supplies secured, or that would attempt to capture the oil assets as a preemptive aggression. If you rely on exports, it is therefore inevitable that you will require the ability to project significant military forces to avoid war or a crisis (or have allies that have such capacity…).
Thus (among other reasons) the global reach of the US Navy, to protect shipping lanes and to project immediate air and sea power in sensitive areas; thus the French forces pre-positioned throughout oil-producing countries in Western Africa; thus the military alliances and treaties with oil producing countries.
The mere possibility of war thus justifies a significant level of military spending and diplomatic efforts, to prevent any vulnerability during any eventual war.
(This also means that a part of military spending should be incorporated in the cost of imported oil. This is the simplest justification for an oil tax in any oil-importing country, and it is also a strong argument to avoid selling arms to other oil importers or oil producing countries, unless you have good reason to trust them).

A boycott can only be organized by an entity that controls a large enough portion of total production to create a real overall shortage. The oil market being very liquid, this means that the production cut must be bigger than any reduction in short term demand that can be tolerated by the importers, or compensated for by a simple, even if large, price increase; thus leading to actual shortages. The “natural” suspect for a boycott in the oil market is OPEC; indeed, they gained prominence when they engineered a boycott in 1973 following the war with Israel. They control a significant portion of oil production (around 50% back then, closer to 40% today) but they control an even bigger portion of known reserves, which makes their likely market power in the future much stronger.

A boycott requires strong discipline by the cartel members against freeriders (if anyone reduces its production, the price increases and the temptation for others to fill the void and cash in also increases). It also requires that the boycotters be able to do without the corresponding revenues while the boycott lasts, and that they also be able to withstand the diplomatic consequences of their position viz. the importing countries that face the boycott.
Following the 1973 experience, Western countries have taken a number of steps to reduce the impact of a new OPEC boycott. The most important one has been to create strategic reserves allowing each country to go at least 3 months without any imports. This ensures that any boycott has to be sustained for a considerable period of time, thus leaving room for diplomacy or other measures without having to face the immediate pressure that shortages generate.
The other step taken by many countries was to try and reduce their oil consumption by developing alternatives or substitutes. Energy savings were encouraged; nuclear or coal-fired plants were built te replace fuel power plants. Obviously, such measures take more time to implement and cannot do much in the short term against a boycott. However, in the long run they are quite effective, and Europe’s oil consumption is still lower today than it was 30 years ago. (In the US, the 1979 level was reached again in 1998 only). By reducing overall demand, they tilt the market balance back in favour of the buyers and thus limit the immediate impact of a new boycott. Higher oil prices caused by the boycott also encouraged the development of more expensive oil fields that were not under the control of the boycotting countries (such as the North Sea, the Gulf of Mexico or the Gulf of Guinea in Africa), thus also influencing in the buyers’ favor the oil market balance.
Indeed, it can be argued that the West’s energy policies were too successful: oil prices have been going down steadily in real terms (and even in absolute terms), and by 1999 they were close to their lowest levels ever (in real terms). This has naturally led people to stop worrying about energy and consuming it once again with abandon (the SUV craze in the US being the most obvious phenomenon). Europe has been protected to a certain extent by the fact that gas prices have never gone down thanks to steadily increasing tax levels, but its gas prices are still close to 30-year lows in real terms).

Of course, a boycott is a highly aggressive act and any boycotter can expect a vigorous reaction from the countries that suffer from such an act. The US being both the largest importer and the main military power around the world, they can be expected to be in the lead of any counter-offensive, which is likely to include diplomatic pressure, trade or financial sanctions (oil being traded in dollars, all the oil exporters’ receipts and a large part of their financial assets are effectively managed in NY) and military action.
In the short term, it is not clear today who would “win” a tug-of-war brought by an OPEC boycott – it would depend on the political objective of such a boycott, and on whose side time would be (disruption caused by oil penury more or less compensated by reserves management on one side vs. disruption caused by lack of revenues, of imports and threat of an attack on the other). If the objective of the boycott is to increase prices and capture revenues, a short show of force might be sufficient and would not necessarily degenerate into a major crisis; if there is a political issue at stake, it is much harder to predict. Having engaged the the guilty countries, created links, mutual interests and co-dependencies appears to be the surest way to have some way to reach to these countries.
In any case, it appears that the capabilities of each side in the worst outcome (war) will have an impact on what happens in the short term, as rational players (and leaders of countries are usually assumed to be so) will not engage in games of brinkmanship they cannot expect to win. Therefore the military might of the USA can be expected to be the ultimate arbiter of a long crisis and can be argued to give them ultimate control over oil resources – but again, at a cost which should be acknowledged and made explicit. In a shorter crisis, other factors will play, such as domestic politics (and tolerance for shortages or higher prices), diplomatic leverage. Here, it can be argued that the US have weakened their position by having both a population with very limited tolerance for any kind of restriction or price increase on gas, and less goodwill in the world than in the past.

Altogether, security of supply for any importing country does not depend on short or medium term relationships with any given oil producer for access to its oil, but rather in its ability to deal with a crisis, by being ready to live with reduced supplies at home for a long enough period, and to react to any crisis by having leverage on the guilty party. Military might, strong trade or political ties can work. Policies to reduce oil consumption reduce the “target profile”. A detailed cost-benefit analysis is necessary to compare aircraft carriers - the ultimate arbiters in a time of crisis - with the combination of an effective energy (savings and diversification) policy with trade and diplomatic engagement. I am not sure I agree with Robert Kagan here (although I strongly recommend his very illuminating book on the differences between Europe and the US)

Th Oil we Eat

2004-08-10T21:55:00.000+02:00

Go read "The Oil We Eat". It's an interesting perspective.

I don't question what he says on agriculture, and it's indeed high time we reformed our totally dysfunctional agribusiness eco-system (and France is one of the worst offenders here).
On the other hand, I would dispute the concept of "primary energy production". If I am not mistaken, this only takes into account solar energy converted into chemical energy by plants. It does not appear to take into account energy stored in oceans and the atmosphere, nor the energy in light which is simply reflecled off and/or not captured. These are also available to us, and the numbers so dwarf our current consumption that it is effectively infinite for the foreseeable future.

When easily accessible energy such as oil or carbohydrates run out, we will have to rely on solar energy more directly, whether via solar panels, wind mills or tidal/wave energy (this last one being lunar gravitational energy, actually - but it's cheaper than solar today...) - and we will be able to. It is already operational, and any requirement to actually use these sources will unleash a new wave of progress and improvement that will rapidly make the cost more bearable.
I do not see any role of oil that we cannot replace. Cars can use electricity. Plastics - we will recycle a lot more. Electricity will come from a variety of renewable sources, and for a while, from nuclear and coal (not quite renewable, some pollution issues, but still extremely cheap)

The most valid point is that article is that we are not currently valuing properly the resources that we "pick up", and thus we do not price them correctly. This was not an issue as long as we used only infinitesimal quantities of these resources, especially when renewable like "green energy". Now that we use a significant portion of the resource, we need to learn to treat it as a capital and not as an income. Oil being the most "liquid" form of energy", increases in oil prices are the fastest way to get there.

What does it mean to "control" oil resources? (Part I)

2004-08-10T15:48:00.000+02:00

What does it mean to "control" oil resources?

1. physical control

As the most basic level, you control the oil if you are in control of the physical good; You have it, you can use it or sell it. Naturally, control of the producing assets is more important ; this is shared between (directly) whoever owns the assets and (indirectly) whoever ensures that nobody else can own the asset - whether a functioning legal regime or brute military force.
Another aspect of this question, which may or may not be relevant for different oil assets, is the control of the transport infrastructure. Oil can be transported by pipeline (and will always be, at least for the very first steps from the oil well) or by boat (ocean faring tankers). If you have a way to block in any way the flow of oil to the market, whether because you own the pipeline, the port facilities or the boats or because you control the territory through which the pipelines or the boats (port, shipping lanes) go, you control the oil flow and are a player in the game.

In Nigeria, people get access to the pipelines and try to siphon off oil (and sometimes blow themselves off)
In Russia, in the early nineties, mafia groups would take physical control by force of railway or port infrastructure and "tax" oil exporters in the most basic way, by taking a share of the cargo.
Persian Gulf oil is vulnerable to any disruption to shipping within the Gulf or at the Hormuz straits.
Trade unions in oil producing countries can disrupt production and thus are players (see in Venezuela in 2003 or more recently in Norway).
Iraqi production is subject to the availability of the pipelines to export it out, which are targeted by the insurgency.
Caspian oil is such a complicated – and fascinating - subject because it is a closed sea with no access to international markets and any investment project must solve the export issues, which means dealing with at least two countries with some degree of control over the project (one where the production takes place and at least one transit country).

2. legal control

Physical control enforced by military or police means usually translates into – or is legitimized by sovereignty over the territory where the oil or oil asset is located. More generally, it means that the oil resource is subject to the internationally recognised right of this country to run its own affairs as it sees fit, and thus that its judicial system and laws apply. The authorities of the country have the legitimate authority to decide if and how this asset will be exploited, and the police/military and/or judiciary power to enforce such regulation.

Many countries (but not the US) have decided that underground resources belong to the country. Many have a national oil company (NOC) that will be the sole producer of oil and whose income goes directly into the public budget. Others will allow other entities to develop assets and produce oil, under predefined ownership and tax regimes, but subject ultimately to the country's authorities, usually through a NOC or oil regulatory body which will have predefined roles in every producing asset (majority or minority ownership, rights to a portion of production, responsibility for sale and marketing, etc...).
Transportation assets are usually subject to ad hoc regulation.

Monopoly producer: Most of OPEC (Saudi Arabia, Venezuela, etc..), Mexico
NOC with majority ownership: Nigeria
NOC with minority ownership: Azerbaijan, Angola, Indonesia, Malaysia
Production rights without ownership: Egypt, Azerbaijan, Kazakhstan, Angola
Some countries have various schemes in place.
Many of the countries in the top categories are experimenting with schemes to allow some foreign investment while keeping “control/ownership” of the assets.

The distinction between physical and legal control is especially important in an investment context. In order to produce, you first need (large) investments. these will come only if investors are comfortable with the future oil flows that will come their way to repay such investment, and the timescale for such investments is usually 10 years or more. If you invest, you want to be dealing with someone who has the authority to guarantee that these flows will not be impaired.
Physical control of the flows is obviously necessary, but is clearly insufficient: legitimacy matters more. If you deal with a stable but rogue power, what will protect your investment from the entity wielding it? What will protect you from claims brought by others (such a refugees from that “power”) in Western courts (for instance under the Alien Torts Act) that the oil is not really yours?

The absence of a functioning state will usually mean in practice that the oil belongs to whoever can actually get his hands on it or the production assets, but it means little more than pillaging. No investment will take place.
Iraq today is an interesting case study. Oil companies would not invest initially while the US forces were there because there was no legitimate entity responsible for the long term flow of the oil from Iraq (the long term legal status of the oil assets to be purchased/built was unclear). Now there is a legitimate power in place formally, but it lacks real “physical power and is unable to ensure basic security. Thus, an even simpler reason not to invest for outsiders.

3. operational control

Having physical and legal control of the oil reserves is not enough if you do not have the technical capacity to actually extract this oil and bring it to market. If the infrastructure exists, you can live off it for a while, and this is not an issue (see the Russian oil sector in the early 90s, when no investment took place). If the reserves are easily accessible, it is also possible that the competences required are not so difficult to find locally or to buy on the international market. But this is increasingly less and less the case, as the more easily accessible reserves have been found and produced and increasingly distant or difficult reservoirs are being tapped. In that case, the more frequent, highly specialised (and expensive) technology and expertise is required, and this can be provided mostly by the Western oil majors. It is a combination of technology management (sophisticated seismic exploration, deep-water production, horizontal drilling, reservoir assessment and management) and project management: oil fields are amazingly complex mutli-billion-dollar projects, which require the ability to coordinate many parties in an elaborate ballet, with very tough logistical constraints (lack of access, lack of infrastructure, hostile conditions for personnel, etc...) and a deft sensitivity to the local environment. (Not to mention the management of the financial aspects, PR, and politics locally and in the home country).

The entities which are able to run big oil projects will effectively take over operational control from the local authorities which are otherwise unable to exploit their underground resources. This creates a co-dependency, which brings us to the relationship between local authorities and oil companies.

4. regulatory control

We have now reached a more sophisticated point in our analysis whereby various entities have some degree of control over the oil by virtue of controlling some element of the oil chain: the territory of production or transportation, the technology or the financing. How do all these parties interact and reach an agreement? Who can actually be said to have “control”?

The question in normal times (i.e. outside of war) actually is: who gets the "rent"? The rent is the difference between the actual production costs, including the costs to bring the oil to the market and the price fetched by that oil on the international market (depending on its quality and its point of entry into the market). This rent can be quite high, as all-in oil production prices usually are in the 2-15 $/bbl range. Until recently, a price of 15-20$ was used by the big oil companies to test whether an investment would be worth it or not on a long term basis.

In the past (until the second part of the XXth century), most of the rent was captured by the oil companies. This reflected US practice, and as the US accounted for the biggest portion of world oil production, it was also used in the rest of the world (most of it still being colonies, the Western powers also did not worry too much about the locals). After WWII, and following major discoveries in the Persian Gulf area, the oil industry internationalised a lot more, at the same time as the decolonisation movement took place. This eventually led to a new sharing of the rent. For a time, it was a simple formula: 50/50 between the oil company and the host country. Eventually (and despite valiant efforts - or consipiracies - by the oil companies and their home governments (the "seven sisters"; US, UK and France), this moved in favor of the host countries, whether through more favorable agreements (concessions, PSAs - production sharing agreements, joint ventures) or outright nationalisation.

Today, it is accepted that the host country will capture the major part of the "rent" (up to 90%). Oil companies accept to have the perspective of "only" a decent return if production goes as expected, and a small part of the upside if things are better. As they will do most of the initial investment, they usually get more of what's available if it is less than expected. In return, they get access to a recurrent flow of oil and can “book” the reserves in their accounts.

In the context of the PSAs, which is now the main instrument in the international oil business, the oil produced is separated into "cost oil" and "profit oil" according to more or less complex formulas.

- Cost oil is used to repay the oil companies for their investment: operating costs, some taxes, and reimbursement of the initial capital costs and associated financial costs (banks interest and/or a predetermined rate of return). What costs are “recoverable”, what interest rates are used to roll over costs not yet reimbursed and what tax rates are applicable are negotiated on a case by case basis.

- Profit oil is, as its name indicates, pure profit after operating costs have been deducted. It is shared between the host country and the investors according to complex formulas.

Initial production will usually be mostly used as "cost oil", in order to repay the investment as quickly as possible. The host country will get a minimum level of revenues through the pre-agreed level of taxes and in some cases a minimum proportion of "profit oil" from the start (which may vary depending on the actual production levels vs expected ones). After a few years, cost oil will phase out and most of the production will become "profit oil", which is then shared mostly for the benefit of the host country.
Of course, the sharing formulas depend on oil price levels, actual production levels and plans for future investment, so they are different in each case. They must also take into account the full production costs of the asset and its complexity (both technological and in terms of the number of "interested parties").

A common practice in the industry is to separate each item of the production and transportation chain into stand alone investments: the production platform and associated facilities, the pipeline, any other independent facilities which may needed. (This is even more characteristic in the natural gas industry).
Each entity is structured so as to be profitable on its own. For instance, the transportation tariff for use of a pipeline will be set so as to cover the cost of its construction plus cost of capital and a small return. That tariff will be paid by the upstream (production) entity which uses it to export its production, and this entity will be entitled to include that tariff into its "cost oil" calculations. It will also paid as a prority by the upstream facilities (possibly even before local taxes, which makes sense if you consider that there are no revenues until the oil reaches the market, for which the pipeline is needed). Such tariff is defined contractually between the upstream company and the pipeline company and usually reflects the fact that such "intermediate" entities in the oil chain take only a limited amount of risk (for which they get a very predictable revenue stream, which makes is easier to keep such entities transparent -to justify their inclusion into "cost oil"- and to finance them externally). A frequent principle is that they get paid as long as the required industrial (in that case transportation) capacity is available, whether it is used or not.
Easily identified portions of large projects can thus be ‘spun off” and financed on a stand-alone basis. This also allows for subcontracting of the work and management – and risk - of a very large project in smaller pieces (even if the owners are the same all along the chain), by allocating responsibility for well-identified tasks to other entities.

As regards the issue of control, such big contracts are usually done within an extraordinarily heavy contractual framework, involving dozens of external advisors on both sides: lawyers, accountants, tax specialists, independent engineers and other specialised consultants, and bankers. These contractual framework usually define the regulatory framework which will apply to the project for its duration, including things like technical standards and norms, health and security regulations, environmental rules, social and working conditions, local content, etc... This means that the host government has a lot a control of the project within the framework of such contracts. It can impose its standards and rules and enforce them. Local or international arbitration can be defined to settle disputes, but a lot will be left to bilateral negotiation.

(An important point to make here is that on the oil company side, you usually have a consortium of several companies, as they usually do not like to be on their own in complex or difficult projects, especially in tough countries. There usually is a leader amongst them, the "operator", who will be in charge of running the operations on the technical side as well as managing the relations with the host country. The others will be more or less active depending on the contractual framework between them, their own inclination, and the history of the project. Some of the super-majors do not like to be subordinate to others, but it does happen and it makes for complex project management...).

Countries always have the "atomic weapon" against oil companies of taking (or taxing) the project away from them. They also have ways to put pressure on the operator by imposing more or less stringent supervision of the project, imposing deadlines, local content requirements, etc…The contractual framework is supposed to regulate all these issues, but in practice, especially in countries where the legal system is not independent of the political power, it is a tug-of-war and it depends a lot on the more global framework and this simple question: who needs the project (and its revenues) the most? Who can afford the least to wait one more year before production increases as expected. The oil companies' leverage is that they have the financial and technical capacity to invest. But they have shareholders to satisfy, which means they need to book reserves, to have revenues and make profits. The host countries have the power to slow or kill a project, but they are often cash-starved and need the revenues (not to mention that individuals within their power structure expect to benefit personally from the project). Some countries have better bureaucracies, are less desperate or prouder and can get better terms from the oil companies. Some also have a better reputation of sticking to the agreements they enter, so can get better terms because the oil companies accept them in exchange for their stability.

The geopolitical context also plays a role, and especially the nature of their relationship with the US (as the biggest importer, the home of several of the big oil majors and the "world cop") and a few other countries (France and UK for their majors and their residual international presence, Japan and China as major importers, Russia and China in their areas of influence). Host countries, if they are smart, can play on these relationships to get better terms.

So, you have control:

- because you can kill or slow a project (political oversight, regulatory authority, NGOS/hostile local communities, terrorists). Those that can kill a project only have “control” in the sense that they can block the project, but may have less control over a functioning project (if it functions precisely because their claims have been satisfied or their capacity to block it has been neutralised).

- because you are the only one able to make it happen (oil majors). This is a very real source of control
- because you are part of the chain required to make it happen, and can mess up the economics for others (anybody involved: workers/unions, transit country, financiers, etc…). This control is compensated by the fact that all the links in the chain make money only if the oil flows and all ultimately have an interest in getting the oil moving.

5. market control

Oil finally hits the market. Who controls its price?

For many products, the buyer has some degree of control via the level of his demand and/or the price he is willing to pay for that good. Oil is quite unusual in that it is a vital commodity for everybody (economies would grind to a halt without it), with limited demand elasticity (i.e. demand will not vary much with price) and a very efficient worldwide market. There is a single worldwide price (or at least equivalent netbacks taking into account transportation costs) and a fully liquid and solvent market which ensures that if you have oil, you will find a buyer - with the money to pay for it. This means that no one (except for very specific cases, for instance a pipeline leading to a single refinery, which will have some buying power) can set its conditions on the buying side.
Market power becomes a macro-economic question: what are global production and demand, what are their main drivers. Each country may worry about its specific dependency to imported oil, but the worldwide supply and demand balance is the only determinant of whether such imports will be found, and their price. To avoid such uncertainty, local policies can be put in place to change the local oil balance (policies to encourage domestic production, or favoring a switch to other forms of energy - nuclear, renewables, etc..-, or energy savings), and these policies will in turn influence the worldwide balance depending on the size of the country.

On the supply side, the picture is quite similar: the liquid worldwide market with many suppliers is also there, there is also a lack of elasticity on the production side (most countries produce at their maximum capacities most of the time - with one big exception, Saudi Arabia, about which more later, and it takes time to invest in new production capacities if they are needed). However, production levels are not currently correlated to reserve levels, and likely future production levels are much different from today's. In fact, reserves are much more concentrated than production, giving a small number of countries the perspective of growing market power.
On the other hand, another factor constrains the market power of the sellers: their own dependence on oil export revenues for a large part of their exports, GDP, and budget revenues. This means that variations in oil export revenues can have a direct impact on the standards of living of a good part of the population, which in turn would have an impact on the domestic political situation. These countries therefore need, sometimes desperately, to maintain the export revenues at the levels they already are (or even increase them to take into account fast-growing populations).
So you have a situation where the importing countries badly need to import the oil, but the producing countries just as badly need to export it. It's an unstable balance, determined first by the fundamentals of the market (the supply-demand balance) and then by international politics and strategy.

In this context, Saudi Arabia was an exception for the past 20 years: it was the only country with significant unused production capacity, which meant that, as the largest exporter it could have a real influence at the margin on the demand-supply balance. As one of the lowest-cost producers, this influence was even stronger. This power was demonstrated to buyers in the 70s via the two oil shocks, where SA was the biggest player within the OPEC cartel. It was also, more interestingly, demonstrated to other sellers in 1986 when the country increased its production, flooded the market with its oil and caused the oil price to collapse. Ever since, it has been accepted as the world’s “central banker” for oil.

The difference today is that SA, not having invested enough in recent years due to lowish prices, does not have that much spare capacity available anymore. When you add in unexpectedly higher demand (due to US, Chinese and Indian growth), uncertainty on production levels in several producing countries (strikes in Nigeria and Norway, political crisis in Venezuela, the Yukos fracas in Russia) and geopolitical instability in the Gulf region, and you have a recipe for crisis, where nobody really controls the price anymore, despite the efforts of many.

The Persian gulf countries control most of the remaining reserves and will thus have growing market power in the future, which may translate into geopolitical power as they will control a large enough portion of oil production to be able theoretically able to cut off supplies and bring other countries to their knees.

But higher oil prices and higher dependency on a few sources also lead others to seek alternatives. Amongst the alternatives, you can find more expensive reserves (including very deep offshore, oil sands), new technology/substitutes (GTL, which requires natural gas, renewable energies, energy efficiency by users, public transportation, etc…), all of which help to bring the market back to an equilibrium.

And remember that the oil revenues by producing countries will be spent, usually in industrialized countries, thus bringing it back into the economy. The net effect of such massive movements of funds is equivalent to a massive – and brutal - shift in tax policies within industrialized countries, and can thus also be compensated by domestic tax reform. (Actually, one of the reasons for the 70s crisis was the producing countries were not able to spend and recycle all of their revenues back into developed countries; another is that they spent a lot of it on weapons, which is not the most productive use of our resources).

So when we talk about “control” of oil, we are talking about many different issues:

(i) for an importing country (and its economy), the strategic risk of insufficient supply in times of crisis
(ii) for a given oil asset, the repartition of the oil “rent” between all “stakeholders”
(iii) for an importing country, the macroeconomic issue of the overall cost of the necessary oil;
(iv) for an exporting country, the macroeconomic issue of the level of revenue from oil production;
(v) for an exporting country, the political risk of the domestic allocation of oil revenues;
(vi) for companies and users, the business risk of ensuring your supply at a predictable price;
(vii) for all, in the long term, the management of a vital but non renewable commodity.

To be explored in another installment…

Tax oil now

2004-08-10T00:05:00.000+02:00

We can all agree here that higher oil prices would be necessary to reflect the fact that it is not a renewable good. The question is: who should get the money? Or maybe - what should it be used for? or again - what kind of price would that be?

The price can be set in several ways:

- the price of real sustainable alternatives. Electric cars, with electricity generated from renewable sources, is already possible with today's technology, so that sets a cap (which makes me not believe in doomsday scenarios. we CAN live with energy costing 10 times what it costs now - easily). Most other uses for oil have substitutes, even if significantly costlier.

- if we decide to use the oil, as it's available, but focus on finding the cheapest substitute in the (long) meantime, the disruption to our economies will be less. However, the oil price must be increased to discourage its use, and massive public investment put intoà developing the alternatives (and one should finance the other, obviously).

where does that leave the oil producing countries? If the oil "rent" is to be used to finance future sources, they should not capture it. Is that likely, Is that possible?

This major potential source of conflict is the single biggest argument to increase taxes now in consuming countries, so that regular and predictable price increases for consumers do not create too much pain in the economy. If prices are increased because of supply and demand only, it will not finance alternatives (these will develop as they become more competitive, but it will take more time), and it will certainly be more brutal and unpredictable, with nastier effects on the economy. Better increase them now and use the funds for investment rather than for consumption in producing countries. But who will have the farsightedness to (i) impose these taxes and (ii) put them to the right use. Europe has managed (i) once, but not enough of (ii) (although Europe's renewable energy efforts are reasonably serious). The USA is totally hopeless on (i).

But remember, we went through a multiplication by 4 of oil prices in 73-74 and then again in 78-79 and it was not the end of the world. It was messy, but oil consumption WAS reduced and solutions were found and we are certainly not poorer today than we are then. We need the same again. Let's do it on our terms and not on the terms of terrorists, corrupt saudis or scheming Russians.

America’s Vichy Left vs. Michael Moore

2004-08-06T00:04:00.000+02:00

This article is a couple of weeks old, but makes some interesting points.

"...For years now, America's Leftists have been flogging themselves to death wondering why it is that they remain so weak and disenfranchised. Most Leftists agree that it's all the fault of the right-wing dominated media, and the Republican-infested corporate conglomerates that control the major media outlets. Others blame religion, or advertising, or popular culture, or something inherently base within the genus americanus. Sometimes they even blame themselves, though only in a safe, disingenuous, fake-self-loathing way: we're out-of-touch, too serious, too high-fallutin', we need to get with the times, etc.

In fact, the main cause for the demise of the American Left is much more sinister than that. The American Left is responsible for destroying the American Left. I don't mean that metaphorically. I mean quite literally that anytime the Left starts to get somewhere, you can be sure that a vigilante mob of other Leftists will rise to the occasion to crush it, to make sure they stay as marginalized and ineffective as always. It's a kind of ghetto envy endemic to the Left - the Right is always rooting for its heroes to succeed. Not the Left. The key for them is to sound Virtuous - and oftentimes that means eating their own in order to promote themselves.

Nowhere is this more clear than in the American Left's envy-fueled lynching of Michael Moore, the only Leftist to make it out of the ghetto...

What I found interesting in this article was that it reminded me of what was said about the Fundamentalist Christians re FMA. They wanted to lose in order to be able to complain that the country was going to the dumps, the country is controlled by a vast liberal conspiracy, they are the only righteous ones in an ocean of sin and desolation,...

Is the "Left" (or some parts of it - I agree that "Left" is pretty vague) guilty of the same? That's what the article was pointing out, and I think it was a fair point.

Also, another point. In France, in 2002, a good portion of the Left found Jospin to be too centrist, too "liberal" (in the European sense, i.e. too much to the Right); as we have a two round election with many candidates, they indulged themselves and voted for the Greens, the Communists or the various Trotskysts. The result was: Jospin did not even get to the second round, and the "Left" had to call for a vote for the hated (and incompetent) Chirac against Le Pen - except for the hard trotskysts (Arlette Laguiller) who did not call for anything. In their view, Jospin got what he deserved, and any nasty right wing government was good for them because it brings the perspective of the Revolution that much closer by being, precisely, nasty.

The US is now in a somewhat similar position, in my view. Even if you agree (which I do not) that Kerry is "Bush lite", you still have the choice between a "moderate" right wing candidate and a "hard" right wing candidate. If you say it does not matter, then in my mind you are no different than those French trotskysts that hope that things will get worse so that they can get better (through a real revolution).
My point is that, in my view, there is a lot of sniping from the far left against the centrist left, or maybe to be fairer, from the left which is happy to forever criticise but does not want to take responsibility to improve things (unless it's "real" change, i.e. a revolution), against the part of the left that fights to get back to power and makes the necessary compromises to do so (whether by taking moderate "unpure" positions, like Kerry on Iraq, or by being ruthlessly and efficiently partisan like M. Moore).

Some input on the WoT

2004-08-04T23:23:00.000+02:00

Long post below, taken from a thread at kevin Drum's. Lots of interesting ideas. Credit to "Tim Kane". Here goes:

The 9/11 Report does, I think do more damage to Bush of a lasting nature.

As David Brooks column points out - the 911 commission states that, "Wrong Way Bush" and his neocon hacks has totally misdiagnosed the Terrorism war and implemented a coutner productive strategy.
It is an ideological war after all. A jujitzu battle of hearts and minds over a prolonged period of time where waging traditional warfare hurts you more than it helps you. (blinded as they were - they should have been hip to this from the outset - you don't bomb the world trade center and not expect a reaction, the reaction is what they were after!!!!).
The first course of action in a ideological war is containment - stop the spreading of the disease and the hurt: which of course means international cooperation - a near global anti-terror Nato complete with an intellectual focus.
Apperently Brooks is just waking up to this. Only 3 months ago he was still spouting conservative trash talk that Iraq was front and center in the war on terror. Its like calling a steak a fruit salad. The Republicans, neocons are lacking imagination indeed: They were to blinded by there desire to invade Iraq, to protect Israel, to control oil, the idea of spawning democracy in the region was pure baloney - we know how to spawn democracy - it takes a long slow careful process because it is ideological in nature.
I am sorry, but the ideological nature of the current state of affairs was blatently obvious a long time ago to anyone who wasn't a neocon. Even in Iraq (or perhaps it was Afghanistan -er) one of our own Generals was saying "this is a war of ideas and you have to make sure your idea is better than their idea."
The problem with the present is that our idea as it is currently packaged by Bush, as it stands, is not intuitively better to the people's who's hearts and minds are in play, who's hearts and minds are the battle field.
Bush constantly preaches liberty and freedom. In his last press conference he used those terms some 150 times - But not once did he mention fairness.
The dirty little secret of the neoconservative movement is they want the principle of liberty to govern without balancing it out against the principle of fairness because such a single threaded epistemology allows for what they are really after, a further concentration of wealth and power – history proves such policies are sheer folly of the most epic proportions.
The lesson of a terribly bloody 20th century is that societies that are based solely on the liberal principle of freedom, if they become too unfair, become top heavy and, like standing up in a dug out canoe, are highly unstable and prone to collamity.
To liberal democratic societies, the principle of fairness functions like an outrigger that when tethered to liberalism makes what was once immensely unstable, immensely stable, in a word, unsinkable.
Most of the first world, our allies, learned the lessons of the 20th century – the idea that the principle of freedom has to strike a balance with the principle of fairness: forming a sort of check and balance against the excesses of the other and creating more stable, less brittle societies. This is why social democracy prevails in countries that have tasted or confronted fascism.
Because of the mythology of America’s birth, that freedom and fairness are the same, and having avoided the worst of the 20th century’s calamities, a portion of American society, such as the neoconservatives, has yet to recognize this lesson.
People living in North Africa and SW Asia are unfamiliar with the idea of liberty- they've only observed it from the outside, it is not intuitive to them. Bush can preach it all he wants but they can't fully comprehend it. Whats also lost on both Bush and people living outside liberal societies is the amount of enourmous discipline it takes on the part of an individual to live in a free society. This obviously is not altered with the way of a hand or the invasion of an army.
While unfamiliar with liberty - that leaves only the issue of fairness in which we can aproach and begin to have a dialogue with the muslim world.
And to Muslim's fairness is an issue.
Islam is constructed around a set of communitarian and religious ethics that have much to do with fairness, much to do with duties an individual owes to God and Community, and little to do with liberty, at least in the way we understand it – desert communities could never afford the luxury of individualism. Bush’s promise of the virtue of liberty falls on deaf ears because they have no cognizance of it from their experience, let alone as a virtue, let alone a sacred virtue. While promising liberty he threatens to take away fairness, as they have come to experience it. To Muslims, it appears as if Bush is offering nothing while taking away something that can only result in unfairness, corruption and debauchery. And that’s not contemplating issues of nationalism or tribalism
Islam's initial inspiration and rise was, in part, a reaction to an outsized disparity in wealth. In 610 Mecca was a prosperous trading city, but wealth became increasingly concentrated and poverty abounded. As we all know from the movie “It’s a wonderful life” when such conditions occur, people’s hope declines and increasingly they turn to self destructive, short term gratification, drunkenness and debauchery. Islam’s impermisiveness towards drinking and sex is one reaction to this condition. A ban on usury, that is income from interest (ie. one form of capital gains), is another.
While liberalism has defeated all prior challenges, it is hubris to assume success. While we believe we will prevail, we as yet don’t know for sure as to how. A good start is to recognize the ideological dimension and address the issue of fairness in our own society. As one General in Iraq is reported to have said, “this is a battle of ideas and you have to make sure that you’re idea is better than their idea.”
Islam represents a system that was originally designed to go up against and beat a system akin to our own. From a vastly inferior base, Islam defeated a mercantile society that had mal-apportioned distribution of wealth. The more unfair we become, the more brittle our society, the more inspired our adversaries, the more we look like Islam’s traditional enemy: Great Satan indeed. If we don’t have the political will to address unfairness – how will we prevail in the long battle of hearts and minds?

Another point: Bush's bluring the line between church and state undermines the very foundation for this ideological war. In the final analysis this was is about the seperation of religion from politics. Bush's bluring the line hear makes the case for Islamiscist. And one might argue that if this seperation were removed that Islam might be better than Christianity because Islam is built from the ground up to encompase politics, in Christianity it takes contortions in theological interpritations to deny Christ's commandment to seperate things spiritual from things political. If we are going to embracing merging religion with politics we might all be better served in converting to Islam because its theology is more developed along these lines.
Our founding fathers were wise to seperate beliefs from politics, church from state. But then they were only catching up to what Christ himself implied 1700 years earlier.
Finally, getting back to fairness its worth considering Bush's domestic policies and how they endager us.
In combination with his foreign policy, Bush's actions hurt us immessearbly because we can't get back the lives, the bullets and the hundreds of billions of dollars we've spent in Iraq.
Let me use a point in history to demonstrate this: In his book “Structure and Change in Economic History” Professor of Economic History and Nobel Laureate Douglas North suggest that the Roman Empire fell because the wealthy and powerful used their influence to avoid paying taxes. Rome’s tactical advantage with its barbarian foes had narrowed. Rome therefore needed to enlarge its army to hold back the barbarians, enlarging the tax burden. The growing tax burden was pushed down upon the classes that could least afford it. The Empire collapsed and a 500 year Dark Age descended upon Europe.
About the time Europe was recovering from the dark ages a similar event occurred in Japan. Japan balkanized into tiny state-lets ruled by thugs and itself, descended into a prolonged dark age. In a somewhat similar vein, the Byzantine aristocracy, held back adequate funding for their military out of fear military pretensions. The self weakened Byzantine army lost to the Turks at the battle of Manzikurt forcing Byzantines to vacate Anatolia for the first time since the Persian Empire and precipitated the call for the crusades. It was the beginning of the end for the Byzantine Empire.
These societies did not fall to superior foes, they collapsed. What is striking is the totality of their collapse and that the people who had the most to loose by the state’s collapse, the wealthy and powerful, were also the ones that refused to pay to ensure the states perpetuation.
These cases illustrate the folly that befalls a society that becomes unhinged from the principle of fairness, where wealth becomes too concentrated and tax burdens mal-apportioned. As Peter Peterson's new book: "Running on Empty" points out we are fiscally approaching a cliff. Bush's policies are pushing us into a chasm. What kind of ideological war can we fight when our financial systems collapse? What kind of hot war can we fight?
It is hard to believe but "c+ Augustus" the leader of the most powerful nation in the history of the earth, the leader of the most technically sophisticated society in history, the leader of the free world, is losing a war to a towel headed demagogue living in a cave on the Afghanistan Pakistan boarder.
If society can begin to grasp this then replacing Bush should be "slam dunk" but "Intellectual Elites" like Brooks is only just coming into cognition. We have a long way to go indeed, and we are going to have some massive set backs in the next fifty years: backlash from Iraq, financial calamity, social unrest, international dysfunction - all served up courtesy of "C+ Augustus", the Shrub, Bush II.
The price of fascism has been high for all those nations that have been infected. Ours is looking like it will be steep as well. Either Islamisism or Social Democracy is the future of our world. Fasco/Falangism -be it christian inspired or Islam inspired is a bane to humanity.

David Brooks, there's your X.
To everyone else, Sorry I carried on so much - much to get off my chest. My appologies.

Posted by: Tim Kane on July 24, 2004 at 2:33 PM

This is an ideological struggle. But it comes down to one thing the separation between church and state.

First, religions are ideologies. You don't need a religious orthodoxy to pray to god, to be spiritual - but religions are more than just ideologies, they are like swiss army knifes with multiple functions like dealing with spirituality, regulating norms, managing our imagination in constructive manner etc...
Many historians acknowledge that fundementalism is a response to modernism. What is modernism? Liberal Democracy, rule by (man made) law, constitutional governance, protection of rights, liberal economics of which the most important aspect would seem to me to be reliance upon systems and the specialization of task/labor/systems - that is unbundling and fungiblizing. Seperation between church in state is just one aspect of that.
The major difference that could be said to be characteristic between Christianity and Islam is Islam could be said to characterize by cohesion and Christianity by centrifucion (spell?).
Christianity begins by deviding God into three and seperating politics from religion and immediately spawned a million various sects that were infighting. Mohammed came along in the year 600 or so and saw this - his creation, Islam, was meant to eliminate these weaknesses. One Religion, One God, One Prophet (in essence), One Community, One State, One Set of Rules governing everything, Those rules come from God and can not be debated or eliminated, one holey book one holey man, and everyone has a duty to be a soldier.
Early on Islam was in a struggle to survive - War is basically a numbers game, everyone therefore had to be a soldier.
In the desert world, there is no tie to land and so there could be no state control in the normal sense - territory is meaningless because in the desert it is worthless - Mohammed set out to gain soveriegnty over the heart, the mind, the sole - he did not conquer territory but persons - once they submitted to Islam, he had soverienty.
In the tribal world, Islam was a new, ellastic (in one direction - apostacy was punishable by death) tribe. In essence it was a pyramid sceme, since other surrounding tribes were based on blood instead of belief they could not grow, once Islam proved it could survive, it was set up to grow quickly because in such a pyramid system the pay off is greatest the earlier one enter's it.
Initially Islam was up against supperior numbers so Mohammed made it a duty to fight, if you die you go to paradise, if you don't fight you are condemned to the fire for eternity.
This pyramid scheme, elasticy, and Cohesion soon gave Islam a competitive advantage against every adversary and then every society it came up against.
In settled (farming regions) class prevails and peasants (farmers) weren't normally allowed to be warriors: Both Europe and India had warrior classes (or castes) (knights) that artificially lowered the number of fighting persons. As a result large parts of India and Europe were dominated by Muslims from time to time. (this is a simplification and lots of other factors matter as well such as technology, the state of affairs of an adversity, and the suitability of mobility in fighting etc...)
So Islam initially had a competitive and comparative advantage coming out of the gate. Mohammed saw this coming and expected to conquer the entire world. When he became aware that he was dying he still expected Islam to conquer the whole world someday and there are commands in the Koran to wage Jihad. etc. etc...
The initial success of Muslim Armies to expand from China in the east to Spain in the west was proof to the Arabs of the truth of Mohammeds message. In essence they had a better more modern system set up in 600s. Islam was in the ascendancy for about a 1000 years. But it has a fatal flaw - it is locked into Seventh century ethics and for fundementalist they can't abandone God given laws, ethics and systems.
After 1500s monolythic system of Islam increasingly gave it a disadvantage. The West took advantage of its centrifugal properties to develope systems based upon specialization and freedom of thought, competitiveness between states meant that laws, norms and systems were pushed ahead, not held back by need to adhere to God's laws.
The development of a new modernism in the west that is ascendent over Islam creates a crisis for Muslims - there system is supposed to be superior, ascendent and true. The west's ascendency refutes all of this.
To adapt they have to embrace centrifugal, fungible concepts like seperation of church and state, freedom of thought. The response of many groups that have confronted western modernization has largely been the same: fundementalism - go back and do what are ancestors did to great success, the reason we are failing is because we have become corrupted over time. Read some of what the Great Indian Chief Pontiac said to the North American Indians and it reads similar to other fundementalist -like the wahabi's in Saudi Arabia and bin Laden.
The difference is that Islam is designed to succeed against systems such as ours. Indeed it was a mercantile economic system that it over threw against great odds at its inception in Seventh century Mecca.
So it is an ideological struggle. And the Primary issue is separation of politics and religion which is a problem for Muslim. There are other issues but thats primary. Most other cultural belief systems are able to adapt to modernism. And if you look in the world today almost all points of conflict occur where Islam confronts the outside world: Philipines, Chechnia, Cashmire, Sudan, even Bosnia.
Right wing fundementalist are no different, they are struggling to adapt to modernism. (okay thats simplistic explanation.)
The issue of Israel only complicates things for Muslims. The Israeli's are split between moderates + liberals who are willing to live within the "greenline" and neocons that seek security through imperialism. In this connection they dove tail with Neocons in the U.S.
I've never met a Jewish person who wasn't pro Israel, but how they are pro-Israel is different. Jewish Neocons, like Wolfowitz, have no problem using American power to creat in Iraq an Israeli satelite state. While non Jewish Neocons like the control of oil.
The problem is the neocons don't give the Muslim's a workable deal. Churchill said you have to recognize the legitimate rising expectation of your adversary in negotiations. The jewish-neocons deny their counterparts that.
This kicks us into Game Theory territory which stipulates that when one is confronted in a long term relationship, whether adversaries or not, one best, most reasonable and sain option is to cooperate. If you don't have cooperation the only alternative is a fight to the death of the one party or the other. Sane, moderates on both sides have not prevailed do to the shenanigans of extremist on both sides - witness the assasination of Rabin by an extremist jew. In the Israeli - palestine issue, Extremist, on both sides are cooperating to eliminate moderates.

And in the process they are dragging us in, and dragging us down.
The islamisist terrorist represent Islams

Posted by: Tim Kane on July 24, 2004 at 6:38 PM

First off, terrorism is a tactic, not an ideology. Next off, the actions of the terrorists are symptoms of underlying causes, not the underlying causes themselves, contrary to the beliefs of some on the right. There are multiple threads to this conflict. You have the fallout of the actions taken in the Cold War (I am not getting into their morality/necessity, I am simply referring to consequences of actions taken, whether good ones or bad in context), in particular the inability of the US to recognize that there would be negative ramifications from it’s actions through the Cold War left over to deal with. There is also an element of religious extremism thanks to one of the sects in Islam that unfortunately has been able to gain significant ground within the religion thanks to it’s heavy sponsorship of the Saudi Royal family as the true form of the country that Mecca is in. Not to mention the revenues poured into the madrossas over the past 2-3 decades throughout the Muslim world thanks to the oil revenues donated to spread it. This has caused desert Islam to have gained a disproportionate sway in Islam generally, much like the evangelical movement has within American Christianity generally. It certainly is a powerful voice within the Faith, just as Evangelicals are in US Christianity. Then there are the economic elements, both in terms of general economic development in the region versus the rest of the world, as well as how it has shaped the foreign policies of the Western powers in that region over the past 100 years or so, most recently dominated by the USA. Then there is the Israeli-Palestinian ongoing tragedy. This is one of the largest elements of the propaganda used to demonize the USA, given that Israel would never have become the economic and military power it is without the extremely powerful US commitments of military technologies, massive aid packages, and a willingness to overlook things like Israel’s nuclear capability while decrying proliferation in the region to any other country. Consider for a moment that Israel has never signed the nuclear non-proliferation treaty, one of the global cornerstones of anti-proliferation nuclear security measures. Yet it has been an open secret for 20 years now that Israel has nuclear weapons capabilities.

Yet consider how this same treaty is enforced with almost every other nuclear capable country on the planet. This is one example of a double standard on such policies that is rampant through the US-Israeli relationship, and this also is not unnoticed in the Islamic world (as well as the rest of the globe), and it again helps reinforce the sales pitch regarding the evil West, it’s colonial aims in the region, and it’s apparent valuation of Israeli lives as far more valuable inherently than Arab/Palestinian lives from the extremists.

Yet this of all the above is the one most easily addressed, if the political will is there. This is where the Israeli lobby has been particularly effective in blocking attempts to take a fresh look at the situation by claiming any attempt to do so will lead to Israel’s destruction, and therefore to consider such is evidence of anti-Semitism/Jew-hating. This is remarkably similar in nature to the cult of personality surrounding the current President among his supporters, where any questioning of his actual actions versus his words gets you labeled a sympathizer, a traitor, etc. It therefore makes having anything resembling reasoned consideration/discussion/examination of the underlying issues impossible.

As well the world, including the Islamic world, has been watching over the past 25 years or so a stronger religious element in the policies and politics of the USA, with the current officeholder seeing himself as the instrument of God’s will on Earth, and if you do not think that is seen as a problem by those that do not share that Faith, then you are never going to see the realities involved in this problem/conflict. The last thing any of us need is for this to be seen as a religious war, given the particularly passionate emotions religiosity calls out from its adherents, whatever the Faith. When the Faith involved is of the type of Christianity that GWB practices, then it is really terrifying. After all, if he believes we are in the end times, why would he work to counter the foretold apocalypse, given that would be to work against the will of God?

Then there are the economics issues, from the resources needed by the local populations that they are not getting from their resources to the economic forces that drive US policy in the region. These have been addressed by several others upthread, so I will not go into detail myself. However, I do want to add that I see the economics elements as being the most deeply rooted, and the ones that are most working against the USA at this time. However, I also see the economic elements as ones that can be the most powerful in countering these problems, if they are actually addressed with fresh thinking and creative approaches. In many ways, I think the description in Alvin and Heidi Toffler’s PowerShift (1990) regarding the world we are moving into (indeed, in many ways already have) and the nature of the power relationships and how they are changing have real insight into this area of the problem.

Finally, I see trying to treat this as simply a war of ideologies simply another binary view of the problem, and one that will only further polarize both sides, making things worse, not better. This needs to be recognized for what it is, a combination of many different threads, each with it’s own unique solution(s). There is no silver bullet approach to even looking at this problem, let alone solving it, and any attempt to do so will only waste time, aggravate the situation, and further lock in mindsets into stone. I should point out I am only hitting what I see as the main elements of the problem, I do realize I left other aspects out, but let’s face it, if I had tried to add in every significant element I would have written something many times longer than this, and still not have everything. More than anything else, I want this to be seen for what it is, a complex problem with many elements and facets that need to be understood and dealt with in their own ways, and the recognition that the silver bullet approach is an illusion, and a dangerous one.

Sorry about the length, but the topic is not one that lends itself to brevity, IMHO.

Posted by: Scotian on July 25, 2004 at 1:56 AM

High oil prices are good news in the long run

2004-08-04T23:16:00.000+02:00

Oil going to at least 80$/b or more is the only way to make us (developed countries), and the US in particular, change our attitude to energy.

- Only really higher prices will lead to behavior changes (worrying about MPG, thinking about public transportation, saving electricity on light, AC, etc...).

- Only really higher prices will make substitutes worthwhile to consider (renewable energy, especially wind, changes in industrial production and infrastructure policy, basic energy savings).

The good thing about oil prices is that they apply to everybody around the world, so you cannot complain about it being unfair. Energy-intensive users (drivers) and industries will complain, but it is precisely these that need to change, and higher prices imposed from the outside is the only way to do it.

Remember that US oil consumption reached the 1979 level in 1998 again, after dropping significantly, so it works.
In the US, you have the additional "benefit" that taxes being so low, (i) it will be felt even more than elsewhere and (ii) higher prices cannot be compensated for by lowering these taxes, as Europe could conceivably do (but should not).

High oil prices are good news in the long run.

Yukos

2004-07-03T20:52:00.000+02:00

What's going on with Yukos?

I should know - I worked with Yukos for many years and I even had lunch with Khodorkhovski a few years back; I know a lot a people over there - but I don't. Nobody, it seems, really knows, even those that could or should.

The obvious idea is that Putin, or people close to him, want to capture the wealth associated with the company, directly (change ownership) or indirectly (nationalise). The problem is that Yukos's shareholders are not stupid and they have tied their money very tightly with that of "Western" shareholders and Western banks (I put quote around Western because a lot of the money invested into Russia by foreigners actually belongs, via offshore vehivles, to Russians. The banks are really Western). So, to take moany from them, you also need to take it from Citi, ABN-Amro, etc... which Putin obviously wants to avoid.

The people doing the "takeover" are of course saying " don't worry, we'll pay you back once this is settled, but the Yukos guys are saying to all: "any assets of ours that ends up in your hands - we'll sue you to death in every jurisdiction around the world, especially in the US, with RICO or the Aliens Tort Act". So you have a funny slow motion take over, where the assailers have every lever but have to maintain a fiction of legality, while Yukos basically threatens MAD (we go down, we take the Westerners with us and bring down the country again) and the Westerners try to stay out of the way ("okay, you have 1.5b$ in hostage, maybe you need only 1b$, pay us back a little, and we'll tell the other side to back off a little..." to one side, "we don't really care who owns Yukos, as long as we get repaid, but it must look legal" to the other)

The view from a year ago:
Latynina 23 July 2002
The view from a few days ago:
Latynina 23 June 2004

I especially recommend the second one.