Monday, January 30, 2012

Business Times - 31 Jan 2012

Economic nationalism is back

This time round, it's bipartisan, with both the Democrats and Republicans standing up to China


WE TAKE it for granted that the current political discourse in the US is dominated by the struggle for power between the Democrats and the Republicans, and the ideological clash between the 'liberals' and the 'conservatives' - and their many respective sub-groups and orientations.

But a more traditional way of studying the major battles in American politics is to apply an ideological dichotomy that goes back to the founding of the republic and the great political divide between 'Jeffersonians' and 'Hamiltonians' - which seems to be more relevant than ever these days as the American political and economic systems are going through another historic transformation once again.

The conflict between the Federalists who were led by Alexander Hamilton (who would become the first US secretary of the treasury) and Thomas Jefferson (who would be elected as the third US president) and his anti-Federalists, reflected contrasting philosophical visions and policy agenda about the role of the federal government.

Hamilton, a New Yorker, favoured a strong central government that would help provide order and support for the growth of business and industry. His vision was that of an America as a strong industrial power - with productive enterprises rather than speculation. And he believed that - not unlike Great Britain and other European nations - the US should have a national bank to fund the national debt and should promote an activist industrial policy through selective tariffs, subsidies to targeted industries, and investment in infrastructure.

The Virginian Jefferson, on the other hand, was opposed to a concept of a strong central government and wanted to devolve power to the states ('states' rights') and local and private entities, and promoted a vision of America as a peaceful nation of farmers and small businesses that refrained from pursuing the mercantilist and realpolitik foreign policy of the major European governments. Jefferson's America was one that was ruled by the people as opposed to the educated and the wealthy who would be in charge in Hamilton's America.

So imagine these two Founding Fathers listening to President Barack Obama's State of the Union Address last week, in which he was promoting a message of economic nationalism, promising to rebuild American manufacturing and to fix the country's infrastructure while asserting the right of the US to challenge other nations' unfair trade practices.

And now try to guess which of these two political and intellectual giants - Hamilton or Jefferson - would be applauding a speech in which the president decried that America has become a nation of 'outsourcing, bad debt and phony financial profits' and promised to rebuild 'an economy that's built to last'.

'Our workers are the most productive on Earth,' President Obama said, stressing that 'if the playing field is level, I promise you, America will always win.'

Mr Obama celebrated his decision to use the power of the federal government to bail out Chrysler and General Motors in 2008, noting that the two Detroit car companies are now booming, and pledged to pursue similar government intervention in the economy in other areas.

'It can happen in Cleveland and Pittsburgh and Raleigh,' Mr Obama said, referring to places in the country that once upon a time used to be the symbols of American economic strength, where thousands of workers were employed in flourishing factories that exported their products worldwide. Today, many of these jobs have disappeared as a result of technological changes and globalisation, and are being outsourced to Asia.

'We can't bring every job back that's left our shore,' Mr Obama admitted, but stressed that the US has 'a huge opportunity, at this moment, to bring manufacturing back'. 'But we have to seize it,' he added, laying out concrete plans for ending tax breaks for US corporations that move offshore and for imposing a tax on their overseas profits, and at the same time, cutting taxes on domestic US manufacturers.

There is no doubt that the economic nationalist Hamilton who had laid the foundations for the modern American industrial policy would have been smiling during President Obama's speech. Mr Obama seemed to compare America to a military unit that can marshal its resources to win the war.

Mr Obama did not reject the ideals of individualism and free markets that were seen by Jefferson as embodying the American spirit. But he argued that at a time when the structure of the post-1945 American economy is crumbling and the global status of the US is being challenged, there is a need to revive the Hamiltonian approach - under which Americans are brought together as one people where a more activist federal government provides incentives and support through initiatives to promote manufacturing, clean energy, infrastructure, education and research.

And as part of creating the basis for a functioning national community, the federal government would need to narrow the widening social-economic gaps and bring more fairness into the system under which every American would have a 'fair shot' at achieving his or her dreams. The tax code would demand more of the wealthiest Americans, not only as part of an effort to achieve fairness but also in order to provide for more revenues to finance government 'investments' in the common good. Hamilton would have approved.

In fact, Hamilton may have been winking not only at Mr Obama's speech but also during the debates between the Republican presidential candidates. Former Pennsylvania senator Rick Santorum called for eliminating taxes on domestic American manufacturers and taking steps to encourage American businesses to relocate their factories back to the US, while former Massachusetts governor Mitt Romney portrayed the emerging Chinese economy as a major threat to long-term US economic security and urged the imposition of retaliatory tariffs on Chinese imports if the Chinese continued to hold down the value of its currency.

In a way, even the Republican presidential candidates who continue to preach the gospel of free markets and denounce government intervention in the economy have come to the conclusion that in the aftermath of the financial meltdown and the ensuing Great Recession, it is becoming more difficult to win the votes of blue-collar workers and economically distressed members of the middle class by continuing to promote laissez faire economics at home and free trade policies.

These are the kind of policies that are seen by more and more Americans as contributing to the mess in Wall Street, the economic 'squeeze' of the middle class, the shrinking of the manufacturing industry, and the outsourcing of American jobs to China and elsewhere.

Both President Obama and his Republican challengers recognise that the US is facing similar challenges to the ones that it confronted at the end of the 19th century and early 20th century when the rise of manufacturing, the expansion of the large urban centres, growing social-economic inequality and the changing dynamics of the global economy forced major changes in national economic policies and led eventually to the Progressive Era, to the New Deal and the evolution of the welfare state.

Get out of the way

President Obama believes that the federal government needs to maintain and revitalise the welfare state while trying to help create a new industrial base. The Republicans, on the other hand, seem to be playing defence in response to the president's Hamiltonian strategy by insisting that private businesses should and could play the leading role in the process, and the best that the government can do is to get out of their way.

Both sides have yet to come up with a coherent strategy to achieve what seems to be the most perplexing issue: How to encourage Apple and other advanced high-tech industries to continue thriving while creating more American jobs at home, as opposed to creating more jobs in China.

But there is one area on which the Democrats and the Republicans seem to agree, and that is the need to take a more aggressive approach towards China and other emerging economies that are seen as not playing by the rules of global free trade. In particular, the White House - which has been promoting the idea of creating new 'green' industries - regards China's state subsidies to solar and wind power companies as a major threat to its plans.

Hence, President Obama's proposal to establish a trade enforcement unit to investigate foreign violation of trade rules and to propose legal actions against the violators read: China.

So expect both President Obama and his Republican challenger to be campaigning on an aggressive economic nationalist platform this year.

Democrats and Republicans have yet to provide a lot of details on how they plan to create new jobs in America. But they seem to think that by standing up to China, they would convince American voters that they do have a plan.

Copyright © 2010 Singapore Press Holdings Ltd. All rights reserved.

Obama vs. the Hawks on Iran

Published on The National Interest (
Source URL (retrieved on Jan 30, 2012):
Obama vs. the Hawks on Iran

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January 30, 2012
Leon Hadar [2]
The mainstream media is again reporting the conventional wisdom: A nuclear Iran would pose a direct threat to U.S. security interests and an “existential threat” to Israel, and anyone who opposes bombing Iran is an “appeaser” and “anti-Israeli.”

This dominant narrative is also reinforcecd by the cast of a popular reality-television show, The Republican Presidential Debate. Not an episode goes by without Mitt Romney, Newt Gingrich and Rick Santorum bashing President Obama as an enabler of a new Holocaust with Ahmadinejad as Hitler.

But Obama has allowed his own policy opaqueness to enable the let’s-bomb-Iran crowd, who echo the lines written by the Likud government, to fill the void and dominate the discourse.

Obama has asserted that a nuclear Iran is “unacceptable” and insisted that “no option is off the table” in stopping Iran's quest for the bomb. But while Obama is continuing to publicly pursue a peaceful diplomatic resolution of the crisis, his approval of legislation imposing tough economic sanctions against Iran may be seen as the first step toward a military confrontation.

At the same time, the Obama administration has refrained from explaining how it would respond to an Israeli strike against Iran’s nuclear facilities. Defense Secretary Leon Panetta said last year that he would warn the Israelis of the global economic consequences of a military strike on Iran. But before he was vice president in 2006, Joe Biden said that Israel “can determine for itself—it's a sovereign nation—what's in their interest and what they decide to do relative to Iran and anyone else.”

As one tries to decipher these conflicting signals sent by the Obama administration, it is difficult to deconstruct its Iran policy. Will the administration give Israel a green light to attack Iran, or has it vetoed such a move? Is the White House hoping to create an environment conducive to U.S. military action, or is it applying diplomatic brinkmanship that could bring about a peaceful resolution?

This kind of policy opaqueness and injecting a lot of “noise” into the process can provide a strategic advantage over foreign adversaries. From that perspective, what is perceived as a sense of confusion in the Obama administration may be a sort of psychological warfare against Iran (“We cannot control Israel”) and diplomatic pressure on China and Russia (“Support sanctions or Israel will strike”).

In any case, it doesn’t make a lot of sense for Washington to advertise its intentions to the Iranians in advance. Obama remains silent on what exactly he will do if Tehran fails to terminate its nuclear program, inducing the Iranians to make a deal.

But Obama’s lack of transparency has a major downside. The White House believes that it is writing the script for this diplomatic production. But some of the main actors may not be willing to read the lines assigned to them and could try to write a different ending.

Neither the current Israeli government nor the Republican presidential candidate will support a deal with Iran that would be acceptable to the regime there. So much for the proposal by Turkey and Brazil that Iran send uranium abroad for enrichment or a step-by-step process advanced by Russia that calls for confidence-building and transparency measures by Tehran. Any sign that Obama was even considering these or similar ideas as a basis for negotiations with Iran would ignite a storm of protest by Benjamin Netanyahu and his Republican pals.

But Obama could take advantage of the debate in Israel over the cost-effectiveness of a military confrontation with Iran: leading security figures there argue a war with Iran could lead to many casualties, devastate the economy and only postpone the development of an Iranian bomb by a year or two, a view that is shared by many respected U.S. officials and analysts.

Obama needs to accentuate these arguments and stress his commitment to finding a peaceful resolution to the crisis, one that would secure both U.S. and Israeli interests. Such an approach would probably anger Netanyahu and Romney but would secure support from those Israelis and Americans who are opposed to a military strike against Iran.

At a time when many Americans, including Republican-primary voters, have begun to question the wisdom of never-ending and costly military intervention in the Middle East, it is doubtful that a Republican will win votes by committing to another war there. If he shares these voters’ concerns, Obama must demonstrate it—in both words and action.

Leon Hadar, senior analyst at Wikistrat, a geostrategic consulting group, is the author of Sandstorm: Policy Failure in the Middle East (Palgrave Macmillan, 2005).

Image: Barack Obama [3]

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