Every now and then you read about a seemingly minor incident that illuminates an entire way of thinking about international affairs. And sometimes the harsh light of reality exposes the flaws in a popular body of theory, or at least reveals its limits.
Today, for example, the Financial Times reports that China is trying to get the World Bank to water down its annual Doing Business report, which ranks the world's nations by focusing mostly on the efficiency and transparency of the regulatory environment and thus the ease of starting or conducting new business. For what it's worth, Singapore ranks #1 on the list, Hong Kong #2, the United States #4, Taiwan #16, but the rest of the People's Republic of China ends up in the middle of the pack, at #91.
What's the IR theory angle in all this? For the past couple of decades, a number of IR scholars and China experts have argued that the best way to accommodate China's rise was to enmesh it in a wide array of international institutions. These institutions would bind China into an existing set of norms and rules, help "socialize" it into prevailing global practices, and guard against Beijing feeling like it was being excluded or marginalized. This sort of thinking justified the Clinton administration's entire policy of engagement, and especially its lengthy effort to bring China into the World Trade Organization.
There's nothing wrong with including China in existing international institutions, and doing so undoubtedly facilitates day-to-day cooperation on all sorts of mundane international transactions. In this sense, the institutionalist perspective reflected above remains helpful. But it is a mistake to assume that an increasingly powerful China will just passively accept a set of rules and practices that had been developed by the United States and Europe over the past fifty-plus years.
On the contrary, like other great powers, China will use its growing power to try to rewrite international norms and rules in ways that will benefit it. As the FT notes: "The row [over the Doing Business report] is an example of China's growing assertiveness at international bodies and its increased willingness to challenge liberal economic prescriptions."
There's nothing nefarious or imperialistic about such behavior -- at least, not in my book -- because major powers have always tried to rig the rules of global conduct in their favor. You weren't expecting altruism, were you? Or they simply ignore the rules when they turn out to be inconvenient, as the United States did when it went off the gold standard in 1971 or invaded Iraq in 2003. But the fact that such behavior is familiar doesn't mean it will be any less of a problem, and it reminds us that international institutions themselves are at best weak constraints on the behavior of major countries.
In short, if China continues to rise and competition between the United States and China (and others) intensifies, the battleground won't just be confined to the South China Sea, the competition for allies in Asia, or the shadowy world of cyber-espionage. It will also be fought out in the corridors, offices, plenaries, and sidebar meetings at major international institutions. And in these arenas, economic clout and diplomatic skill will count as much or more than aircraft carriers, drones, or sophisticated special forces.
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I was watching some of the America's Cup World Series races going on out in San Francisco, and it occurred to me that the evolution of the Cup is a perfect illustration of globalization at work.
Back in the day, the America's Cup was both a nationalistic and gentlemanly endeavor. The New York Yacht Club controlled the Deed of Gift that governed the competition, and it entertained periodic challengers. For decades the challengers were all from Britain until the Australians got into the act (and eventually won it). The competition took place in several formats, including big J boats and classic 12 meters. A certain mercantilism prevailed, insofar as the rules stipulated that challengers had to be built and equipped entirely in the country from which the challenge originated.
As in any competitive sport, there was gradual but steady progress in yacht design and technique, with occasional breakthroughs, like Intrepid's trim tab design in 1967 and Australia II's revolutionary winged keel in 1983. But it was still a pretty sedate and mostly amateur affair up to the late 1980s.
What has happened since then? Here's where the America's Cup becomes a symptom of globalization. First off, it's no longer really the "America's Cup" in any literal sense, and it isn't being conducted according to some fixed and traditional set of rules. The America's Cup has instead become a brand name for a series of global yachting competitions, with lots of different competitors and formats.
Second, as competition has intensified, the pace of technological change has accelerated dramatically. Today, the winner is likely to be the team that spent the most on a radical design or came up with a clever innovation that gave them a distinct advantage over the others. And that costs money. It used to be said that if you had to ask how much it cost to own a racing yacht, you couldn't afford it, and that much hasn't really changed. The Cup is still a hobby for mega-wealthy people like Oracle's Larry Ellison, but it's also become a big corporate endeavor. All of the boats now have corporate sponsors and their sails and hulls are plastered with more logos than a NASCAR automobile.
Third, it's not really a national endeavor anymore. Like an iPhone, the component parts of the different boats come from all over the world. And like any modern multinational corporation, so do the crews and skippers. Some of the teams still sport "national" names, but they all try to recruit the best talent from all over the world. Like other professional sports, in short, it's a globalized market where "labor" mobility is extremely high.
Fourth, let's not forget the rule of law. Globalization depends on a lot of things, including the emergence of at least a rudimentary system of rules to govern trade investment and other global transactions. Similarly, the America's Cup has been beset with litigation ever since New Zealander Michael Fay sued the San Diego Yacht Club over the terms of competition in 1988. So in addition to hiring clever designers and talented crews, a successful Cup competitor may need a talented legal team that can take advantage of legal technicalities. And just as corporations have become adept at moving quickly to countries where production costs are lower, so have America's Cup competitors. When Oracle's Larry Ellison couldn't get the St. Francis Yacht Club in San Francisco to run the competition the way he wanted, he joined the neighboring Golden Gate Yacht Club and used it as the sponsoring body instead.
Is this a good trend or not? The traditionalist in me mourns to passing of the 12 meter era, in much the same way that I feel nostalgic for the touch game that characterized the wooden racket era in tennis. But the new formats, which now feature large, very fast, unstable and fragile catamarans, have undoubtedly increased the audience appeal of the event. The ways things are going, the next step will be to equip the boats with rams and replay the battle of Lepanto. I'll bet even more people would watch.
In any case, trying to halt the march of "progress" is probably impossible, which is probably true of globalization too. Sail ho!
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"Tell me how this ends," David Petraeus famously asked back in 2003, referring to the U.S. war in Iraq. Today, I'd like somebody who knows more about international finance than I do to answer that question regarding the eurozone.
Today we learned that with the exception of Germany, the rest of the eurozone is slipping back into recession. Take a look at this graphic here, and you'll see that problem countries like Spain and Italy are in particularly bad shape, with economies that are not only under their 2008 levels, but beginning to shrink at an accelerating rate. And the OECD forecasts for next year -- see here, here, and here -- are not exactly encouraging.
Why does this matter? Because countries like Spain, Italy, and Greece all need genuine economic growth in order to get out of their larger debt problems. In fact, they need economic growth that is sufficiently strong to provide a surplus over their existing debt service (and other expenses), so that people holding their debt (or expecting to buy new bonds when it's time to roll the current set over) have reason to believe that the debts will eventually be repaid. This is why everybody gets nervous when interest rates on new debt rise about the canonical 7 percent mark.
The issue is ultimately one of confidence. If the institutions holding Spanish or Italian debt and the lenders who have to issue new debt (to cover the service on the old debt) are convinced that the Spanish and Italian economies will eventually start growing and that the money to pay these debts will be there in the future, then interest rates will remain low and the danger of default will recede. But if these same lenders begin to suspect that these economies aren't going to grow enough (and might even continue to shrink) they will rightly conclude that the money to pay their existing debts (including the debt service) will be lacking. At that point, they will only be willing to lend more money at interest rates that are even less sustainable. And that's when states have to start thinking about bailouts, or about leaving the eurozone and solving their problems through a new (and highly devalued) local currency.
The happy ending to this story, if there is one, is that the various structural reforms now being imposed on these countries will simultaneously cut government costs (thereby freeing up money for debt service) and eventually trigger robust economic growth (thereby increasing tax revenues and providing even more money). But thus far this doesn't seem to be happening. Instead, we get recurring crises, each dealt with by some sort of hastily improvised mechanism mostly designed to kick the can down the road and wait for a miracle to occur. But unless the curves in the graphic cited above hit an inflection point and start heading upward, I don't see how this favorable outcome ever gets reached.
But international finance isn't my real gig, so there may be aspects of this situation that I've failed to grasp. If any of you think you understand what's really happening, tell me how this ends.
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My papers are graded and final grades submitted, so I'm off to Istanbul this afternoon to attend the Istanbul World Political Forum. I'll be speaking on two panels -- one on "A New and Just Global Order?" and another on "Can the Cold War Between Israel and Iran Turn to Hot War?" -- and I'm looking forward to hearing what my hosts and the other attendees think about Syria, the U.S. election, China, the Euro crisis, and a host of other issues. It's a very full schedule and there won't be a lot of time for blogging, but I will try to post something if I get a moment and the jet lag isn't too bad.
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In one of my earliest posts on this blog, I argued that America's penchant for counterproductive global interventionism was driven by not one but two imbalances of power. The first was the imbalance of power between the United States and the rest of the world, which made it possible for Washington to throw its weight around without worrying very much about the short-term consequences. If you're a lot stronger than anyone else, it's hard to imagine you could lose to anyone and you're more likely to do something stupid like invading Iraq.
The second imbalance was the disproportionate influence of pro-intervention forces within the U.S. foreign policy establishment. As I put it back in 2009:
"America's rise to global primacy was accompanied by the creation of a well-developed set of institutions whose stated purpose was to overcome isolationist sentiments and to promote greater international activism on the part of the United States. American liberal internationalism didn't just arise spontaneously as America's relative power grew, it was actively encouraged by groups like the Council on Foreign Relations (founded in 1921), and a whole array of other groups and organizations. These institutions don't always agree on what specific actions the United States ought to take, and they aren't the sort of clandestine capitalist conspiracy depicted by Lyndon Larouche and other fringe groups. But together they stack the deck in favor doing more rather than less."
I went on to describe the DC think tank world (i.e., groups like AEI, Heritage, Brookings, Carnegie, etc.) and the numerous special interest groups that lobby for their own particular causes. And then I noted that:
"By contrast, there are at most a handful of institutions whose core mission is to get the United States to take a slightly smaller role on the world stage. There is the CATO Institute. . . and maybe a few people at the Center for American Progress and the New America Foundation. And there are plenty of peace groups out there with an anti-interventionist agenda. But these groups are hardly a match for the array of forces on the other side."
I mention all this because there seems to be a concerted effort underway to turn one of those organizations -- the CATO Institute -- into another member of the pro-intervention choir. In particular, right-wing industrialists Charles and David Koch (who are long-time CATO supporters) have recently sought to place several new members on CATO's board of directors, and have filed a lawsuit challenging its current governance structure. You can read about this power struggle here and here.
Why does this matter for foreign policy? Because, as CATO Vice-President for Foreign Policy Studies Christopher Preble lays out in this blog post, the individuals the Kochs are seeking to appoint hold views that are decidedly antithetical to the libertarian, mostly realist, and generally peace-oriented foreign policy perspective that has been CATO's trademark, and which is an increasingly rare perspective in post-Cold War, post 9/11 Washington. Preble also notes that the Koch Foundation helped sponsor an invitation-only seminar series at the American Enterprise Institute last year, whose lineup consisted of a "who's who" of hawkish neo-conservatives (Eliot Cohen, Walter Russell Mead, Eric Edelman, Niall Ferguson, etc.). Each of the speakers was a strong supporter of the Iraq War, which tells you something about where the Kochs are coming from.
It's a free country where just about everything is potentially up for sale, and the Kochs are free to use their money to try to shape public discourse as they see fit. Needless to say, they haven't been exactly shy about doing that, though a commitment to truth doesn't seem to be a high priority of theirs. But if their efforts to transform CATO succeed, we will lose one of the few influential institutions in Washington that consistently calls for a more sensible and restrained foreign and defense policy. I'm not a libertarian and I don't agree with all of CATO's positions on these matters, but a further narrowing of public discourse on foreign policy is not what the country needs right now. So I hope CATO's current management wins this fight, and that the institution remains true to its original vision. We'll be better off as a country if it does.
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I've never paid much attention to forecasts and analysis from Stratfor, the for-profit strategic analysis firm that was rocked by a cyber-attack in December 2011 that compromised its customer data base. I wasn't willing to pay their premium prices, although I occasionally read Stratfor reports forwarded to me by a colleague who was a subscriber. On the whole, I thought they were often interesting but also overly alarmist.
I mention this because Stratfor has taken an interesting step to salvage its fortunes, by hiring journalist and noted realist Robert Kaplan to write a regular feature on geopolitics. I don't always agree with Kaplan's analysis -- I don't agree with anyone all of the time -- but he's one of the few prominent journalists who sees the world through a realist lens and has a clear capacity to think in broad strategic terms. He's also an intrepid traveler and lucid writer who is willing to challenge conventional nostrums, and I'll be interested to see what he has to say from his new perch.
I've complained in the past about the remarkable dearth of realist commentators at major media outlets such as the New York Times, Washington Post, Wall Street Journal, and the like. Liberals, idealists, neoconservatives, and former editors all enjoy privileged positions at these august institutions, but none of these organizations has managed to find a card-carrying realist to provide an alternative view on a regular basis. This omission is especially striking given that realism is a well-established intellectual tradition and used to have a respected place in our foreign policy discourse. It's not perfect, of course, but its track record is clearly superior to the liberal and neoconservative commentary that one can read almost daily in the commanding heights of American journalism. Fareed Zakaria's CNN show GPS is a partial exception, perhaps, but when you consider that this humble blog might be the most prominent realist commentary in contemporary public discourse, you get a good sense of marginal realism has become.
Which is why Kaplan's new job is a welcome development. It's not the Washington Post op-ed page -- unfortunately -- but I hope he attracts a lot of readers. You can see his first entry here.
Update: After posting this entry, it occurred to me that I had failed to mention several important realist voices in contemporary policy discourse, including Steve Clemons (now at the Atlantic), Paul Pillar at The National Interest, Robert Merry (ditto), and this site. Les Gelb at the Daily Beast seems to be rediscovering his inner realist of late. Steve Chapman of the Chicago Tribune also writes from a partly realis, partly libertarian perspective. But I'd still argue that realist ideas remain systematically under-represented in the commanding heights of contemporary media.
The struggle to save the euro is beginning to look like a chase scene from an Indiana Jones movie. First, our hero dodges the landslide, then runs from the spear-wielding aborigines, then is surprised by a snake ("I hate snakes!"), then is pursued by well-armed Germans and has to escape on horseback, only to plunge over a waterfall, only to be captured by ... you get the idea.
So this week we had 48 hours of excitement after Greek Prime Minister George Papandreou announced he was going to hold a referendum on Greece's acceptance of the European bailout. Consternation reigned, and markets tumbled. And then he said, in the best tradition of Emily Litella: "Never mind." Markets rebounded, and the bus lurched on toward the next crisis.
As I've emphasized before, I'm no macroeconomist (although my respect for some of them has been dropping steadily since 2007). From my decidedly non-expert perspective, here's what I've concluded.
The real issue with respect to Greece and Italy (and thus, the euro) is whether genuine economic growth can be restored to these economies. All the bailouts and austerity and haircuts (i.e., voluntary reductions in debt) in the world won't help these states (and especially not Italy) if they can't generate enough economic growth to pay back what they owe. (Strict austerity is a problem here, by the way, because it reduces growth in the short term). If they don't grow they can't pay, which will place a lot of European banks at risk of major losses and maybe bankruptcies. And because this whole arrangement depends on confidence -- a debt is an asset if you think it will be repaid, but it's a loss if you believe it won't -- you'll get a credit event if the markets ever conclude that growth won't happen and the debts won't get repaid, and the euro is probably finished (at least in its present form). End of story.
So the fact that things have calmed down a bit (just as they do at the end of a good chase scene), doesn't tell us much about the future. All these diplomatic machinations to arrange rescue packages, etc., can buy time, but they won't solve the problem if economic growth does not return. And the big difference between this thriller and a Spielberg movie is that the script is being written as we go along and we have no guarantee of a happy ending.
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Has it really come to this? That the fate of Europe's economy is in the hands of Silvio Berlusconi, whose career in Italian politics is closer to opera bouffe than responsible statesmanship? Whatever you think of the latest effort to save Europe and the Euro -- and I'm not that impressed -- this does not strike me as an encouraging sign. After all, Berlusconi first became Prime Minister in 1994 and he's served three terms since then. Since 1996, Italy has managed a pitiful 0.75 percent average growth rate, and its anemic economic performance is why there are lingering doubts about its ability to pay its debts. But hey: at least the problem is in the hands of someone with a proven track recordof double-dealing, indictments, sex scandals, and personal aggrandizement.
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Remember the 1990s? Back in those days, the U.S. was recognized as the world's sole superpower. Our economy was booming, we ended the decade with a budget surplus, and there was a widespread sense around the world that the United States really had its act together. True, we had some pretty bitter partisan politics, misguided polices like "dual containment" were helping pave the way for 9/11, and corrupt financiers were busy sowing the seeds for the 2007 meltdown, but most of the world had the impression -- rightly or wrongly -- that the United States knew what it was doing. People like Tom Friedman extolled America's virtues in books like The Lexus and the Olive Tree, arguing that the rest of the world would have to embrace "DOS.Capitalism 6.0" (in other words, our system), or fall by the wayside. Overall, a powerful aura of competence enhanced U.S. influence and magnified our "hard power."
Fast forward to right now. We are on the brink of a major self-inflicted wound, driven solely by the deep dysfunction that now seems baked into our political system. Why should Pakistanis, Afghanis, Europeans, Chinese, Thais, Mexicans, Venezuelans, or anybody else take our advice on how to govern, when they watch the sorry set of ignorant clowns who are holding the rest of us hostage? If the worst case happens and the United States ends up defaulting, the economic costs will be significant enough. But it is also likely to do considerable damage to America's reputation for being a reasonably well-governed society, and it will accelerate the tendency for people around the world to look elsewhere for guidance. And while all this time and attention has been wasted on the debt ceiling, other problems are festering and will be there to bite us later.
I wonder if all those "patriots" in the Tea Party and the GOP ever thought about that. And if they did, would they even care?
About 13 months ago, I returned from a visit to Greece and said I was increasingly pessimistic about prospects for a successful turnaround there. Money quotation (emphasis added):
In order to stave off default, Greece needs to trim its budget drastically (which means throwing people out of work or reducing their incomes), while at the same time stimulating economic growth. The problem is that it's hard to do both at the same time, because cutting the budget (or collecting taxes more efficiently) reduces domestic demand and thus chokes off economic growth. And because Greece is part of the Eurozone, it can't stimulate export-led growth by the normal expedient of devaluing its currency. (The sinking Euro helps globally, but not within the Eurozone itself.) Greece's prospects for economic growth are further handicapped by conditions elsewhere in Europe: It will be hard for Greece to grow if the rest of Europe is stagnant. If the government's efforts at restructuring lead to widespread political unrest, then chances of robust growth are even slimmer. And once the financial markets begin to realize all this, bond spreads will increase again and we will be back in the same soup we were in a few weeks ago.
All of which leads me to conclude that Europe as a whole is going to be in difficult shape for quite some time, unless EU officials figure out a way to do a lot more than they have done so far. And a double-dip European recession could trigger a double-dip recession here in the United States, which would have profound economic and political consequences (e.g., goodbye to Barack's second term?)."
Back then, I was surprised that anybody thought differently (i.e., that anyone believed the initial bailout would work). It didn't, of course, and Greece, the bankers, and the EU are now back in the soup. As the New York Times reports (my emphasis):
"Analysts and Socialist Party insiders said that Mr. Papandreou seems likely to succeed in passing the austerity package, having secured more support within the party. But economists are nearly unanimous in predicting the loans will only buy time, but do nothing to pull the country out of its economic morass and potential default.
Or as Ken Rogoff, co-author of a terrific study of financial crises ("This Time Is Different: Eight Centuries of Financial Folly), points out: "There is every possibility that at the end of this Greece is going to default anyway."
If that's true (and it sounds right to me) then Greece may have no alternative but to abandon the Euro and leave its creditors (and the Eurozone countries) to their fates. I'm no expert on these matters, but most of what I've read so far tells me that this would be very bad news for the European economy, and for us. But you can relax, because at least things are going well in Libya and Afghanistan and Pakistan and the Mideast and Japan and ...
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If you're relaxing on Memorial Day and reflecting on the sacrifices that some of our fellow citizens have made to advance the common good, I have three suggestions for things to read. All are drawn from the Sunday New York Times, and together they paint a worrisome portrait of the challenges we face as a nation.
The first article, appropriately, is a portrait of several soldiers from the 1st battalion, 87th infantry and the challenges they face as they return from Afghanistan. Several have been wounded, one has seen his marriage dissolve, all of them face an array of medical problems or personal obstacles, and none seem to have bright prospects once they return. Together, their stories remind us that most of the people who have been fighting these wars aren't members of a privileged elite; quite the contrary, in fact.
The second article, by Gretchen Morgenson, summarizes a recent paper by Joseph Gagnon and Marc Hinterschweiger of the Peterson Institute of International Economics. Here the subject isn't the human cost of war; it is the economic consequences of a decade or more of American profligacy. The basic story is that our society has lived well beyond its means, and we will face a rising mountain of public debt -- in the best case rising to more than 150 percent of GDP by 2035 -- unless we "design a long-term plan to reduce fiscal deficits in the future." Gagnon and Hinterschweiger believe there is still time to ward off this gloomy scenario, but only political leaders are willing to make hard choices about entitlements, tax rates, and other forms of government spending (including defense).
And the third article is Robert Reich's review of a new book on the financial crisis: Reckless Endangerment, also by Gretchen Morgenson (the same) and Joshua Rosner. The book (which I have downloaded this but not yet read) is a portrait of some of the key individuals who helped create the environment in which the mortgage crisis and financial meltdown occurred. Here's the paragraph (by Reich), that caught my eye:
The real problem, which the authors only hint at, is that Washington and the financial sector have become so tightly intertwined that public accountability has all but vanished. The revolving door described in "Reckless Endangerment" is but one symptom. The extraordinary wealth of America's financial class also elicits boundless cooperation from politicians who depend on it for campaign contributions and from a fawning business press, as well as a stream of honors from universities, prestigious charities and think tanks eager to reward their generosity. In this symbiotic world, conflicts of interest are easily hidden, appearances of conflicts taken for granted and abuses of public trust for personal gain readily dismissed."
Reich is quite familiar with this world, having famously been a "Friend of Bill (Clinton)" from the latter's Oxford days, as well as faculty member at Harvard and Secretary of Labor in Clinton's first term. As someone who has been lucky enough to teach at prestigious universities, I've some experience with these interconnected webs of influence myself, though hardly at the highest reaches, and Reich's summary here rings true to me.
Put the three pieces together, and it makes somber reading for Memorial Day. For they remind us that the people who have engineered our biggest failings in recent decades -- including the wars in Iraq and Afghanistan-have largely escaped any of the consequences. Similarly, most of the people whose mistakes led to the financial meltdown have retained their wealth, status, and political power. And as we spend the next couple of decades digging ourselves out from these various messes (assuming that our sclerotic political system actually manages to make do something effective), it's ordinary Americans who will pay the biggest price. As usual.
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The scope of devastation from the earthquake and tsunami in Japan is heart-rending, and readers who are in a position to help should donate generously to the charity of their choice. (See here for a list of worthy options).
The immediate consequences of the disaster are real enough, but today's New York Times also identifies what could be an even more significant long-term effect of this event: the curtailing of plans to address global warming through sharply increased reliance on nuclear power.
The basic equation here is pretty simple. The only way to deal with climate change is by reducing greenhouse gas emissions, which in turns means reducing reliance on the burning of fossil fuels. Conservation, improved efficiency, and "green" energy sources like wind farms can help, but not enough to fill the gap without a significant curtailing of living standards. Accordingly, many recent proposals to address future energy needs have assumed that many countries -- including the United States -- would rely more heavily on nuclear power for electricity generation. It's not a complete answer to the climate change problem by any means, but addressing it in a timely fashion would be more difficult if nuclear expansion is eliminated.
The destruction of the Fukushima nuclear plant is bound to set back these efforts, and it may derail them completely. At a minimum, it will make it much harder to get approval for new power plants -- which already face classic NIMBY objections -- which will drive up the cost and make a significant expansion of the nuclear industry politically infeasible in many countries, especially the United States.
This reaction doesn't make a lot of sense because the costs and risks of nuclear energy need to be rigorously compared against the costs and risks of other energy sources and the long-term costs and risks of global warming itself. But that's not the way that the human mind and the democratic process often work. We tend to worry more about rare but vivid events -- like an accident at a nuclear plant -- and we downplay even greater risks that seem like they are part of the normal course of daily life. Thus, people worry more about terrorist attacks than they do about highway accidents or falling in a bathtub, even though they are far more likely to be hurt by the latter than the former.
So, in addition to the thousands of lives lost, the billions of dollars of property damage, and the knock-on economic consequences of the Japanese disaster, we need to add the likely prospect of more damage from climate change down the road. It's possible that clearer heads will prevail and guide either more stringent conservation measures or the sensible expansion of nuclear power (along with other energy alternatives), but I wouldn't bet on it.
I'm back in Singapore for the first time in nearly two years, and what a difference two years can make. Back in 2009, Singapore was reeling from the after-effects of the global recession, which hit its trade-dependent economy particularly hard.
The island nation has regrouped quickly, however, and its economy reportedly grew by an astonishing 17.9 percent in the first half of 2010. The harbor is chock-full of ships again, construction is proceeding apace, and the government expects robust growth to continue.
I don't want to go all "Asian values" on you, and comparing Singapore's economy with that of the United States is risky at best. But I've been reading a few books and articles on the endemic corruption (or if you prefer, criminality), embedded within the United States political/economic system (and watching documentaries about it too). And it made me wonder how much this feature might have to do with the varying trajectories of the two countries.
Case in point: today's Herald Tribune reports that Goldman Sachs has concluded that there's nothing really wrong with how it does business. To quote the print version (not the online edition) Goldman decided "its operations need only a fine-tuning, not a complete overhaul." Hmmmm. I don't know about you, but when a major investment bank has to get bailed out by the American taxpayer, and just paid a $550 million fine to settle civil fraud charges (not the first time Goldman has had to do something like this, by the way), one might reasonably conclude that there were more fundamental problems involved. Not from the point of view of Goldman's present profits, perhaps, but from the point of view of what is good for the society as a whole. And the problem seems to be that maximizing political influence is as much a part of Goldman's business model as the pursuit of economic gain itself.
Mind you, I'm not an economist, and I'm sure there are legions of people out there who would be quick to leap to Goldman's defense. And I'm not really picking on Goldman, because the financial meltdown of 2007-2008 suggested that the rot was far more widespread. Instead what troubles a layperson like me -- and maybe ought to worry you, too -- is that we've just lived through the most significant global recession since the 1930s but don't seem to have learned much in the process. That recession was triggered by malfeasance in mortgage and financial markets, and yet not much seems to have been done to create new arrangements that would prevent something similar from happening again. And the main reason isn't conceptual or economic but political: financial interests give a ton of money to politicians, and -- surprise, surprise -- those same politicians tend not to take actions that these donors oppose, like significantly tighter financial regulations.
Singapore is far from a perfect society, and as I said at the outset, direct comparisons between its situation and that of the United States are somewhat dubious. But I can't help but wonder if maybe we could learn a few things about political economy from them. Like not letting private money play an enormous role in politics, and paying civil servants enough so that more of our best brains choose public service over Wall Street.
I'm beginning to think that what’s happening in Europe these days is really critical, in the sense that it will have large and lasting ramifications no matter how it turns out. Europeans were feeling their oats a few years back, and starting to talk in lofty terms about the strength of their common currency, their unique ideas about "civilian power," and their plans for defense integration and a common foreign and security policy. The EU was expanding, major neighbors like Turkey were knocking on the door, and the United States was shooting itself in the foot in Iraq and elsewhere.
Today, however, Europe's prospects don't look quite so bright. European officials have finally gotten around to assembling a rescue package for Greece (remember when a trillion dollars was a lot of money?) and this belated action seems to have quieted markets for awhile. But it remains to be seen if Europe’s problem children (Greece, Portugal, Spain, Ireland) will be able to raise taxes and cut budgets enough to make themselves solvent again. If not, then the rescue package will just have kicked the problem down the road, and we will face a renewed crisis a year or two from now. And if that happens, don’t expect another bailout.
In the past, Euro-optimists like Princeton’s Andrew Moravcsik have argued that crises like this just make Europe stronger, by forcing it to get its house in order and strengthen the relevant supra-national institutions. Maybe, but I’d be more convinced if my friend Andy hadn't described Europe as being "stronger than ever" last August (i.e., well before this latest crisis hit). Meanwhile, voters in Germany just delivered a sharp rebuke to Chancellor Angela Merkel and the Christian Democrats, sending a clear message that their support for costly bailout packages is not infinite.
The larger problem is longer-term. Europe’s population is declining and aging, which means that a smaller number of workers will have to pay for welfare benefits for an ever-growing number of retirees. Cutting benefits will be politically difficult, raising taxes is always hard, and immigration won’t bring in many of the skilled and highly productive workers that Europe needs. The latter step also creates cultural frictions. Maybe the well-off countries can jettison Greece et al from the Eurozone (thoug not the EU), but to do this would be to enshrine inequality within the EU itself and would be a major step backward. No doubt Europe will find a way to muddle through, but austerity will be the watchword for some time to come.
In any case, whether Europe grows closer together or begins to spin apart, it’s going to carry a lot less weight in world affairs in the next few decades. Its population is shrinking and aging, its military power is increasingly hollow, and it’s going to be short on money for years to come. If U.S. officials think they are going to get a lot more help from NATO in the decades ahead, they are living in a dream world.
So here’s my question: will NATO's new “Strategic Concept,” currently being formulated for presentation at the NATO summit next fall, reflect this emerging reality? Will it openly acknowledge that Europe is not going to commit more resources, and identify a set of (fairly modest) common goals that the alliance actually has some chance of achieving? Or will it contain the usual pious declarations of transatlantic solidarity, along with various empty pledges that everyone knows are no more than polite fictions?
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The New York Times and other news agencies are now reporting that China is preparing to get behind the U.S.-led effort to toughen economic sanctions on Iran. The Times's headline (in the print version) reads "China Supports Iran Sanctions," but the actual story tells a rather different tale. It says that President Hu Jintao agreed yesterday to "join negotiations" for a new sanctions package, but reminds readers that China has a well-established pattern of using negotiations to delay and deflect stiffer measures. In particular, the article reports that former President George W. Bush tried three times to "corral Chinese support " for tougher penalties on Iran, only to have China use its participation to "water down" the resulting resolutions.
This pattern should not surprise us, because China has every reason to drag its feet on meaningful economic sanctions. To begin with, China wants to safeguard its access to Iranian oil and gas and protect its ability to invest in Iran. Iran is now China's second largest source of oil and gas (providing about 15 percen of its consumption), and China is Iran's second largest customer. China has also become a substantial investor in Iran's economy. With demand for oil likely to grow in the future, this is not a relationship Beijing is likely to jeopardize.
Second, China is sanguine about the prospects of an Iranian bomb because it has a more realistic view of what that development would mean. China's leaders know that they didn't gain a lot of geopolitical clout when they tested their own nuclear weapon in 1964, and being a nuclear power didn't enable them to dictate or blackmail Taiwan, Vietnam, the Koreas, or anyone else. China's rise to great power status was driven by its economic development, not its modest nuclear arsenal, and Bejing knows that same would be true for a nuclear Iran. While China would probably prefer that Iran not develop nuclear weapons, it hasn't succumbed to worst-case paranoia and isn't willing to pay a large price to prevent that from happening.
Furthermore, keeping the U.S.-Iranian pot simmering (but not boiling) is in Bejing's long-term interest. America's ham-handed involvement in the Persian Gulf and Central Asia has been a tremendous strategic boon for Beijing, and they undoubtedly feel a profound schadenfreude as they watch the Uncle Sam expend trillions of dollars in Iraq and Afghanistan while simultaneously maintaining an icy confrontation with Iran. After all, the more time, money, attention and political capital we devote to Iran, the less we can focus on China's long-term efforts to build influence in Asia and eventually supplant the U.S. role there. Plus, bad relations between Washington and Teheran creates diplomatic and investment opportunities for China. The last thing Bejing wants is a prompt resolution of the Iranian nuclear issue, because it might pave the way for a more substantial détente between Washington and Teheran, thereby diminishing Beijing's value and allowing U.S. strategists to shift their attention elsewhere.
At the same time, China doesn't want a war to break out in the Gulf, which could send oil prices soaring (at least temporarily), put the world economy back in recession, and lead to other unpredictable consequences. So it would like the United States and its allies to keep confronting Iran via economic sanctions, but slowly, so that the dispute with Iran never goes away and the use of force stays off the table.
For China, therefore, the optimal strategy is to drag its heels and play for time. This approach means never quite refusing to go along with stiffer sanctions but never saying "yes" either. They'll probably agree to some additional penalties eventually (maybe after a desperate United States agrees to guarantee China's oil supplies against an Iranian cutoff!), but they won't back anything severe enough to convince Iran to forego nuclear enrichment altogether. The dispute will continue, U.S. leaders will devote lots of time and attention to it, and China's long-term interests will be advanced.
That, ladies and gentlemen, is Realism 101. Too bad that Washington seems to have forgotten how to play it.
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I'm still swamped with grading papers and with preparations for our annual New Year's Eve potluck (about which more in a day or two), but I hope everyone takes a look at the Times piece on China's commercial activities in Afghanistan. While we've been running around playing whack-a-mole with the Taliban and "investing" billions each year in the corrupt Karzai government," China has been investing in things that might actually be of some value, like a big copper mine.
As the article suggest, it's not like U.S. troops are "guarding" China's investments. Rather, there's a tacit division of labor going on, where "American troops have helped make Afghanistan safe for Chinese investment."
The rest of the article makes depressing reading, however. Here's what one Afghan contractor had to say:
"The Chinese are much wiser. When we went to talk to the local people, they wore civilian clothing, and they were very friendly," he said recently during a long chat in his Kabul apartment. "The Americans - not as good. When they come there, they have their uniforms, their rifles and such, and they are not as friendly."
The result? According to the Times:
"the Chinese have already positioned themselves as generous, eager partners of the Afghan government and long-term players in the country's future. All without firing a shot."
The point is not that somehow those wily Chinese have fooled us into squandering a lot of money and lives and annoying lots of people in Central Asia, while they make profitable investments. Rather, the broader lesson is that the entire thrust of U.S. policy towards a large part of the world has been fundamentally misplaced for a long time. If we think we are somehow trapped in an endless cycle of intervention in the Muslim world-Iraq, Iran, Pakistan, Afghanistan, now Yemen-it is because our policies towards the entire region have generated enormous animosity and to little good purpose. And when that animosity leads to direct attacks on the United States, we respond in ways that guarantee such attacks will be repeated.
To be sure, some of this situation is due to America's position as the sole superpower, which means that it gets blamed for things that aren't always its fault. Plus, a dominant power does tend to end up with a disproportionate role in providing certain collective goods while others free-ride. (If China ever does supplant the U.S as the dominant world power, the same thing will undoubtedly happen to them.) But it also reflects specific decisions that we've been taking for a long time, in the mistaken belief that they would never blow back and affect us here at home. That's why we ought to thinking very strategically about our overseas involvements, and trying to shift those burdens onto locals whenever we can. Unfortunately, the predominant view in Washington still favors an "America First" approach to solving most global problems, even when it's not clear we have any idea how to do that.
Don't forget: we are fighting in Afghanistan because a radical anti-American terrorist movement-Al Qaeda-located there in the 1990s and then attacked us on September 11. Al Qaeda attacked the United States for a number of different reasons, including its support for various Arab monarchies and dictatorships, its military presence in the Persian Gulf, and its "special relationship" with Israel (which is oppressing millions of Palestinians and consolidating control of Jerusalem). Al Qaeda also wanted to strike at the world's strongest power, in the vain hope that a dramatic act like that would win them lots of new supporters. They also hoped that they could goad us into doing a lot of stupid things in response, and that achievement may be their only real success to date. We are also bogged down in Central Asia because our earlier support for anti-Soviet mujaheddin there helped create a bunch of well-armed warlords and religious extremists who proved impossible to control later on.
But the key lesson is that the current situation is not immutable. We don't have to keep implementing the same policies that led us to this situation; instead, we need to start working on strategic approaches that will minimize our involvement in these regions without sacrificing our vital interests (mostly oil) or endangering the security of key allies. One step would be to do what President Obama promised to do in his Cairo speech and then abandoned: namely, get serious about a two-state solution. A second step would be to stop trying to reorganize vast chunks of the Arab and Islamic world, and focus our efforts solely on helping local governments capture or neutralizing violent anti-American terrorists. A related step is to move back to an "offshore balancing" strategy in the region, and rely more on naval and air forces and less on on-shore intervention.
And maybe a fourth element of a new approach would be to remember that the United States rose to its position of great power by letting other major powers do the heavy lifting, while Americans concentrated mostly on building the world's biggest and most advanced economy and building influence with lots of other countries. For the most part, we also kept our fiscal house in order, which gave us the resources to maintain and expand productive infrastructure here at home and made it possible to act overseas when we really had to. This isn't the 19th century and we can't just rewind the clock, but there's still a lot of wisdom in much more selective approach to the use of American power. You know, sorta the way that Beijing seems to doing it.
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There is an old saying among military experts that "amateurs talk strategy; professionals talk logistics." I was reminded of that while reading a recent commentary from my friends at the S Rajaratnam School of International Studies in Singapore. The somewhat arcane subject was the "carrying capacity" of the Straits of Malacca/Singapore, a vital maritime artery in South East Asia, and it reminded me that there are a host of issues in our globalized world that rarely get much elite or public attention, yet are absolutely vital to "business as usual." As this example suggests, a lot of them have to do with the principles, procedures and infrastructure that enable people and things to move from place to place cheaply and relatively efficiently.
At its narrowest point, the Straits of Malacca and Singapore are about 2.2 kilometers wide. Nearly 100,000 vessels transit the Straits each year -- carrying about a quarter of the world's traded goods -- and several recent studies project that as many as 150,000 vessels could be moving through the Straits by 2020. That many ships would exceed the Straits’ current "carrying capacity" (i.e., the number of ships that could move safely through it).
The key takeaway, however, is that "carrying capacity" is not a fixed number: The number of ships that can safely transit the Straits can be increased by timely government action to remove shipwrecks, improve navigation aids, tidal monitoring, and meteorological information, increase towing capacity, and other rather straightforward measures.
The good news, according to the RSIS commentary from which I gleaned this information, is that the three littoral states (Indonesia, Malaysia, and Singapore) have adopted a proactive policy on this issue. As a result, "projects are already underway, or are being proposed, to address the safety of navigation issues in order to improve sea lane conditions, with the participation of all interested stakeholders." If only the negotiations in Copenhagen were this easy.
The broader lesson here has to do with the importance of maintaining public infrastructure -- roads, bridges, air terminals, electrical grids, maritime waterways, rail lines, etc. -- the sinews upon which global commerce depends. These policies aren't exactly sexy, but they aren’t frivolous luxuries either. Indeed, they are essential ingredients that make the modern world work. It wouldn't be such a bad thing if world leaders got asked more questions about what they were doing to improve national and global infrastructure, at least as often as they get asked about where they are planning to send troops or what they think about the latest celebrity scandal.
I was struck by Louis Uchitelle's article in the Sunday NY Times on the dearth of big public works projects here in the United States. "For the first time in memory, the nation has no outsize public works project under way," he says, and then reports that:
Some economists argue that the continual construction of new megaprojects adds a quarter of a percentage point or more, on average, to the gross domestic product over the long term. Again, cause and effect aren't clear, but the strongest periods of economic growth in America have generally coincided with big outlays for new public works and the transformations they bring once completed."
One might add that we aren't spending enough to maintain our existing public infrastructure, and state and local governments across the country are facing deep budget deficits (and in some cases, a very real risk of bankruptcy).
But it's not as though the United States hasn't started some big public works projects over the past decade or so; it just hasn't been doing them here at home. We've spent billions constructing military bases in Iraq and Afghanistan, for example, and another billion or more on a giant embassy in Baghdad and another one in Pakistan. Needless to say, those "public works" projects are a drain on the U.S. economy rather than a source of additional productivity.
As I've said before, Americans have come to believe that spending government revenues on U.S. citizens here at home is usually a bad thing and should be viewed with suspicion, but spending billions on vast social engineering projects overseas is the hallmark of patriotism and should never be questioned. This position makes no sense, but it is hard to think of a prominent U.S. leader who is making an explicit case for doing somewhat less abroad so that we can afford to build a better future here at home. Debates about foreign policy, grand strategy, and military engagement -- including the current debate over Obama's decision to add another 30,000-plus troops in Afghanistan -- tend to occur in isolation from a discussion of other priorities, as if there were no tradeoffs between what we do for others and what we are able to do for Americans here at home.
And no, I'm not suggesting a return to isolationism, a retreat to "Fortress America" or any of the other labels that hawks use to try to discredit those who want a more restrained foreign policy. Rather, I'm suggesting that national security spending should not be considered sacrosanct and that a nation's leaders can hurt the country just as easily by under-investing at home as by neglecting its defenses. And given that we currently spend more on national security than the rest of the world put together, have several thousand nuclear weapons, face no great power rivals, and don't have any serious enemies nearby, it's kind of hard to argue that we're "neglecting" our defenses. We are using them unwisely (see under: Iraq, Afghanistan) and Obama is about to make his own contribution to this bipartisan blunder, but we're not exactly scrimping.
A while back I commented on the two imbalances of power that drive American grand strategy. The first is the gap between the United States and the other major powers, which makes Americans think they are responsible for managing much of the world and convinces them that they can do so with near-impunity. The second imbalance is the strength and political clout of a host of different institutions and interest groups whose common agenda is encouraging greater international activism on the part of the United States. In recent decades, the forces in favor of "doing more" have been better-funded and better-organized than those who favor greater restraint, which is one reason why we spend so much on defense and why we find ourselves entangled in intractable conflicts on several continents.
But when I read some early reports about the Obama administration’s health care plans, I began to wonder if the various forces that favor global activism are going to face stiffer opposition in the future. We are likely to have a sluggish economy for some time to come and the U.S. population is getting older. Virtually everyone agrees that serious health care reform is badly needed but will cost a lot. Plus, Obama's various economic recovery measures are going to saddle us all with record deficit levels. Us baby boomers are not exactly noted for our altruism, and my generation is going to put a lot of pressure on politicians to deliver the entitlements we've been promised. All of this means that budget dollars are going to be very tight, and the Pentagon is going to face tougher scrutiny when it brings in gold-plated requests. The Nation and Mother Jones may not be all that formidable a political opponent, but what about the AARP?
One of the great triumphs of Reagan-era conservatism was to convince Americans that paying taxes so that the government could spend the money at home was foolish and wrong, but paying taxes so that the government could spend the money defending other people around the world was patriotic. Ever since Reagan, in short, neoconservatives supported paying taxes to promote a U.S.-dominated world order, while denouncing anyone who wanted to spend the money on roads, bridges, schools, parks, and health care for Americans as a “tax and spend liberal." But if I'm right about the emerging fiscal environment, that situation may be about to change.
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While visiting Geneva last week, I was reminded of how well many aspects of public infrastructure work in Europe. Geneva is beautiful, clean, and the transport system seemed to be a model of efficiency and convenience. I took a public bus to the airport, which entailed walking one block from my hotel to the bus stop and then riding a clean and inexpensive bus for about 20 minutes, ending up right at the terminal. The Geneva and Zurich airports are gleaming, uncrowded, and comfortable. To get from my home to the airport via public transit in Boston, I'd have to walk 12 minutes to a T stop, ride a slow, crowded, and erratic trolley line (the dreaded "Green Line") into downtown, change twice, and then take an airport shuttle bus to reach the terminal. And Boston's Logan Airport, though better than it used to be, isn’t going to win any prizes. Let's not even talk about rail service or health care.
Maybe the differences in public infrastructure between Western Europe and the United States have something to do with the amount of money we spend constructing a different sort of "public infrastructure" in Iraq, Afghanistan, and lots of other places around the world.
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At the New Yorker blog, Steve Coll reports that the U.S. Congress is preparing a five-year $1.5 billion per annum non-military aid package for Pakistan, with full support from the Obama administration. (You can read the text of the legislation, entitled the "Enhanced Partnership with Pakistan Act," here.)
This step sounds impressive, until one remembers that Pakistan's population is nearly 180 million and its GDP in 2006 was about $144 billion. So the aid package amounts to around a 1 percent increase in Pakistani GDP, which works out to about $8 for each Pakistani. In other words, the U.S. Congress is going to increase their per capita income from $850 per year to about $858. (It's actually less than that, because some of the money goes to administrative expenses, auditing, and the like.)
This act might have some symbolic value, and I'm willing to assume that a few good things might get done with the money. But let's not forget that Pakistan has already received about $45 billion of U.S. economic and military aid since 1946 (measured in constant 2007 dollars), so it’s not like $1.5 billion today is going to work miracles. Moreover, because money is fungible, even careful accounting can't prevent Pakistan from shifting some of its own resources to other areas, which means the areas we are trying to help (such as education and public health) may not get that much better.
Overall, it's hard for me to believe it will have much effect on the lives of ordinary Pakistanis or do much to erode the endemic anti-Americanism there. Pakistan actually got a big influx of money after 9/11 (due in part to increased U.S. aid and also to a lot of reverse capital flight), yet the increased cash either went to the army or tended to fuel financial and real estate speculation instead of genuine economic growth. Moreover, even with the best of intentions, big aid initiatives like this one are bound to reinforce perceptions that the United States is perennially interfering in Pakistani society, which probably reinforces hostility and suspicion.
Instead of another aid package, we could probably do more to help Pakistan by removing U.S. tariffs on Pakistani exports (e.g., textiles), which would benefit Pakistani producers and American consumers alike. But that would trigger opposition from domestic interests here, so Congress will just adopt the politically convenient but less helpful step of appropriating more money.
Before I catch up on other developments -- like the new "plan" for Afghanistan/Pakistan, the Netanyahu government in Israel, the G20 summit, etc. -- I thought I’d pass along a few things I learned during my visit to Singapore last week. Here are a few quick impressions, based on my conversations with a number of academics and senior policymakers there, and by a roundtable discussion with Ashley Tellis, Yuen Foon Khong, Vinod Aggarwal, C. Raja Mohan, and myself (sponsored by the S Rajaratnam School and moderated by its Dean, Barry Desker).
First, Secretary of State Hillary Clinton got full marks for her Asia trip last month. The decision to make Asia her first foreign destination was much appreciated (especially given the short shrift the region had received under Bush), and the people I spoke with were also impressed by how she handled herself along the way. Singaporeans are looking forward to welcoming Obama there for the Asia-Pacific Economic Cooperation (APEC) forum in November. If the Obama administration is looking to refurbish ties with various Asian allies (and they should), the groundwork has been laid and the effort will be welcome.
Second, nobody in Singapore seemed enthusiastic about America doubling down in Central Asia. There was some grudging acceptance that the United States still had a role to play there, but even the strongest advocates of U.S. involvement in that conflict saw it as a grim necessity rather than an opportunity. Several officials emphasized that it was important that the United States not get bogged down there. Agreed.
Third, one senior official offered a cautionary note about the recent U.S. opening to Iran. While fully supportive of the initiative, he emphasized that Tehran was bound to drive a hard bargain and that negotiations would be prolonged and difficult. Another person with whom I spoke surprised me by suggesting that if Iran's clerical leadership is interested in dealing with Washington, they will work to ensure the reelection of Mahmoud Ahmadinejad, thereby keeping a "bad cop" in the Presidency to enhance their bargaining position. I would have thought the opposite -- that it would be easier to engineer a detente between Washington and Tehran if Ahmadinejad were no longer in office -- and it will be interesting to see who's right.
Fourth, virtually everyone I spoke with hoped Obama & Co. would get the U.S. economy moving ASAP, and argued that this was the only way to jump-start the rest of the world. This sentiment is easy to fathom (Singapore's economy is heavily dependent on world trade and is projected to shrink by 5-10 percent this year), but I found myself wondering if it is either realistic or healthy of other countries to expect so much from Uncle Sam. The days where the United States could singlehandedly serve as the engine of the world economy are probably behind us, and prospects for a coordinated global response seem increasingly bleak. Although everyone supposedly understands that "beggar thy neighbor" policies made the Great Depression worse, the global response to the crisis has been "every state for itself" and signs of protectionism are beginning to re-emerge. The draft G20 communique reportedly takes a firm stand against this trend, but it is going to take principled and courageous leadership to resist these pressures. All in all, a good test to see if we've learned anything from the 1930s.
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Stephen M. Walt is the Robert and Renée Belfer professor of international relations at Harvard University.