Peter L. Berger's Blog, page 163

Silent Chinese Subs Sound Alarm Bells

Chinese submarines are developing a stealthy advantage over their American counterparts, the South China Morning Post reports:

The US Navy’s Pacific fleet used to mock Chinese submarines for being too noisy and too easy to detect, but that has largely been remedied in recent years and China is now on the cusp of taking the lead in a cutting-edge propulsion technology.

Naval experts said the new technology would help China build more elusive submarines, but might also prompt the United States to ramp up anti-submarine warfare measures.

The latest innovation was recently shown off on Chinese state television, with a leading naval engineer bragging that China’s technology is “way ahead of the United States.” According to naval expert Collin Koh Swee Lean, the technology could soon be standard on all China’s future submarine models—and that could have ramifications elsewhere:

“In the long term, if the pump-jet propulsion is declared fully operational and tested successfully … future [Chinese] submarines would be equipped with pump-jet propulsion as a standard design feature,” he said, adding that the new technology would also benefit other naval shipbuilding projects, such as surface warships.

“The operational/strategic ramifications would be that China would muster stealthier submarines … and this essentially broadens various options for Beijing where it comes to the peacetime use of its naval capabilities.”

China’s neighbors are certainly awake to the threat; Beijing’s rapid expansion of its submarine fleet has already set off an arms race in Asia, with Taiwan investing in its own homegrown sub program and sub sales skyrocketing as countries from India to Australia seek to upgrade their fleets. Meanwhile, many of those same countries have been stepping up their surveillance capabilities with new spy planes and satellite monitoring sites to keep tabs on China’s fleet.

Will China’s stealth submarines render those efforts futile? It is too early to say, but it is abundantly clear that China is seeking to create an advantage in quality, and not just quantity, of its submarines. And with President Trump’s campaign promise to re-build the U.S. Navy crashing against hard budget realities, it is all too possible that the U.S. will fall behind the curve.

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Police Pensions Break the Bank, Too

It’s not just teachers: Police unions have also been prime offenders in a corrupt system whereby organized labor and city politicians collude to provide generous but unfunded pensions that temporarily satisfy everyone but impose huge future costs on future generations. The Wall Street Journal reports:

Police pensions are among the worst-funded in the nation. Retirement systems for police and firefighters have just a median 71 cents for every dollar needed to cover future liabilities, according to a Wall Street Journal analysis of data provided by Merritt Research Services for cities of 30,000 or more.

The combined shortfall in the plans, which are the responsibility of municipal governments, is more than $80 billion, nearly equal to New York City’s annual budget.

And yet any attempt to bring police pensions into line with today’s municipal budgets and stock-market performance runs into the reality that many officers won’t stand for it—and they often have the public behind them.

The article is a reminder that leftwing Democrats don’t bear sole responsibility for the state and local fiscal crisis. Centrist Democrats and Republicans often back police unions to the hilt. GOP governors like Scott Walker and Rick Snyder, who have burned political capital trying to defang public sector unions, have generally exempted police and firemen from their reform efforts.

The bills from overburdened pension systems are now coming due, and cities cannot pay them without slashing vital services—but the alliance between law-and-order, pro-police voters and union-loving liberals makes it harder to find a solution of any kind.

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Deconstructing Fraud

Fraud: An American History from Barnum to Madoff

by Edward Balleisen

Princeton University Press, 2017, 496 pp., $35

There is a long tradition of fraud in the history of the United States, and the history of antifraud efforts is only slightly shorter. Notwithstanding the title of his recent and impressive book, Duke University Professor Edward Balleisen’s principal concern is with these antifraud efforts rather than with the incidence of fraud itself. In his view, attempts to combat fraud illuminate the issue of business-state relations in American history, and act as a corrective to the widespread tendency to see the market and the state as antagonists when in truth they have always been interconnected. Although the book is open to question on several points, it is unquestionably a major scholarly achievement deserving of a wide readership among academic and general readers alike.

The bulk of Fraud consists of a chronological account of antifraud efforts, beginning with the consolidation of the United States after the War of 1812 and continuing to the present. Balleisin identifies four epochs during this period.

The first, lasting from 1815 until roughly the late 19th century, was defined by a legal and popular embrace of the principle of caveat emptor—“let the buyer beware.” Inhabiting a culture that prized self-reliance, lawyers, judges, and ordinary Americans alike agreed that victims of fraud were largely to blame for their own gullibility. Those who benefited from America’s rapid economic growth, moreover, feared that providing easy redress for fraud victims “would throw too much sand into the gears of commerce.”

Beginning in the late-19th century, however, mounting concern that America’s transition to full-fledged industrial capitalism increased the prevalence of fraud produced new antifraud efforts at both the state and, for the first time, the Federal level. The most significant of these initiatives was the attempt to combat mail fraud by businesses (including the innovative mail-order firm Sears, Roebuck) that relied on the mail to advertise their products. This effort, followed swiftly by others, drew on the resources of the emerging administrative state as well as self-appointed private watchdogs, the most important of which were the Better Business Bureaus. The latter were funded by subscriptions from large corporations whose managers worried that fraud threatened confidence in the capitalist system and hoped to stave off more statist solutions. Although this public-private antifraud partnership avoided full-fledged statism, the public side of it nevertheless drew charges of being an “American star chamber,” while both sides attracted criticism for violating principles of due process. In what would become a pattern, the resulting reforms by both Federal agencies and private actors strengthened procedural protections, but at the cost of reducing effectiveness.

A third epoch began when Congressional revelations of endemic fraud on Wall Street, which had contributed to the Great Depression, galvanized public support for a broad expansion of antifraud regulations, including the establishment of the Securities and Exchange Commission. Vigorous antifraud efforts received an additional boost from the spread of a consumerist ethos, especially after World War II, according to which one’s quality of life was measured by one’s possessions. Politicians from both parties rushed to cater to the sense of consumer “rights” among Americans by cracking down on fraud. The Better Business Bureaus—which, far from being victims of corporate capture, were led by men with a strong professional antifraud ethos—remained vigorous. So broad and deep was the antifraud consensus that many believed, and some worried, that the world of caveat emptor was giving way to a world of caveat venditor—“let the seller beware.”

But signs of fracture were evident. Around the 1970s, a wave of scholarship by social scientists, lawyers, and economists offered a far-ranging critique of the antifraud regulatory regime (as well as of regulation more broadly), which in many ways returned to the assumptions underlying the 19th-century world of caveat emptor. The bulk of this work came from the free-market right, which argued that antifraud regulation, by creating perverse incentives and imposing heavy compliance costs, stifled competition and innovation, thereby delivering the opposite of what it promised to consumers. Although important antifraud initiatives have occurred since the 1970s, the general trend has been deregulatory, in contrast to the previous epoch. For Balleisen, this trend has been no less perverse in its consequences than the regulatory trend seemed to free-market thinkers: Several of the worst business frauds in recent decades, including the Enron scandal and the subprime mortgage crisis, can be partially traced to specific deregulatory actions undertaken in the same period.

Although Balleisen has clearly considered the contemporary policy implications of his research, this is first and foremost a work of serious historical scholarship. In books of this sweep, it is always possible to point out oversights. But instead of finding it superficial, as big books too often are, I was continually impressed by Balleisen’s craft. Sixteen years elapsed between his first book, Navigating Failure: Bankruptcy and Commercial Society in Antebellum America (2001), and this one, and he appears to have spent the time marinating in his subject matter. Fraud reflects extensive reading in a formidable number of discrete historical subfields—economic, business, legal, policy, and cultural—as well as in behavioral economics. Balleisen also made intelligent choices about where to supplement this reading in the secondary literature with in-depth original research. His broad scope pays dividends: dynamics that might have seemed isolated in narrower studies, such as demands for procedural fairness in antifraud enforcement, instead appear as part of enduring patterns in U.S. history.

Balleisen delivers on one of his central historical and theoretical claims, namely, to show that government regulations, far from common depictions of them as outside of or hostile to markets, in fact help to “constitute” markets. But I fear this claim may be unclear or unduly alarming to many readers. He is trying to compress nearly two hundred years of work since Karl Marx into a paragraph, likely in a commendable effort to keep the book to a reasonable length and to wear his theoretical sophistication lightly. I have some familiarity with the intellectual currents he is swimming in here, and I still felt I had to read a great deal into what he was saying; those who are unfamiliar may find themselves floundering. So let me try to explain what I think he means, why his evidence supports his claim, why the claim is not as radical as it may seem, and why it needs one significant qualification.

What Balleisen is trying to do here is to push back against a common popular view that markets create or sustain themselves solely because they are “natural” or self-evidently more “rational” or “efficient” than non-market alternatives. By contrast, in saying that law helps to “constitute” markets, Balleisen is arguing that markets are social constructions, created and sustained at least in part by the exercise of power on behalf of interests, and requiring cultural acceptance to function—they must be seen as a legitimate way of ordering human relations.

There is an edge to this argument: Since questions are less likely to be asked about the justice of a social order regarded as natural and consensual than about one seen as dependent on power, the claim that markets are socially constructed threatens the interests of those who benefit most from them. One can dial up the radicalism of this claim by moving to a rejection of markets as oppressive, but one can also dial down the radicalism by claiming that, while markets ultimately rest on relations of power, they provide more good to more people than any alternative. In other words, readers encountering Balleisen’s argument on this point need not alert the local Chamber of Commerce.

Most importantly, ideological implications aside, Balleisen provides evidence to support his claim concerning the social construction of markets. Regulatory laws appear in his work as social agreements about the legitimacy of market activities and are backed by the power of a sovereign state, which itself depends on a social agreement or compact.

But I would insert one qualification, with which Balleisen might or might not agree. Acknowledging that markets have a political, cultural, or legal character—a non-economic character—runs the risk of analytical elision. After all, markets also have an economic character. They unleash such powerful forces of “rational” cost-benefit analysis as to acquire a certain practical autonomy from the non-economic context in which they are ultimately embedded. Sometimes a response to a relative price movement is just a response to a relative price movement. Or, to put it more accurately, determining how the concept of “relative price movement” acquired its prevailing meaning would require an excursion so far afield from the topic at hand or a historical actor’s own awareness as to render the game not worth the candle.

By the same token, Balleisen’s claim as to the “indeterminacy of fraud” may also require more qualification than it gets. Balleisen is claiming here about fraud something similar to what he claimed about markets: that fraud has no determinate core meaning (economic, legal, cultural, or otherwise) that floats outside history only to parachute into different historical contexts, but rather is socially constructed depending on context. He marshals especially powerful evidence to support this argument in his bravura Chapter 6, which traces the emergence of mail fraud (and antifraud efforts) in the late 19th century on the basis of original research in Post Office archives. His cast of characters comes from all corners of American capitalism, including not only the expected giants like Sears, Roebuck, but also the Korean clothing entrepreneur Charles Young, the African-American beauty and hair impresario Madam C.J. Walker, and many others. In addition to enabling Balleisen to offer a thorough analysis of the factors contributing to mail fraud orders, the breadth of this cast underscores the sheer pervasiveness of innovative business practices in the U.S. economy. He argues convincingly that the existence of fraud was often indeterminate, depending on one’s perspective and with no objective point of reference. So, for instance, in railroad accounting, it was exceedingly difficult to determine what was an effort to defraud investors and what was an effort to handle new forms of depreciation and fixed costs.

Nevertheless, fraud is not always so indeterminate. As Balleisen himself notes in the introduction, “to call a person or a business a ‘fraud’ is, and has been for centuries, to make an accusation of ill-treatment or injustice, founded on deceit.” Is there anyone (besides a lawyer) who would regard Sears, Roebuck’s 1889 newspaper advertisement that “offered, for a limited time, a sofa and pair of chairs for only ninety-five cents,” acknowledging in tiny print that the furniture was “miniature” but not that it was for dolls, as anything but fraudulent? If not, then perhaps there can be a degree of determinacy to fraud.

I have only one clear-cut disagreement with Fraud, and some questions. The disagreement is with Balleisen’s his claim to have dented what a number of scholars refer to as the “myth” of the weak American state, which his evidence does not support. All of Balleisen’s examples of antifraud regulation before the Civil War were at the state, not Federal, level; Americans’ willingness to tolerate state and local governance has never been at issue. His first example of Federal antifraud regulation comes from the Civil War (the Quartermaster Corps’ battle against fraudulent defense contractors); the next, and more important, is the post-bellum Post Office. This timing supports the traditional view that the American state—meaning the Federal government—was weaker than its European counterparts at least until the Civil War, and perhaps even long after that. Indeed, Balleisen’s periodization hews fairly closely to conventional chronologies of business-state relations in U.S. history: little role for the Federal government until the Civil War, then a burst of administrative state-building in the Progressive Era, followed by another burst in the wake of the Great Depression, and then an anti-statist counter-attack building steam in the 1970s and continuing to the present. Insofar as that periodization is concerned, Balleisen’s originality consists of extending it into the important area of antifraud regulation.

My remaining comments are not criticisms, because in order to respond to them Balleisen might have had to cut valuable sections of Fraud or push it to unacceptable lengths. They ought instead to be regarded as questions.

The first concerns the effect that two related and mostly absent subjects—Congress and geographical divisions—might have had on his argument. The judiciary is well represented, but the infrequency of Congress’s appearances is striking in a book that deals so deeply with Federal legislation. The seeming irrelevance of sectional divisions, which have played so large a role in U.S. political economy (not just before the Civil War) and are apt to show up in the territorially organized Congress, is also notable.

A second question concerns the absence of discussion of how economic crises other than the Great Depression galvanized public discourse about fraud. Between 1815 and 1929, the United States experienced at least seven major panics and/or depressions (1819, 1837, 1857, 1873, 1893, 1907, and 1914). Many, if not all, of these events occasioned vociferous public denunciations of bankers and other economic elites as “corrupt.” Were they not also denounced as “fraudulent,” and if not, why not? If they were, then why did these denunciations not lead to a wave of antifraud regulation as they did after the Great Depression? Here I wondered particularly about Balleisen’s claim that antifraud efforts at the turn of the century were led by business elites rather than by grassroots activists. The historian Elizabeth Sanders has argued that many regulatory efforts that appear to have been initiated by business elites seeking to shore up confidence in corporate capitalism were actually initiated by anti-corporate grassroots agrarian activists, who forced business elites into defensive compromises. There was certainly no shortage of complaints about banks and railroads among those activists in the wake of the panics of 1873 and 1893. Is it possible that what Balleisen takes to be willing corporate efforts at capitalist stabilization were in fact grudging concessions to avert more radical alternatives?

Third, I question Balleisen’s weighing of the costs and benefits of antifraud regulation versus deregulation. He makes a strong case that, contrary to neoliberal arguments, markets do not police themselves. As he notes, reputational concerns as well as other market-based incentives and disincentives did not “ward off rampant manipulations and deceptions” in three unregulated markets: the New York City auction markets of the 1840s; the San Francisco stock market of the 1870s; and the Wall Street of the 1920s. Moreover, to his credit, he treats some of the costs of antifraud regulation as real problems, rather than dismissing them as the fevered imaginings of capitalist tycoons. Because, he argues, fraud tends to cluster in innovative sectors of the economy—indeed, innovations that deliver what they promise have sometimes been mistaken for frauds—the state cannot regulate fraud without imposing costs on innovation. One of the many strengths of his book is that he approaches policymaking as a choice between bad (some costs) and worse (heavier costs) alternatives, not as a choice between good (no costs) and bad (all costs) alternatives. He concludes, however, that the benefits of antifraud regulation have generally outweighed the costs. One may interrogate his evidence for that claim, but he has clearly given some thought to both sides of the regulatory coin.

The same is not true of the deregulatory coin, however. Here he considers only costs (a number of massive frauds that he traces in part to deregulatory actions), but not whether deregulation delivered any of its promised benefits: to promote innovation, competition, and growth. The result is an asymmetry in his analysis of the costs and benefits of antifraud regulation vs. deregulation.

Notwithstanding these criticisms and questions, I read Fraud with admiration. I did not find it an easy read—unlike most works of history, which embed analysis within story, Balleisen embeds story within analysis, with the result that the book lacks a propulsive narrative energy. But it is a good read: serious, intelligent, and rewarding. Although it has a sophistication that will satisfy specialists, it is also well written (the two do not always go together), which is to say that it will be accessible to educated non-specialists. Beach reading it is not, but anyone with an interest in business fraud, regulatory policy, business-state relations, or the seamier side of capitalism will find the time spent learning from Balleisen worth the effort invested.

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Will 2017 Be the Year the UK Finally Embraces Shale?

One British oil and gas company would like to think so. As the FT reports, IGas is moving to start exploratory drilling in a shale formation in the East Midlands region of England:

The London-listed company has approval for exploratory wells at two sites in the East Midlands, in partnership with Total, the French oil and gas major, and Ineos, the privately owned UK petrochemicals group. […]

IGas was aiming to commence work at Springs Road and Tinker Lane in Nottinghamshire in the fourth quarter while also seeking approval to drill at several sites in the north-west of England, Mr Bowler added, in an interview.

Depending on what these exploratory wells find, the London based company could find reason to petition the government with permission to start hydraulic fracturing operations in order to access natural gas trapped in shale rock. IGas is hoping to join two other companies, Cuadrilla and Third Energy, as the only firms with the green light to frack in the UK.

The UK has a lot of shale gas—in 2013 the British Geological Survey estimated that the country is sitting on 1.3 quadrillion cubic feet of natural gas trapped in shale. But Britain has struggled to replicate America’s success in the field, and in so doing has illustrated the many variables that all favorably aligned for the U.S. to set off an energy renaissance.

With North Sea oil and gas production declining, onshore shale reserves are going to look more attractive by the year. Still, fierce local opposition threatens to stymie government efforts to kick-start fracking. David Cameron and now Theresa May have both tried to get that shale rock rolling, but a one-two punch of a relatively high density countryside (as compared to the areas where shale has taken off in the United States) and a lack of mineral rights afforded to property owners has made the British public exceptionally wary of signing off on shale.

Last August, Prime Minister Theresa May announced a Shale Wealth Fund that would tax companies fracking in Britain in order to pay affected local communities for their trouble. This attempt followed the Cameron administration’s own proffered solution, a £100,000 flat fee up front, and 1 percent of the revenues thereafter. Cameron was unable to get the public onboard with fracking, and for her part May doesn’t seem to be making much headway.

In the meantime, Britain only has to look west across the Atlantic to see the enormous rewards shale can provide.

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Up The Escalation Ladder We Go

North Korea’s testing of its first ICBM on the Fourth of July has put the world in a starkly different place, strategically speaking, than it was earlier this week. Secretary of State Rex Tillerson wasted no time in taking the next step:

The US has called for a global effort to ratchet up economic pressure on North Korea as it condemned Pyongyang’s launch of its first intercontinental ballistic missile as a provocative “escalation”.

“Global action is required to stop a global threat,” said Rex Tillerson, US secretary of state, as the US and South Korea fired missiles into the sea in direct response to the North Korean action. Mr Tillerson said: “Any country that hosts North Korean guest workers, provides any economic or military benefits, or fails to fully implement UN Security Council resolutions is aiding and abetting a dangerous regime.”

It’s hard to see any alternative to ratcheting up the pressure. But each step up the ladder of diplomatic escalation makes it harder to capitulate in the end if, as seems likely, Pyongyang won’t budge. U.S. Presidents from Bill Clinton on have kicked this can down the road. Trump may be the President who runs out of road…

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This Fourth of July, Remember the Seventh of March

America is celebrating her 241st Independence Day at a time of unusually explosive divisions, with the stench of political violence still wafting over Washington, and with the intensifying “Cold Civil War” threatening a kind of soft secession between blue and red. So on this holiday we thought we would post a passage from Daniel Webster’s 1850 “Seventh of March” speech—the Massachusetts Senator’s poignant brief for a Republic threatened with dismemberment just two generations after its founding.

Mr. President, I should much prefer to have heard from every member on this floor declarations of opinion that this Union could never be dissolved, than the declaration of opinion by any body, that, in any case, under the pressure of any circumstances, such a dissolution was possible. I hear with distress and anguish the word “secession,” especially when it falls from the lips of those who are patriotic, and known to the country, and known all over the world, for their political services. Secession! Peaceable secession! Sir, your eyes and mine are never destined to see that miracle. The dismemberment of this vast country without convulsion! The breaking up of the fountains of the great deep without ruffing the surface! Who is so foolish, I beg every body’s pardon, as to expect to see any such thing? Sir, he who sees these States, now revolving in harmony around a common centre, and expects to see them quit their places and fly off without convulsion, may look the next hour to see heavenly bodies rush from their spheres, and jostle against each other in the realms of space, without causing the wreck of the universe. There can be no such thing as peaceable secession. Peaceable secession is an utter impossibility. Is the great Constitution under which we live, covering this whole country, is it to be thawed and melted away by secession, as the snows on the mountain melt under the influence of a vernal sun, disappear almost unobserved, and run off? No, Sir! No, Sir! […]

Peaceable secession! Peaceable secession! The concurrent agreement of all the members of this great republic to seperate! A voluntary separation, with alimony on one side and on the other. Why, what would be the result? Where is the line to be drawn? What States are to seceded? What is to remain American? What am I toe? An American no longer? Am I to become a sectional man, a local man, a separatist, with no country in common with the gentlemen who sit around me here, or who fill the other house of Congress? Heaven forbid! Where is the flag of the republic to remain? Where is the eagle still to tower? Or is he to cower, and shrink, and fall to the ground? Why, Sir, our ancestors, our fathers and our grandfathers, those of them that are yet living amongst us with prolonged lives, would rebuke and reproach us; and our children and our grandchildren would cry out shame upon us, if we of this generation should dishonor these ensigns of the power of the government and the harmony of that Union which is every day felt among us with so much joy and gratitude.

Americans need to figure out how to compose our differences and live together or the results for all will be an unspeakable disaster. The Union remains a great thing.

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Free the Spectrum!

The Radio Act of 1927, which bore the signature of President Calvin Coolidge and was the handiwork of his Secretary of Commerce, Herbert Hoover, forced wireless innovators to play a game of “Mother May I?” Each imaginative product launch or service twist, whether in FM radio or space satellite systems or cable TV or mobile phone networks, had to first win the hearts of regulators divining “public interest, convenience or necessity.” Stern policymakers have proven risk averse. Given their fondness for existing service suppliers, and their credulity when presented with evidence supporting the status quo (as reliably packaged for them by such incumbents), it isn’t surprising that the administrative creation of 1927 reliably resisted the forces of change for generations afterward.

Yet just as water pressure gradually erodes rock and leaves a raging river, policy restrictions were ground down. The failure of administrative planning for the radio spectrum, generally followed by the tragicomic ritual of “holding their feet to the fire,” has been shown to yield “public interest” payoffs that invariably benefit interests far more than the public.

As feared, incumbents have often been swamped. But predictions that the “public interest” would be completely neglected have proven wildly off target. Instead, the march of progress has stormed new playing fields in mass media and telecommunications. Vast new networks have been imagined, and built, under more liberal spectrum rules. Markets have coordinated what was asserted to be chaotic. Innovation and rivalry have been encouraged by means of de facto frequency ownership rights.

While liberated radio bands have produced these impressive results, Hoover’s administrative controls still stand. The great majority of useful bandwidth is allocated now as it was when the Radio Act was passed—even though we know the enormous opportunity costs of locking up the best wireless resources the planet has to offer.

Unfinished Business

Today, ambitious wireless entrepreneurs imagine the impossible. One outlandish idea is to bring cheap, ubiquitous high-speed internet access to the entire planet, from the tiniest island in Indonesia to the remotest village in Namibia to the highest outpost in the Himalayas. Indeed, there’s even competition to fulfill this fantasy. A venture headed by serial visionary Elon Musk, SpaceX, is attempting to deploy hundreds of low-earth-orbit satellites. Google X’s Project Loon launches stratospheric air balloons. Meanwhile, Facebook is planning a worldwide network supported by drones. These wild aspirations are economically straightforward: There may be money to be made in extending service to the “bottom billions.” Some ventures will surely fall short, while others—perhaps including those not yet envisioned—may soar.

But these wireless dreams will surely be toast without sufficient radio spectrum. In some regions, flexible-use spectrum rights allow these ambitious internet entrants to bargain for access to bandwidth controlled by existing licensees. Project Loon fortifies emerging LTE (Long Term Evolution) networks, sharing mobile operators’ flexible spectrum rights. Yet elsewhere, bandwidth requests must join the bureaucratic queue. That’s where the dreams go to die.

There will be no pure solution to the problem of spectrum allocation. Models are clear, but the world is a mess. Nor will there be complete “deregulation.” As economist Ronald Coase noted in 1959,

How far this delimitation of rights should come about as a result of a strict regulation and how far as a result of transactions on the market is a question that can be answered only on the basis of practical experience. But there is good reason to believe the present system, which relies exclusively on regulation and in which private property and the pricing system play no part, is not the best solution.

Scientific expeditions to the frontiers of wireless are giving us wonderful new communications options, but their implications for regulation are often misunderstood. Technology has not put an end to spectrum scarcity. Just as breakthroughs continue to provide fatter conduits, entrepreneurs ruthlessly compete to stuff them full of more communications. Supply creates its own demand, and then some. Access to prime radio spectrum has generally become more contentious, not less.

We have long heard the counterclaims. This “end of spectrum scarcity” refrain has been sung since at least March 1941. That was when Radio News broke the exciting story that as “FM becomes universal, there will be no physical limit on the number of stations in one town. The interference problem is solved.” Well, not quite then. And not quite yet.

Innovation should challenge incumbents; may the most efficient ecosystem win. But that victory is compromised when regulators seek to divert usage with new, unpriced allocations that effectively become locked in whatever configuration regulators create. The requests for additional unlicensed bands, of the sort set aside to support Wi-Fi or Bluetooth services, are submitted to the authorities and approved by them—not won or lost by bidders playing with their own stakes. This is Hoover’s top-down allocation system. The FCC favors one set of demands and excludes others, on the basis of what the Commission has itself deemed the “Wise Men Theory” of allocation.

This approach produces a consensus of dissatisfaction. To improve matters, the FCC’s top spectrum-policy experts, Evan Kwerel and John Williams, proposed in 2002 that contests over rules and bandwidth set-asides should be decided via competitive bidding. In 2008, the FCC tasked economists Mark Bykowski, Mark Olson, and William Sharkey with devising an auction format that would include offers from both licensed and unlicensed partisans. They wrote:

The allocation between licensed and unlicensed use…is based on the FCC’s judgment, which in turn relies on information provided by interested parties who seek to use the spectrum. One method of reducing the incentive that parties have to exaggerate the value they place on a given regime involves creating a market for such rules.

The authors designed a process to assign liberal licenses authorizing whatever services the grantees might like to devise. Mobile carriers, for example, could then expand the capacity of their networks by bidding for spectrum against companies, such as software firms or cable TV operators, which desire more unlicensed bandwidth. Under this scheme, a license-exempt band would be created out of the spectrum allocated to a license if the sum of the unlicensed spectrum bids (for that license) exceeded the top bid made by a rival seeking exclusive rights.

This approach was promising. Yet the FCC need not design special licenses or auctions to accommodate coalition bids. Flexible-use permits allow high bidders to determine business models on their own. And, under existing FCC auction formats, industry consortia have already bid for, and won, wireless licenses. Moreover, the assignment of frequency-use rights to third parties, including radio manufacturers—the parties who directly shape the use of unlicensed spectrum—is routinely a part of how liberally licensed frequencies are used. Nor is the practice unique; patents are widely shared in an analogous manner.

This type of commons, however, would benefit from an important reform. Under current rules, licenses typically come with build-out requirements. These rules mandate that license buyers create networks within a given time frame—say, five years. If a buyer does not make appropriate progress, the rights revert to the government. Many competing business models, including unlicensed “parks” that supply bandwidth for low-power wireless devices (Bring Your Own Network) might be excluded. Such requirements should be relaxed to permit them.

Some of the most contentious allocation contests are those among interests seeking different flavors of unlicensed bandwidth. One controversy features a satellite phone operator who aims to create “a private Wi-Fi channel and charge for access to it,” opposed by corporations that want to freeze the initiative to protect adjacent 5.8 GHz unlicensed frequencies. The latter group fears that enhanced traffic will diminish the performance of existing Wi-Fi service. Meanwhile, another battle involves General Electric and aircraft maker Boeing: GE proposes that its medical devices be permitted to transmit data (including patients’ vital signs) over 2.4 GHz unlicensed frequencies (a band also hosting popular Wi-Fi usage), while Boeing claims that this activity will interfere with its use of the bandwidth “to test the safety of planes.” Life or death in a hospital bed, versus life or death in the sky—which does the “public interest” favor? In another faceoff, oil companies want to use airwaves dedicated for educational institutions to reach deep-water oil rigs because “the only schools in the Gulf of Mexico are schools of fish.” The educators counter with a science lecture of their own: Sharing their offshore channels will create harmful interference because “wireless signals tend to travel farther and faster over the warm Gulf water, causing greater interference on shore.”

And then there is the brisk controversy over LTE-U (long-term evolution—unlicensed), a 4G mobile technology allowing carriers to improve internet access (and data downloads) by more tightly integrating the use of local Wi-Fi services. The Wi-Fi Alliance, which represents cable operators and tech companies, has made strong protests, claiming that the innovation tends to hog unlicensed frequencies for mobile subscribers. Some see the conflict as simply technical, but scientific research seems to follow economic self-interest. “Recent tests to see whether LTE-U technology interferes with Wi-Fi signals prove conclusively that LTE-U poses no problems whatsoever for Wi-Fi networks,” reports a trade journal, “and also that LTE-U will drown out Wi-Fi, depending on which party is to be believed.” It would be stunning were it otherwise.

The FCC does not know the optimal solution to these conflicts. Nor do I. But the agency will nonetheless, after lengthy deliberation, impose its guesses. And it will not permit market transactions to undo its decisions, as the fragmented, nonexclusive access rights it distributes in unlicensed bands cannot be easily reconfigured. An auction enlisting bids from the opposing parties, however, would help to drag the relevant costs and benefits out of the dark.

Rivalry in a Pastoral Setting

One objection raised against this competitive solution is that the value created by the “spectrum commons” cannot be captured in auctions. It is “akin to asking users of public parks to bid against developers to decide how land is to be allocated,” as economists Paul Milgrom, Jonathan Levin, and Assaf Eilet wrote in a 2011 paper. But the chosen analogy actually proves the opposite. First, when a government agency sets aside unlicensed bandwidth, it is bidding against other “developers” who would seek to use the airwaves differently. It simply does so in a nontransparent and monopolistic manner that suppresses competing valuations. Second, when open auctions are used for wireless licenses, the parties making offers—including mobile networks—shoulder the task of aggregating the disparate demands of millions of future subscribers (many of whom are not yet even born). The process encourages extensive research and careful calculations, given the risks involved for bidders, and puts prices on public display. This information improves decision-making for all parties, including governments, by exposing values and opportunity costs.

Finally, the idea that public parks are analogous to unlicensed band allocations perpetuates a common misunderstanding. As the FCC has written, “A mechanism based on markets…will be most efficient in most cases. However, government may also wish to promote the important efficiency and innovation benefits of a spectrum commons…much as it allocates land to public parks.”

The “however” crisply defines regulatory confusion. Public parks sit on land allocated through a system of private property rights. A market where basic resource rights are preempted in favor of “public interest” determinations is something quite distinct. That is what led Ronald Coase to characterize the spectrum allocation system as equivalent to a Federal Land Commission (FLC). The analogy was extended by New York University economist Lawrence J. White, in a thought experiment about how a Federal Land Use Commission (FLUC) might hinder the productive use of real estate. (Acronyms are also a leading output of the spectrum allocation system.)

Land, a key input into parks, is not held in abeyance, with rights dribbled out on a case-by-case basis as government administrators plan where all the public facilities (now and in the future) should be located. Instead, ownership rights are defined, and the assets made widely available. They are largely distributed, transferred, combined, and subdivided by marketplace transactions. Bids are registered not just by private developers but also by nonprofit organizations pursuing social objectives. These include governments providing green spaces, parkland, and other amenities. The latter institutions have multiple ways to bid—eminent domain, for instance, requires compensation while mediating holdout problems—and zoning regulations. But the market for real estate does not funnel each choice through a narrow administrative spigot; rather, it broadly cedes property rights to decentralized actors.

This yields a wide variety of land-use modes. Real-estate markets enabled the City of New York to acquire the necessary rights to create Central Park, and to understand the relevant trade-offs in expanding (or reducing) it. While White argued for property rights in frequencies, he declined to call this “privatization,” because he wanted to avoid the mistaken impression that “public ownership of spectrum is not part of the concept.”

Reforms

There is a droll, probably apocryphal story about a graduate student who fell asleep during Milton Friedman’s macroeconomics course at the University of Chicago. Friedman hurled an eraser at the snoozer and bonked his target. The young scholar awoke with a start. “I apologize, Professor, for falling asleep during your lecture,” he said. “But the answer is—reduce the money supply.”

The spectrum-policy answer here—if you’ve dozed off—is auction overlay rights. The method strategically introduces new spectrum-use rights, unleashing competitive forces by dispensing with centralized micromanagement. It empowers entrepreneurs who then achieve the cooperation needed for progress. It protects legacy systems but not needlessly; existing users face market incentives to accommodate the future.

The reform paves the way for advanced “spectrum sharing” by allowing gains from trade to flow to those parties whose active assistance—say, by upgrading technology, revamping networks, adopting bandwidth-saving applications, switching to less-contested bands, or exiting the market—contributes to consumer-pleasing outcomes. Government studies may assume that these forms of sharing are too complicated to arrange, but the white flag is hoisted due to a dubious choice of tactics. The nub of an economic agenda for reform would include:

Auctioning the overlay rights to bands allocated to traditional licenses. These liberal authorizations would vest existing wireless users; TV licensees, for example, would be grandfathered in and maintain their rights to broadcast. But new, fully flexible rights would be created and sold at auction. These “overlays” would allow owners to deploy all the idle channels immediately. Moreover, overlay licensees would enjoy secondary rights to use the spaces occupied by incumbents. This enables spectrum-sharing based on the bargains struck. Entrants would compensate legacy interests for their cooperation in unleashing amazing new stuff.
Auctioning the overlay rights to bands assigned to public agencies. Massive problems attend the reservation of approximately half of the most valuable radio waves for military and government use. Bureaucratic incentives are widely known to block efficiencies, with agencies effectively hoarding bandwidth while resisting technological change. Overlay licenses—“hunting permits,” awarded by auction, that grant private owners secondary rights to access public bands—can provide a slick solution here, too, although they require special measures. In particular, government agencies must be able to make deals and acquire money and other resources (including new and improved wireless systems) when overlay holders extend them advantageous offers. In these trades, entrepreneurs can drive spectrum economies, deploying advanced technologies to upgrade services while sharing radio waves more effectively. Policymakers have experience with such arrangements, having already steered successful transitions in public bands. Incumbent microwave users were cleared out of the 1.9 GHz band to make way for Personal Communications Services (PCS, or “2G”) in the 1990s; Advanced Wireless Services frequencies (AWS-1) supplanted dozens of federal agencies’ wireless networks in the late 2000s. Regulatory templates exist.
Holding incentive auctions. The FCC’s National Broadband Plan called for considering overlay auctions if the approach adopted—a two-sided “incentive auction” with TV stations (offering to sell) and wireless carriers (stating prices at which they would buy) bidding in succession—should prove disappointing. Given the delays and limitations in the latter, it is time to dust off Plan B. But the demoted Plan A might still prove useful. We should take lessons from the FCC’s policy experimentation with how capacious spectrum reallocations can be achieved more expeditiously.
Blanket liberalization of new and existing wireless licenses. It is not necessary to reinvent the wheel by devising more complex rules for transmitters or receivers (with extra dimensions defined by regulators). Liberalization can occur by tweaking the existing flexible-use templates that govern most mobile licenses. Where restrictions still block innovative services, technologies, or business models, deregulation can supply extra breathing space. One option is to invite licensees to request the relaxation of use rules, with presumptive approval for any noninterfering activity. Complaints lodged by protesting parties would be limited to border disputes, and adjudicated under efficient arbitration rules with strict time limits.
Requiring government entities to purchase wireless services via competitive bids. Public agencies, including first responders, should buy wireless services from efficient suppliers, not build their own networks. The latter is a model constructed by political wheeling-and-dealing and bureaucratic turf protection, and it has achieved widespread failure in practice. Police and fire departments, in concert (coordinated by state authorities, perhaps) should issue Requests for Proposals. Competitive bids should then be received from commercial wireless service providers. These will inevitably share spectrum with mass-market civilian customers, outperforming boutique networks dedicated to special tasks but lacking the scale economies that make better technologies affordable and functional. “So as not to distort spectrum usage decisions,” writes former Pentagon official (and economist) Dorothy Robyn, “the government should subsidize the desired social good (i.e., public safety) directly and then let the relevant group acquire spectrum or spectrum-based services in the market.”
Allowing markets to create unlicensed allocations. Interests favoring set-asides for non-exclusive spectrum access, such as those that support Wi-Fi or Bluetooth, should bid for liberal licenses. Where a compelling determination is made that bids for such business models will suffer from public good (“free rider”) problems and be inefficiently under-provided, explicit subsidies should provide the remedy. Prices are then transparent, not hidden, and competing interests have the opportunity to demonstrate rival valuations in arms-length transactions.
Implementing complementary policies. Many reform proposals have outlined policies to support spectrum liberalization. I will mention just one: U.S. policy could do more to overcome the NIMBY (not-in-my-backyard) problem encountered in building cellular towers and base stations. Metropolitan jurisdictions routinely block new radio facilities, sometimes out of concern that the radiation from such transmitters is harmful to human health. To the extent that a radiation threat exists, it is associated with mobile phones held close to the user’s brain. People who are nervous about cell phone radiation are advised to use the speaker function, which “drastically reduces RF [radio frequency] exposure,” according to a 2010 Time article. The power emitted by phones increases when there are fewer base stations; radios amp up to reach the more remote tower. Hence blocking nearby towers actually exacerbates exposure to radio emissions.

With coming 5G technologies, mobile carriers will attempt to make their networks significantly denser, adding vast numbers of “small cells” to ramp up capacity and reduce latency (the lags in between interactive communications). But they must first surmount the roadblocks erected by local governments. Holdups here are endemic, and Federal efforts in the United States to impose a “shot clock” on municipal approvals (enacted in 2011) recall some official descriptions, circa the 1970s, of the results of the Vietnam War: an “incomplete success.”

Non-Judgmental Liberation

A commonplace in the spectrum policy debates is that the regulator’s task is to carefully select the best outcomes for society: if more broadcast TV or wireless broadband would be welcomed by the public, then regulators should allocate more spectrum to support them. That idea masks a subtle but powerful policy error. The unique correspondence between government rules and market services holds only if we’re doing public policy wrong. Flexible spectrum rights unleash competitive forces that discover tomorrow’s “killer apps” in unforeseen ways. Planning for more of this or less of that by administrative fiat—not so much.

When Ronald Coase broached the idea of auctions for spectrum rights, it was received as a “big joke” whose odds of adoption—even decades later—were equal to those of “the Easter Bunny in the Preakness,” as two members of the FCC scoffed in a 1977 opinion. These dismissals were accompanied by a phalanx of regulatory defenses. The FCC’s chief economist in the 1950s, Dallas Smythe, declared it impossible to define wireless rights and sell them. That wisdom went unchallenged for decades.

Coase might have been naive about the politics, but his economics were spot on. Not only could rights be defined and sold, but competitive bids could be used to speed up innovation and dramatically improve services for consumers. Auctions of wireless assignments, authorizing firms to offer whatever services or technologies fit within their designated frequency spaces, eliminated obstacles and flooded markets with innovations previously blocked. It would have been impossible for smartphone ecosystems, with their hundreds of devices and millions of applications, to emerge under traditional regulation. Liberalization even enabled elegant reforms in other markets. From electricity to water to pollution allowances to fishing rights, newly constructed markets have fashioned superior alternatives to command-and-control regulation. Today, economists and systems engineers are at work designing ever more ambitious bidding mechanisms, revealing hidden values, improving resource use, and saving the planet. Many of these inventions—according to Caltech’s Charles Plott, a central figure in this revolution—emerge from “spectrum auctions.”

The foundational idea was dismissed in 1960s Washington not only because incumbent licensees and bureaucrats had their own agendas, but because, as policy disruptor Clay Whitehead noted, the President of the United States had his. This was perhaps the only time the matter of spectrum allocation got such high-level attention. As Bobby Baker, Lyndon Johnson’s top Senate staffer (later imprisoned on corruption charges) wrote of his boss:

It was no accident that Austin, Texas, was for years the only city of its size with only one television station. Johnson had friends in high places…. LBJ demanded, and received, the opportunity to pick and choose programs for his monopoly station from among those offered by all three of the major networks.

Ironically, the regime that accommodated this sordid record is trumpeted, even decades later, as a noble enterprise protecting the public. In 2013, FCC Chairman Tom Wheeler bemoaned broadcast video content and suggested that “maybe the industry was in need of another Newton Minow ‘Vast Wasteland’ moment…to call them to the angels of their better programming natures when it came to violence or indecency.”

With deregulation, unlicensed cable networks created exponentially greater variety in video choice. Network information sources beaming bland “News from Nowhere” in three dull shades were replaced by a raucous rivalry of 24/7 services ranging from CNN to Fox News to Comedy Central to Vice. Diversity further increased as the unregulated internet came to sit atop emerging broadband networks. Better angels did make it to television—Touched by an Angel was a hit series—but it was a very earthly set of reforms that set aside “public interest” rule-making, removing power from the hands of the corruptible few.

Spectrum Detox

Spectrum allocation enjoys a long history of paradox. The best tool for understanding it is not the physics of radio waves but the economics of public choice, which explains how special interests craft political coalitions and ally with regulators to distribute favors that bless the anointed while shorting entrepreneurial risk-takers.

The “deregulation wave” of the 1970s changed history, and many of its positive externalities were political blessings. The Open Skies reform broke the government-backed monopoly in satellite communications, Comsat, in about 1975. Anti-cable rules were relaxed in the late 1970s. By the late 1980s, liberalized cellular licenses allowed competitive firms to decide what services, phones, technologies, business models, or content to offer. In the 1990s, mobile networks eclipsed broadcasting as the preeminent wireless sector. The cozy spectrum allocation club became overrun. In 1997, a confident Peter Huber wrote:

It appears that old-style broadcasters will carry the regulatory baggage of the 1934 Act for another decade or so. Early in the next century, however, this dismal regulatory era will finally come to an end. Broadcast spectrum will be dezoned. Roseanne will have to compete for airtime with the more civil, uplifting, and profitable expressions of ordinary people talking on wireless phones.

By the 2000s, global wireless networks had brought modern information services to billions, helping lift millions up from poverty. Carriers competed to offer text, data, and video services atop voice networks; to generate daring new platforms populated by smartphones, tablets, netbooks, and dongles; and to provide connectivity for millions of applications. These emerging machine-to-machine services are disrupting markets, altering social intercourse, toppling governments, and even extending human life. Crime rates fell with the introduction of cellphones, and mHealth apps push patients to take their meds while monitoring their vitals.

Spectrum policies gave markets room to roam, limiting the “controllers.” Broadcast TV, tightly licensed and subject to the Fairness Doctrine and Equal Time and the Public Interest Standard, led no revolutions. Under traditional authorizations, services were preordained and innovations lost. With liberal rules, up popped green shoots.

The Internet of Things is just revealing its shape and scope. Tech writer Vivek Wadhwa predicts that, using “sensors and the apps that tech companies will build, our smartphone will become a medical device akin to the Star Trek tricorder.” These coming advances in science, culture, and economics stretch far beyond radio spectrum policy. But they are related.

As the dreams of visionaries grow, the drag imposed by anti-competitive spectrum regulation becomes all the more damaging. Wireless is a key component of the drive for a better world, so it becomes increasingly curious that society would slow its progress. Wireless technologies have opened up new vistas; we can see the future from here. The political spectrum ought to stop blocking the splendid view.

The post Free the Spectrum! appeared first on The American Interest.

The Qatar Crisis in Context

Before June 23, a U.S. State Department spokesperson said the U.S. government was “mystified” by Saudi Arabia and its allies’ lack of justification for their isolation of Qatar. The State Department apparently sees the value of a united front against ISIS and other threats in the region, even as President Trump took some credit for actions against Qatar, saying it should eliminate Qatari financing of terrorists. The Arab states that have blockaded Qatar then dramatically released a list of 13 demands that must be met by a deadline that was extended 48 hours on July 3. The Kuwaiti Emir who is acting as a mediator in this conflict delivered them to Qatar, but they could just as easily have been nailed to the wooden doors of the Qatari diwan, or main government building.

Some of the items on the list are clear enough, but others are surprising or pose questions. Pundits and foreign policy commentators correctly anticipated that some of the demands touch on terrorist financing and Al-Jazeera broadcasts, but few predicted the others, such as those dealing with issues of citizenship or the Turkish military base in Qatar.

To demystify the dispute between these key U.S. allies requires us to dig deeper into the region’s past. Gulf and Qatari history holds the key to how the United States should respond to the Qatar Crisis.

The Particulars

Let’s consider, first, the demands that Qatar scale down diplomatic ties with Iran. Qatar shares a hugely lucrative offshore gas field, the North Field, with Iran. But there is far more to the story here than oil and gas. Unlike Bahrain and the Eastern province of Saudi Arabia, with large, majority populations of Arabic-speaking Shi‘a, the number of Qatari Shi‘a citizens is close to zero. This lack of sectarian diversity is actually quite rare in the Gulf. Most Qataris are Sunnis, and most follow the so-called Wahhabi school of Islam that has morphed into a form of Wahhabism of the Sea or Wahhabism-lite. Historically, Qatar embraced Wahhabism in order to preempt attempts by the Saudi Wahhabis to invade. British reports from the early 20th century marveled at Qatar’s unlikely “continued existence” amidst much more powerful neighbors. Qatar’s lack of an internal “Shi‘a” resistance has ironically made it much easier for it to reach out to Iran as a balance against Saudi interference.

What about the demand that Qatar close the Turkish military base on its soil and “halt any joint military cooperation with Turkey.” In my book, Qatar, A Modern History, I outline the vital and surprising role that the Turks played in the early years of Qatar. In the 19th century the man considered by the State of Qatar to be its founder, Sheikh Jassim bin Muhammad al Thani Qatar allowed for the building of a small Turkish military base on Qatari soil. He was even given titles by the Sublime Porte in Istanbul and declared a member of the Ottoman Turkish elite. The British, in contrast, supported Jassim’s father, also considered a founder of Qatar, and maintained control over the seas. Jassim eventually pushed the Ottomans out of Qatar when they wanted to exert more direct control. This 1893 battle of Wajbah to expel the Turks is a core part of the national narrative of Qatar, Qatar National Day commemorates this event, but it appears the Turks may be allowed back. Qatar sees Turkey as yet another counterweight to the influence of Saudi Arabia and the UAE. This certainly spooks Qatar’s Arab neighbors, perhaps even more than the ever-present tussle with Iran. There have been many historical instances of Arab states warily maintaining a balance of power with Iran, but not against Iran and Turkey.

Saudi Arabia and its allies have also demanded that Qatar stop granting citizenship to “wanted nationals” from Saudi Arabia and other Gulf states. The benefits of Qatari citizenship are substantial, and sometimes more generous than those offered in neighboring states, which often must divide their oil revenue over a much larger population. What most commentators in the West often do not realize is that citizenship is largely not an individual concept based on notions of legal equality, but rather tied to claims to land, power, and influence—not only over individuals but also over entire tribes and families. Tradition, identity, and tribe are still very important in Gulf societies. These families and tribes form a hidden network—an informal means of governance through the visitation of royal families and sheikhs and through marriage. Although this demand in particular may seem to Western eyes to be tied to terrorist financing, it goes much deeper than that. Appealing to dissidents and disenfranchised lineage groups that had, in the past, freely moved between the once-porous borders of Qatar, Saudi Arabia, and the UAE was a well-known tactic. In fact, whole families used to move from one port or merchant-ruler to another, transferring loyalties and legal guardianship. Saudi Arabia was keen to lay claim to land in the diyar, or “grazing lands” of its own tribes even though Qatar made similar claims. More recently, in the early 1990s there were a couple of border disputes between Qatar and Saudi Arabia. Members of the Murrah Bedouin clan, who hail from both Qatar and Saudi Arabia, for a time, lost their Qatari citizenship due to these border disputes. But Qatar could use its wealth to attract citizens, as much as it might use the threat of losing citizenship and all of its perks, perks that are greater for most Qataris than they are for most Saudis.

Perhaps the most dramatic demand is shutting down the Al-Jazeera Network, as well as the media outlets Arabi21, Rassd, Al Araby Al-Jadeed and Middle East Eye. Although Qatar was part of the coalition effort in Yemen, Saudi Arabia and the UAE certainly did not appreciate the way Al-Jazeera covered the humanitarian consequences of that conflict. Taking down Al-Jazeera—established shortly after Hamid bin Khalifa, the “Father Emir” and predecessor of the current Qatari Emir Tamim, overthrew his father in 1995—would be extremely difficult for Qatar. For the states making the demand, however, their reasoning is simple. Before Al-Jazeera, Gulf rulers were used to ironing out their disputes behind closed doors. Even relationships between rulers and citizens were often established during face-to-face, unrecorded encounters in diwans and majalis (the tribal councils).

So much of Gulf history after the British left in the early 1970s is simply unknown because of this informal, unwritten way of doing things in the Gulf. Al-Jazeera broke the secret club wide open, shedding light on a process that was, at least culturally, intended to be a black box. Al-Jazeera, however, is only one symptom of a larger problem for the Gulf and, perhaps, for traditional rulers around the world. The Internet has made information and news free, accessible, and archived. Past grievances or even personal peccadilloes which could have been worked out before, “family feud” style, are now all out in the open. Wikileaks and Russian hacking, even more than Al-Jazeera, is the source of much consternation, embarrassment, and, now, open conflict. When personalities control polities, “web presence” and issues of honor are no longer strictly an individual matter.

Will the United States Learn from History?

Severe and serious conflict and competition between rival Gulf rulers has been the norm, not the exception, of most Gulf history. White House Press Secretary Sean Spicer may have been half-correct when he said the dispute over Qatar was a “family feud.” Most of the rulers are part of a very exclusive club, and many are even related or share similar lineage, cultural, and religious norms. Gulf expert Mike Herb aptly titled his book on contemporary Gulf politics “All in the Family.” Nonetheless, to call it merely a “family feud” underestimates the potential seriousness of the situation. Also, as countless historical examples of “Brother against Brother” show, it is often the conflicts within groups sharing similar points of view and even similar interests and cultures that are the most dangerous. Most importantly, the division between U.S. allies in the region, and even the inflammation of hostilities between Iran and the Sunni Gulf nations, only plays into the hands of ISIS and other groups inspired by extreme ideologies.

The United States would do well to remember some of the lessons learned by the last global hegemon with strategic interests in the Gulf: the British Empire. First, it is important to understand some of the geographical reasons for the current geopolitics of the Gulf: a series of seemingly small and relatively autonomous princedoms organized around ports. This is not a new phenomenon. In fact, the autonomy, focus on commerce, and relative cosmopolitanism of the Gulf is a natural outgrowth of formidable geographical barriers to imperialists or regional hegemonic powers.

Disconnected from a large agrarian base, Gulf rulers have always been dependent on merchants and trade, not taxes. They have often been merchants themselves, selling pearls in India, for example. These merchant-rulers maintained autonomy amidst surrounding imperial powers due to the inhospitable geography, high cliffs, intolerable temperatures, and forbidding deserts and swamps that make the Gulf so difficult to control. The biggest threat to a merchant-ruler of the Gulf was often his neighbor or his rival. The Gulf is littered with the skeletons of once great but now-abandoned port cities such as Siraf. Ports along the Gulf have been, like Dubai and Doha today, quick to rise, but also quick to fall. They were vulnerable to the changing trends of trade and competition, as one merchant ruler lowers taxes and customs to lure merchants away from his rivals. Sea raiding, similar to the desert raids, or razzias, that were long a feature of Arab nomadic societies and even cultural lore, was classified by the British as “piracy.” Gulf rulers, in contrast, saw it as a way of restoring balance and distributing resources to the most effective and most powerful rulers and groups. In fact, the current ruler of the emirate of Sharjah, Sultan bin Mohammed al Qassimi, who received his degree at Durham University, disputes the use of the word “piracy.” From the British perspective, raiding and fluid shifts of power from one tribal ruler to another was a source of too much instability within the Gulf, forcing the British to police the seas and to find responsible parties with which to deal. While the discovery of oil would later increase the British presence somewhat, the British in the 19th century did not wish to rule the Gulf outright. There were relatively few natural resources, other than a few pearl banks. In one of the worst predictions in the history of earth science, most geologists determined that oil would not exist in great quantities in Arabia. Instead, the British needed to find a way to keep the Gulf secure and free of raids, rivalries, and instabilities that threatened the vital routes between Iraq and India through the Strait of Hormuz.

Although there were a few times when the system broke down, the British managed to decrease the incidence of sea raiding while maintaining treaties (hence the word “trucial”) with different sheikhs. The British guaranteed the right of each ruler’s power as long as that ruler took responsibility for the people within his general domain (borders were fluid at this point) and did not raid his neighbors or passing ships. In 1868, for example, the British gathered all the notables and chiefs they could find in Qatar on the same ship and declared Muhammad al-Thani as the ruler; he was both the one in charge and the one responsible should there be raiding from the shores of Qatar. The British even established elaborate rituals and honors for different rulers, including “gun salutes” and other symbolic gestures to express its relative approval or disapproval. Rarely, however, did the British interfere in domestic decisions.

Of course, disputes still arose between merchant-rulers, but they could no longer be resolved the old-fashioned way. Instead, the British would come in their frigate to mediate and demand an end to violence. Except in extreme cases, the British never chose one merchant ruler over another, since they knew this would throw the entire system into chaos, or at least into a configuration that was not favorable to its important interests in India. The British even made sure to include the Gulf rulers personally in the process and in trade; to be sure they would benefit from maintaining the status quo, they later signed oil concessions and treaties with the rulers individually. The British were especially concerned that smaller sheikdoms such as Qatar did not fall to the influence of larger neighbors. The father of Saudi Arabia’s current King, Abdalaziz al Saud, was already consolidating his power in the east of Arabia. Qatar was something of a tasty target. Sometimes the focus on naval power limited what the British could do. The British Political Resident in 1923, wrote the following, “I think it would be a pity if Qatar disappeared as a separate entity; from out point of view it is convenient to have rulers of the coastal districts on the coast, but I do not see any practicable means of preventing peaceful penetration of the country by Ikhwan (Wahhabis) and Ben Saud’s adherents.”

Qatar did survive the rise of Saudi Arabia, which became a united country a decade later. The Qataris had decided to adopt Wahhabism themselves, snuffing out some of the religious inspiration for taking them over. While there are valid criticisms of British interventions in the Gulf, it could hardly be argued that the consequences were as extreme or negative as Britain’s other colonial adventures. If anything, the British, with the cooperation of Sheikhs who were not direct servants of the crown but semi-autonomous actors, did provide a measure of stability necessary for the modern Gulf States, with all of their prosperity, to take shape. Unlike some other petrol states, the Gulf rulers have actually invested some of their wealth in infrastructure and social and educational development.

If we fast-forward to the early 1970s, many in the Gulf had grown used to the guarantee of British security. Some sources even relate that rulers secretly wished for the British to stay. Instead of a great anti-colonial triumph, the withdrawal of postwar Britain, which could no longer afford maintain its imperial interests, caused anxiety. One might have predicted a new era of discord, raiding, and instability. Instead, while Gulf rulers formally declared their independence and established formal recognition by the United Nations, the United States quietly and quickly took over the role of the British in guaranteeing the security of the Gulf and the Strait of Hormuz. From the Carter Doctrine, ensuring the freedom of the Gulf from Soviet influence, to the First Gulf War, which protected the Gulf States from Saddam Hussein, the United States attempted to fulfill its role as the guarantor of security.

The British were most successful in the Gulf when they did everything they could not to take sides and devoted their resources to resolving conflicts. The absence of conflict itself, not necessarily who was in charge or who was responsible for what, was the most important goal. Unfortunately, ideology, the fear of terrorism, and the search for state-sponsors of terrorism made U.S. Gulf policy an object of domestic politics. Ironically, the United States picking sides in the region has only emboldened the terrorists, who thrive on conflict. As the British knew, conflict itself was the enemy—and there are enemies on all sides in this conflict who are taking advantage of the chaos. By sowing discord between Arab Sunni monarchs and even between Shi‘a and Sunni, radical groups are only gaining in power and prestige, even despite their military setbacks on the ground. Even if ISIS is militarily defeated, future extremist iterations could just as easily make the case for the establishment of a united Caliphate.

Qatar may try to negotiate better terms; it has a lot of practice negotiating the conflicts of others. But it is unlikely that they will concede entirely. The demand for monthly audits and interventions of Qatari policy appeared to play directly into the fears expressed by the Qatari foreign ministry that this was an attempt to assert “guardianship” of Qatar. Before 1995 the Saudis managed much of Qatari foreign policy. Before 1971, Britain was in charge of external affairs as a “protector” and guardian. Qatar’s Sheikh Tamim and the Al-Thani family believe that Qatar has grown far past the guardianship stage of state formation. Even Qataris from outside the Al-Thani tribe are also far more nationalistic. Although anything is possible, it would be quite a concession for the Qataris to give up their sense of independence. This may lead to escalation of tensions.

While some commentators have said this crisis shows the weakness of the United States in the region, I believe the opposite is true. The United States still holds most of the cards when it comes to the naval and strategic security of the region. Instead of fomenting tensions, the United States must work to unite all major players, Iran, Saudi Arabia, the Gulf States, the government in Iraq, and even Russia, against the common threat of ISIS ideology. Oman and Kuwait should also be supported as helpful mediators. To do so, however, the U.S. must work carefully to re-establish its reputation as a mediator and guarantor of security even as the U.S. cracks down on terrorist financing and the spread of extremist ideologies of all kinds. Not maintaining this status could lead to another open wound at the very heart of Eurasia.

Only with history and the context it provides can we understand the full weight and significance of the Qatar Crisis.

The post The Qatar Crisis in Context appeared first on The American Interest.

China to Gays: Get Off the Net

China’s new regulations on online content have put a new slate of ideological taboos in the censors’ crosshairs—including homosexuality, the FT reports:

Sexual freedom, luxurious lifestyles and portrayals of Chinese imperialism are the latest targets of China’s crackdown on internet video content.

“Abnormal sexual lifestyles”, including homosexuality, are included among the 84 categories of topics that were banned from online video programmes by Chinese censors last week. “Unhealthy” views of the family, relationships, and money are also banned.

The detailed list is the first issued by government censors to cover the rapidly growing field of internet video, and comes after dozens of the country’s most popular entertainment channels were shut down in an online crackdown that started three weeks ago.

Nationalism and “healthy” family values are in, say the Chinese censors, while homosexuality and references to China’s past use of force against neighbors are out. And lest one think the guidelines were mere suggestions, the authorities have already begun to enforce them with severe force. As the FT reported last month, the government has already coerced top tech groups into deleting 300 mobile video platforms and firing 10,000 journalists who were in violation of the rules.

China has lately earned plaudits among Western liberal bien pensants for its paeans to the Paris agreement and rhetorical opposition to Trump’s protectionism. But China’s role as the liberal darling isn’t likely to last long as Xi turns key liberal beliefs into thought crimes.

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The India-Israel Breakthrough

This week, Narendra Modi will make history as India’s first Prime Minister to make an official visit to Israel. As the FT reports, he will be putting the Palestinian issue aside to forge closer ties on defense, agriculture, tech, and trade:

Mr Modi’s trip, which begins on Tuesday, puts the seal on an increasingly close relationship, underpinned especially by billions of dollars in arms sales.  […]

During the three-day visit, Mr Modi will discuss trade with his Israeli counterpart Benjamin Netanyahu, as well as addressing a crowd of around 4,000 people of Indian origin in Tel Aviv.

But he is not planning to travel to Ramallah to visit Palestinian president Mahmoud Abbas. While Mr Modi hosted Mr Abbas in Delhi last month, this trip will be focused on India’s expanding defence, technological and commercial ties with the Jewish state.

“Mr Modi is de-hyphenating relations,” says PR Kumaraswamy, who teaches on the Middle East at Jawaharlal Nehru University. “Its links with Israel are no longer merely an aspect of its policy towards the Palestinians.”

25 years after establishing formal diplomatic ties, the India-Israel partnership is stepping out of the shadows. In part, theirs is a relationship built on defense dollars: as India makes a mad dash to modernize its military and upgrade its arsenal, Israel has become its third-largest arms supplier, with $599 million worth of weapons sold last year. And if April’s $2 billion arms deal is any indication, that figure will only rise in years to come, as Delhi turns to Israeli expertise on missile defense and cyber technology to boost its own capabilities, particularly along the Pakistani border.

The bilateral economic relationship has been blossoming in other sectors, too. When Modi visits Israel this week, he will bring 15 top executives from Indian firms like Wipro and Reliant to establish a joint CEO forum with Israel. That is a sign of how innovative commercial exchanges are already transforming the relationship. In the agriculture sector, for instance,  Israeli water recycling technology is helping India grow food more efficiently; Israel has also established 26 agricultural expertise centers in India to teach local farmers new tricks. In the cyber field, meanwhile, Israel Aerospace Industries is working with local Indian partners on space cooperation and developing high-res radar satellites. All this redounds to India’s benefit; expect more high-profile deals in crucial sectors to be announced during Modi’s trip.

But this is not just a story about a transactional exchange of arms, money, and expertise. It is also about the successful expansion of Israeli diplomacy away from Europe. From the Gulf to Africa to all across Asia, Israeli diplomacy is more active and diversified than ever before.

This is important for many reasons, but fundamentally it reflects a recognition that Israel is not a West European state. Much of Israel’s population consists of refugees from the Arab world, many of whom fled or were driven from their ancestral homes by Arabs enraged and humiliated by Israeli victories in 1949, 1957 and 1967. Others come from parts of Russia that were never part of the West.

Israel’s integration into the non-western world was delayed by Arab hostility. But Arab power is weakening: of the world’s major cultural and economic regions, only sub-Saharan Africa has had less economic and political development since World War Two than the Arab world. As OPEC’s power over world oil prices declines, and as sectarian war and political failure rip the Arab world apart, Israeli tech prowess and close links to the United States make it a valued partner for more and more of the postcolonial world.

Westerners who judge Israeli leaders solely by their willingness to make concessions to the Palestinians have long considered Netanyahu a frustrating figure and a poor strategist. Frustrating he may be, but Israel’s steady progress in reducing its diplomatic isolation while diversifying its exports on his watch is a significant accomplishment. It’s difficult to think of any Western leaders who have done as much to advance their country’s interests. The fact that Netanyahu has done more to build Israeli ties with the third world than Obama managed to achieve for the U.S. is one of the ironies of the modern world.

As one of the world’s tech leaders, as a pioneer in cyberwar defense, as an emerging natural gas exporter, as a leader in desalinization and irrigation tech, and as one of the most accomplished arms producers in a world that is rapidly rearming, Israel is poised for a new era of diplomatic progress.

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