Peter L. Berger's Blog, page 629

In Indian Ocean, the Naval Race Begins

The naval build-up in South Asia is beginning to appear: New Delhi is planing to spend billions to grow its fleet, starting with new ships that will specialize in hunting subs. Bloomberg reports:

The Kadmatt is a submarine killer, bristling with technology to sniff out and destroy underwater predators. It’s the second of four warships in India’s first dedicated anti-submarine force — a key part of plans to spend at least $61 billion on expanding the navy’s size by about half in 12 years. […]

India plans to add at least 100 new warships, including two aircraft carriers, as well as three nuclear powered submarines capable of firing nuclear-tipped ballistic missiles. It will also tender for submarine-rescue vessels, a first for a navy that’s operated submarines for four decades. […]“India’s naval build-up is certainly occurring in the context of India moving towards a greater alignment with U.S. and its allies to balance China,” said David Brewster, a specialist in Indo-Pacific security at the Australian National University in Canberra. “India wants to be able to demonstrate that Beijing’s activities in South Asia do not come without a cost, and Delhi is also able to play in China’s neighborhood.”

India is the world’s biggest importer of weapons and it has traditionally relied on Russia as its main supplier, but this story shows that its recent efforts to develop the capacity to manufacture arms at home is beginning to pay off. As China continues to seek greater naval power through a combination of sheer numbers of ships and the creation of friendly bases (the so-called “string of pearls”), it appears New Delhi has no intention of taking China’s regional ambitions lying down; the country is no more willing than Japan, Singapore, Indonesia, and Australia to see China dominate the Indian Ocean. A $61 billion naval buildup is nothing to laugh at, and it’s just getting under way.

Varoufakis: Traitor?

Former Greek Finance Minister Yanis Varoufakis could stand trial for treason after a recording emerged over the weekend in which he reveals he was involved in a plot to set up a parallel currency to be used if European creditors attempted to shut down the Greek banking system. The Times of London reports:

The legal move against Mr Varoufakis allows parliament to prepare a special congressional committee to examine the allegations. “It can all happen quite fast,” said Anna Asimakopoulou, a leading member of the conservative New Democracy party.

All of those implicated face criminal charges ranging from breach of privacy to operating like a criminal gang with the intent of reverting to a different currency, judicial sources told The Times. Mr Varoufakis also faces charges of high treason and breach of duty — which carry prison sentences of between five and 25 years.

Other non-Greeks, such as economist James Galbraith, whom Varoufakis consulted with in the months during which the plan was being fleshed out, may also see charges brought against them by Greek authorities.

Opposition politicians are trying to put pressure on Prime Minister Alexis Tsipras, who is said to have authorized Varoufakis to proceed with the plan shortly before Syriza was swept to power earlier this year. “The working assumption was that the government was operating all this time with the interest of keeping the country in the euro”, New Democracy’s Asimakopoulou told the Times. “Learning that it wasn’t is troubling. What’s more, these revelations leave open the question of whether this plan has been scrapped or just shelved. We need to know.” Tsipras, who turned 41 yesterday, currently enjoys a 61 percent approval rating.Varoufakis may be a Marxist clown, and his grandstanding has gutted his country and left it bleeding and gasping on the floor. But indicting him for treason would be the wrong next step.Outsiders often underestimate the deep grievances and fissures in Greece. A cruel and barbaric civil war set a totalitarian left and an oligarchic, bloody-minded right at each others’ throats. The terrible situation of the country has rekindled some of these old hatreds on both sides.All these bizarre stories of secret hacks of government computers, as well as whatever other cloak-and-dagger plans the Tsipras government was keeping in reserve, need an airing. The revelations are sure to bring intense bitterness and despair, especially when experienced while the full cost of Varoufakis’ follies make themselves felt across the country’s already-battered economy.But a criminal prosecution will not make anything better. There is nothing to be gained—and much to be lost—by stirring old hatreds up even more than circumstances already are.

German Economists Push for Exit Clause

A panel of German economists have broken an important European taboo by calling for failing members of the currency union to have the option of leaving the euro. The Financial Times:

The recommendation from the German Council of Economic Experts on Tuesday that, in some cases, eurozone members should be cut loose is another sign of the rapid shift in thinking in Germany amid mounting frustration over Greece.

“A permanently unco-operative member state should not be able to threaten the existence of the euro,” the economists said in a special report, published on Tuesday, calling for countries to exit the eurozone if it is necessary as an “utterly last resort”.

The French and the Italians are going to hate this idea—it would permanently weaken their position vis a vis Germany. But it may well be the only way that German public opinion will support the currency long term. For the Club Med countries, this means that unless they folllow the zone’s strict rules and carry through painful and profoundly unpopular reforms, they risk seeing the interest rate gap between them and Germany grow. Investors will look at Italy’s debt, or France’s slow growth, or the political climate in Spain, and decide that there is a risk that one or more of these countries would fall out of the euro and have to go back to a national currency. That perception of risk will mean that investors won’t lend money to those countries or to banks and companies operating in them at the same low rates they charge the Germans. Getting rid of those interest rate differentials was one of the major reasons that countries were eager to sign up for the currency in the first place

For Germany, on the other hand, the situation would be pretty good. Germany would enjoy good interest rates based on the country’s solid performance (as long as that lasts) and its neighbors would be constantly disciplined by markets to live up to their reform and budget commitments. If the occasional crisis over whether or not a given country might fall out of the euro came up, the euro itself would probably lose value for a while—which would also be OK with German exporters, who would temporarily benefit from a cheaper currency. And there would probably also be a flight to quality in Europe when a crisis looked possible, meaning that interest rates in Germany might even fall in a crisis as jumpy investors dumped Club Med stocks and bonds for safe German holdings. German banks would also have some interesting opportunities—collecting deposits in low-interest Germany, then lending (a bit more cautiously than in the last decade, one hopes) in the racier, higher yield countries. With a lower cost of capital than rivals in France, Italy and Spain, both German manufacturers and banks could manage very nicely in that kind of monetary union.The trouble is that for the Club Med countries, this kind of euro would not make much sense. Why go through years of stagnation and pain if you still have to pay higher interest rates than Germany and watch your companies be forced to struggle on a playing field that is tilted against them: a common currency that is priced too high to make the firms competitive abroad, and comparatively higher domestic interest rates that gives competing German firms easier access to capital?Club Med wants the euro to be irrevocable and for the exit of any member state to be catastrophic for the rest of the bloc, and they want to use their political weight within the eurozone to shift the rules in their favor: easier access to German and other ‘saver country’ money, with fewer conditions in a currency whose governance is more like America’s loosey-goosey Fed than the Prussian disciplinarian approach Germans go for in a big way. This fight between two fundamentally different ideas about the nature of money have been at the heart of the politics of the eurozone ever since the crisis erupted in 2009. The fight isn’t over yet. Germany has the upper hand at the moment, in part because the Greeks were so truculently stupid and amateurish that they united the whole eurozone against them and at least temporarily discredited the Krugman/Sachs school of neo-Keynesian economics. But the the French, Spanish and Italian political and economic establishments are increasingly horrified at the direction in which German leadership is taking the currency, and they are not going to simply sit there and let German economists write the rules to suit themselves.The Club Med way won’t work for Germany, the German way is a Via Dolorosa for the south, and nobody has yet imagined a third way that could make sense for everyone. That third option may be impossible; if so, at some point the euro may have to be unwound, perhaps by a German exit.Nothing has been settled in the European monetary crisis. The key players have not agreed on the rules of the game, and as public opinion on all sides becomes more agitated, workable compromises will be harder to find. The Obama administration, judging from its public statements, appears determined to remain irrelevant in the European process, contenting itself with repeating Keynesian cliches.Seventy years ago, in the summer of 1945, Europe was in much worse shape that it is now, and its divisions were much deeper. The Truman administration, after some initial hesitations and false starts, was ultimately able to play an incredibly constructive role and help the Europeans begin a process of reconciliation and cooperation that made western Europe one of the richest, happiest and most peaceful regions in the whole history of the world. This administration, or its successor, will need to find a way to cooperate with key European partners to prevent some of those gains from unraveling.

Help Wanted for Walter Russell Mead

The American Interest’s editor-at-large, Walter Russell Mead, is hiring a research associate. The job involves a mix of writing, editorial, and administrative responsibilities and is based in New York.

Responsibilities:

Writing and Editorial: Help Professor Mead and the The American Interest team produce the Via Meadia blog; participate in daily editorial calls and pitch meetings.
Research and editorial: Work with Professor Mead and his research team on book projects; provide background research and editorial help for op-eds and essays in the Wall Street Journal, Foreign Affairs, and elsewhere.
Administrative: Coordinate communication with press, think tanks, and government and elected officials. Assist Prof. Mead with publicity for his forthcoming book, and on calendar and travel management and other organizational tasks.

The ideal candidate will be a recent graduate, perhaps with some job experience, with a strong background in the humanities, excellent writing and editing skills, an affinity for the ideas and ideals that Professor Mead and the team seek to advance, and a hunger to continue learning. Foreign language skills, familiarity with economics, and an understanding of statistics are also advantageous.

The job involves research, administration, press relations, writing, and training and managing interns, and the successful candidate will need to be able to represent Prof. Mead and the AI team at conferences and think tank meetings, as well as with media organizations and government officials. There will be opportunities to accompany Professor Mead on international trips as well as frequent meetings in Washington, D.C. There will be also be chances to place longer bylined essays and book reviews at the American Interest. We are looking for someone who is comfortable with in-depth historical and policy research; who can work well independently, remotely, and as part of a team; who has a passion for accuracy; who is adaptable; who has a strong work ethic; and who is eager to help shape the national debate on both domestic and foreign policy issues. The ideal candidate will also enjoy living and breathing both news and analysis, and will be able to help The American Interest explain and communicate complex issues in an engaging way.This is an excellent opportunity for someone who wants to advance a career in journalism, publishing, public affairs, private business, or policy analysis. Professor Mead and the AI team believe in mentoring; past holders of this position have gone on to prestigious fellowships, further academic study at leading universities, good jobs in journalism, diplomatic and military service, and careers in business. We offer a competitive salary.Prospective candidates please email a cover letter, resume, and two writing samples to Nicholas Clairmont and Nicholas M. Gallagher at nclairmont@the-american-interest.com and ngallagher@the-american-interest.com, respectively.

Amazon Launches Startups into the 21st Century

In a bid to help pair innovative startups with the advertisement and distribution infrastructure that so many entrepreneurs need, Amazon has today unveiled its newest platform, “Amazon Launchpad.” The online retail giant is hoping that Launchpad will make it much easier for new products to get to a larger market. Reuters:

The online retailer is partnering with more than 25 crowd-funding platforms like Indiegogo and venture capital firms to offer 200 products on the platform…Amazon said it is not working with Kickstarter in “any official capacity” for its program.

Some of the products are already availalbe on Amazon.com, but the program will be listed on Amazon’s Launchpad store. Amazon will manage inventory, fulfil orders using its own distribution network and provide customer service for a margin of the startup’s sales.Entrepreneurs can attract massive interest in a new gadget through crowdfunding sites, but often find it difficult to actually market and distribute orders on time to a large number of consumers. […]

The era of stable, lifetime employment at big companies is gradually slipping away as the twenty-first century economy—focused around small businesses, services like Uber and Airbnb, and other jobs in the service sector—takes shape. That transition will create plenty of opportunities for aspiring entrepreneurs, who will benefit from revolutions in information technology that have drastically lowered the costs of starting a business. Now is a fantastic time to start your own business: It’s already easier and cheaper to do so than ever before and developments like Amazon’s Launchpad platform could make it yet more simple for new companies to find their markets. More, please.

American Indenturement in the 21st Century

Immigrant workers are locked up, docked wages, extorted for bribes, and threatened by the police at their boss’s behest—sounds like a sweatshop in Southeast Asia or, at worst, the abuse of illegal immigrants in America who can’t turn to the authorities, right? Wrong. An infuriating, must-read report in BuzzFeed lays out in detail the plight of workers here in the U.S. on H-2 visas:

The number of H-2 visas issued has grown by more than 50% over the past five years. Unlike the better-known H-1B visa program, which brings skilled workers such as computer programmers into America’s high-tech industries, the H-2 program is for the economy’s bottom rung, designed to make it easier for employers to fill temporary, unskilled positions.[..]

A BuzzFeed News investigation — based on government databases and investigative files obtained through the Freedom of Information Act, thousands of court documents, as well as more than 80 interviews with workers and employers — shows that the program condemns thousands of employees each year to exploitation and mistreatment, often in plain view of government officials charged with protecting them. All across America, H-2 guest workers complain that they have been cheated out of their wages, threatened with guns, beaten, raped, starved, and imprisoned. Some have even died on the job. Yet employers rarely face any significant consequences.

Now, we’d here sound a note of caution: Most H-2 employers do not commit abuses like these, and most H-2 workers do not suffer them. And certainly bad things happen to people in low-wage jobs in America too. But there’s a difference: the rot is in the heart of the H-2 program:

The way H-2 visas shackle workers to a single employer leaves them almost no leverage to demand better treatment. The rules also make it easy to banish a worker to her home country at the boss’s whim.

And that leads to less lurid, but almost certainly more widespread, abuses, such as artificial lowering of wages, safety problems, squalid accommodations, and requests for kickbacks.

The undercurrent of the BuzzFeed article is in part that regulators aren’t doing their job. Well, maybe. We’re more than willing to entertain the notion that local cops are often more responsive, in ways that can become inappropriate, to the owner of the local crawfish factory than its immigrant employees (to take the article’s most lurid example). But there are already OSHA inspectors, ICE agents, etc., aplenty—and the abuses still happened. Sometimes, “there ought to be a law” or “there ought to be more enforcement” just doesn’t cut it.We’d suggest instead that this program, often defended as business-friendly, suffers from a deficit of market capitalism. This is something that Milton Friedman, for one, foresaw long ago. From Chapter 8, “Who Protects the Worker?”, of Free to Choose: 

The most reliable and effective protection for most workers is provided by the existence of many employers. As we have seen, a person who has only one possible employer has little or no protection. The employers who protect a worker are those who would like to hire him. Their demand for his services makes it in the self-interest of his own employer to pay him the full value of his work. If his own employer doesn’t, someone else may be ready to do so. Competition for his services— that is the worker’s real protection. […]

A worker is protected from his employer by the existence of other employers for whom he can go to work.

That is not the case for the H-2 worker. Consequently, increased exploitation is something any well-read market conservative should expect—and oppose. The H-2 (and its high-tech cousin the H-1B) offer all of the bad effects of immmigration—competition from cheaper foreign labor (for other Americans), exploitation (for the workers)—and none of the benefits.

The temporary nature of the H-2 program robs America of the chance to recruit on a permanent basis hard-working new citizens who, to paraphrase Woodrow Wilson, have lacked opportunity but not character or ability, to fill these jobs. (Would that the 28th President had been so broadminded toward our African American citizens…) Conversely, the program artificially depresses wages and opportunities for unskilled Americans, particularly inner-city or rural residents, who could take these jobs if the visas weren’t offered. And they rob our markets of the essential dynamism and entrepreneurship inherent when employees can switch companies or start their own (whether they make Apple apps or push an apple cart). The H-2 program benefits only the crony, rent-seeking employer. It’s indenturement by another name.These visas are un-American, and despite a thousand disagreements on immigration policy right now, reforming them is something that right and left should be able to agree on.

The U.S. Should Invest in a Europe Strategy

With the Middle East on fire and China challenging America’s dominant position in the Pacific, arguing that America should refocus on strategic engagement with Europe isn’t an easy sell. But this is precisely what is needed. Europe is fast becoming a problem continent yet again, and the implications of this transformation challenge the core assumptions of Transatlantic security. Far from being “done”, as was the mantra in Washington in the heady post-Cold War days, there is pressure building in and around Europe over national politics, EU governance, economics, immigration, terrorism, radicalism, and state-on-state conflict.

All of these issues are squeezing the Continent from three directions at once. First, there is escalating pressure against Europe’s southern flank, as ISIL pushes across the Middle East; jihadi recruitment and activity are spreading deeper into Europe and new refugees land on its shores every day. Even more troubling is the resurgence of an authoritarian, re-arming, and geostrategically assertive Russia, which has once again brought state-on-state conflict, as well as the threat of more to come, to Europe’s northeastern periphery; in fact, Putin’s irredentism, coupled with Europe’s progressive disarmament, has already exposed the brittleness of allied consensus on collective defense. The third factor that continues to undermine Europe’s security is the ongoing euro crisis. The constant wrangling over the future of a now-bankrupt Greece is merely the most visible symbol of deeper issues confronting the European Union project. Today there is no consensus on how the crisis will ultimately play itself out, but what is clear is that the outcome will be painful, not just for Greece but for the entire community.Yet Washington still remains wedded to the conventional depiction of an overly bureaucratic Europe that nonetheless somehow manages to plod along. There has not been enough appreciation in the United States of the depth of internal discord that is now a reality among European publics, nor of the Continent’s inability to address its fundamental hard security requirements. There needs to be a greater appreciation of the polarization between Europe’s northeastern states and its inner core over the scope of Russia’s threat to Europe and how to deal with it. The former Soviet colonies and the old Western Europe differ significantly on what needs to be done to reinforce their common defense.The deepening discord and public dissatisfaction over the European Commission’s plans to reallocate immigrants to every country is one example of the larger public discontent with how EU institutions work—and this discontent will likely deepen unless the European Parliament begins to reflect the genuine popular will. Last but not least, though the euro project continues to hobble along, few in Europe today would venture to predict the long-term political and economic costs of the undertaking. In the face of the Greek debacle, some have called for a “two-speed Europe” which is the very antithesis of what the common currency once symbolized.The deteriorating situation in and around Europe requires renewed engagement from the United States. Transatlanticism remains vital to our mutual security and to the preservation of the U.S.-led open international order. Today, as pressure builds in and around Europe, the U.S. needs to looks for ways to work with a Continent that is turning further inward, as Europe’s leaders and its publics struggle to adapt their institutions to the new environment. Hence, the current and future U.S. administrations need to recognize how disruptive the crosscurrents now facing Europe are going to be in the years to come, and to respond with vigor to reaffirm the strategic importance of the Euro-Atlantic alliance. For too long now, U.S. policy toward Europe has rested on the reasonable, if ultimately unworkable, assumption that wealthy Europeans should handle their affairs close to home and rise to the occasion when problems emerge out of area. Regrettably, this has not been the case. We are both worse off for it.Public and private admonitions and cajoling by the U.S. won’t work unless they’re backed up by a clearly articulated vision of the U.S. relationship with Europe in the next decade, of the common objectives we want to achieve, and, most of all, of the belief that common defense remains the unbreakable bond between the United States and Europe. Public diplomacy will not substitute for deeper U.S. strategic engagement with Europe. Without it, we will continue to measure our relationship with Europe in marginal increments, treating every 0.2 percent increase in defense spending as news worth celebrating.

Obama Looks to Give Pell Grants to Prisoners

The Obama administration is announcing a new push in its overall effort to reform the nation’s prison system: making Pell grants available to the incarcerated, who are currently prohibited by a congressional ban from receiving such aid. The Wall Street Journal reports:

The plan, set to be unveiled Friday by the secretary of education and the attorney general, would allow potentially thousands of inmates in the U.S. to gain access to Pell grants, the main form of federal aid for low-income college students. The grants cover up to $5,775 a year in tuition, fees, books and other education-related expenses […]

Some congressional Democrats have proposed lifting the ban. Meanwhile, administration officials have indicated they would use a provision of the Higher Education Act that gives the Education Department the authority to temporarily waive rules, such as the Pell-grant ban, as part of an experiment to study their effectiveness. […]The administration’s plan could open the White House to new charges that it is subverting the will of Congress. The administration has been criticized for using executive powers to change immigration policy.

Helping prisoners get an education is a good idea, even if Pell grants might not be the best way to do it (alternative means might include awarding grants to colleges and vocational institutions to develop programs for prisoners). One reason that recidivism rates are so high is that many convicts are unemployable when they leave prison, and giving them the opportunity to pursue a college education could well make a difference there.

That said, it’s unfortunate that the Administration is choosing to take steps unilaterally rather than putting the idea before Congress. If the Administration’s lawyers are convinced they don’t need legislative action, it will still be advisable going forward to make sure key congressional figures and staffers are fully briefed and able to offer input. Some Republicans already oppose giving Pell grants to prisoners as it is, and pushing the change through unilaterally without input would risk politicizing a cause that’s been gaining bipartisan momentum.This is Obama’s prison reform moment. The sentencing reform legislation currently pending in Congress is endorsed by both the president and House Speaker John Boehner. If Obama plays his cards right, this could be one of the few bipartisan achievements of his presidency and, if done right, prison reform could make a big difference in a lot of lives. Hopefully it passes with broad consensus rather than becoming a political spat.

Australia Takes a Deep Step Into the Asian Arms Race

The workings of an upcoming white paper on Canberra’s thinking about security and military issues have come out, and the document shows that as China’s rise sends the region into a arms buying frenzy, Australia has no intention of being outgunned in the Pacific. The Hong Kong-based Want China Times has more on the white paper’s expected contents:

It is understood that the document will focus on a beefed up Navy and RAAF to counter China’s massive military build-up, and no new money for the army. […]

The shipbuilding plan calls for an urgent “rolling build” of future frigates and offshore patrol vessels worth more than $20 billion.Combined with the possible construction of the navy’s $50 billion future submarine in Adelaide the plan will guarantee work for local shipyards such as BAE Systems in Melbourne and ASC in Adelaide for decades to come. […]Extra money will also be channelled to cyber security and space where satellite security is increasingly important for the Australian Defence Force.

We’ve been covering the arms race that China’s expansionist stance has kicked off in Asia. Vietnam, the Philippines, Japan, India, and weaker countries such as Indonesia and Singapore have been investing in the gear they fear they’ll need to keep China at bay. Mostly, that has meant littoral combat ships, coast guard ships, missiles, and most recently, spy planes.

Canberra enjoys a mostly warm relationship with Beijing, especially on trade, and that’s been a major economic advantage for it in recent years. But as it’s new defense policies make clear, chips on the table there is no question over whether Canberra would stand with a regional, U.S.-backed coalition bent on standing up to the expansionist might of a rising—or possibly sinking—China, and stand tall.

Dilma’s Last Stand?

Brazil’s stock index completed a seven-day slump yesterday, buffeted by China’s own stock market crisis, as well as by the prolonged slump in oil prices. The state-owned scandal-plagued oil giant Petrobras has been leading the charge into the abyss, according to Bloomberg:

Petrobras, the oil producer at the center of Brazil’s largest corruption scandal, extended a seven-day plunge to 18 percent. The company has said that its investments in offshore production are economically viable with the commodity above $45. Crude fell more than 20 percent from its June high to $47.54 a barrel as a rebound in U.S. drilling signaled that producers may keep adding supplies to a global glut.

“The scenario for Petrobras is getting even more complicated,” Celson Placido, an economist at brokerage XP Investimentos, said by phone from Sao Paulo. “The plunge in crude implies lower profits from its investments, and may also be negative for the company’s asset negotiations.”
 Chief Executive Officer Aldemir Bendine is seeking to contain damage from a decade of alleged kickbacks with plans to sell $15.1 billion in assets by the end of next year. The world’s most-indebted oil company is joining producers from Chevron Corp. to ENI SpA in trying to raise cash and cut operating costs amid a rout in oil.

With unemployment and inflation rising, Brazil is facing what many analysts are predicting to be the worst recession in over 25 years. It’s no shock, then, that Brazilian President Dilma Rouseff, whose close associates have been snagged in the ever-expanding investigation into corruption surrounding Petrobras, has approval ratings that are at eye-watering lows:

Brazilian President Dilma Rousseff’s approval ratings fell into the single digits in July, according to a new survey released Tuesday. The dismal new numbers came out a day after Brazil convicted top construction executives for the first time in the widening probe of state-run energy firm Petrobras.

According to Tuesday’s survey, conducted from July 12 to 16 by Brazilian polling firm MDA and commissioned by the National Transportation Confederation, just 7.7 percent of respondents rated Rousseff’s performance as “great” or “good,” while 70.9 percent rated her “bad” or “terrible.” Of the remaining respondents, 20.5 percent rated her as “just okay.”

Perhaps most ominously for Rouseff, the speaker of Brazil’s lower house, Eduardo Cunha, defected from his party two weeks ago (which is still in the ruling coalition) and proceeded to immediately make noises about impeachment.

While Rouseff’s coalition partners are saying they want the government to hold together through the next elections in 2018, nationwide protests are scheduled for August 16. Those will be the ones to watch. Should they match or exceed the scale of the already massive street protests that convulsed the country’s major cities this March and April, some of the coalition partners’ calculus could quickly start to change.