XANDER BLAKELY BLOG

Profits Up In The Air

What is wrong with this picture?

The US government recently gave $15 billion (that's BILLION) of tax-payer money to support extremely unprofitable airlines. Here is the 3-year history of American Airlines' stock price:

Meanwhile the notorious Russian airline, Aeroflot, is rising like a phoenix from the ashes of the Soviet system. It's not only profitable ($73M in the black compared to American Airlines' $2.5B in the red), it has earned an enviable safety record, and is launching a savvy campaign to compete head-to-head with the first-world's airlines.

NATION BUILDING (II)

With the war in Iraq underway, and with all pundits predicting a quick resolution to hostilities, I thought it time to revisit the issue of Nation Building. So, the question still stands: Will the US help rebuild Iraq? I know that past performance isn’t a perfect predictor of future performance, but it’s often pretty close.

In recent history there have been many regime changes (e.g. Nazi Germany, Imperial Japan, Soviet Russia, Taliban Afghanistan, and soon Saddam's Iraq). We can learn from how the US, which caused directly or indirectly, partially or wholly, these regime changes, among others, reacted afterwards toward the post-regime nations. And the US response has varied significantly, from the Marshall Plan for Europe to MacArthur's authoritarian tutelage of Japan, from Clinton's co-dependent diplomacy of bear hugs for Yeltsin to Bush's outstanding promises to Kharzai. Based on these examples, and the trend they reveal, Iraqis can probably count on, but not too heavily, the US to help rebuild their country after Saddam is gone.

Remember 1991? It was only...

a dozen years ago and yet what a very different world. The UN and the US successfully acted together to evict Saddam’s invading army from Kuwait. Having relieved the symptom, the coalition of nations decided not to risk their own blood to root out the cause. So, instead, a lot of Iraqi blood was spilled in Kurdish and Shiite uprisings and the subsequent and brutal Baath crackdowns. The world community had expected Saddam to fall. He didn’t. There was no regime change. (Ergo today’s sequel.)

By contrast, only months later that same year, the Soviet Union underwent a regime change that was mostly unexpected in the West and mostly bloodless in Russia. Rather than muster a bold reconstruction plan, like the post WWII Marshall Plan, post-Cold-War America welcomed Russia into the free world with mostly open arms but mostly empty pockets.

I don’t want to leave the impression that the US didn’t help Russia. It did, but slowly, tentatively, and parsimoniously. By 2001, ten years after the fall of the Soviet Union, the US gave more aid to Russia ($1.15 billion) than any other country, more than Israel ($967 million), Egypt ($799 million) and Ukraine ($282 million). In fact, America gave more ($10.9 billion) in total foreign aid than any other country in the world, more than Japan ($9.7 billion), Germany ($4.9 billion), the UK ($4.7 billion) and France ($4.3 billion).

We’re back to America the generous, right? Wrong, as a percentage of gross national product, America is the least generous of the developed nations. For perspective, the Marshall Plan amounted to almost $14B in 1950 dollars, which is nearly $124 billion in today’s dollars, over ten times what we allocate for foreign aid today.

So, will America help rebuild Iraq? Help, yes. But, with the federal government now running budget deficits for the foreseeable future, there will be no Powell Plan for Iraq as ambitious or as generous as the Marshall Plan was for Europe. Uncle Sam doesn't have enough money to keep America's house in the black, much less assume Iraq's remodeling expenses. Then again, some respected economists debunk the idea the Marshall Plan was the key to Europe's recovery. Generous though it was, the American money had only a marginal, though timely, impact to Europe's recovery. In the end, Iraq will need to rebuild itself.

Thanks to Joyce Park for providing some of the insightful new data points above.

Nation Building

Based on what the US did, or rather, didn’t do, in Russia after the fall of the genocidal Soviet regime, there is good reason to doubt whether the US will help rebuild Iraq after Saddam is gone. Nation building is just too boring, and, though it saves lives, even American lives, it doesn't garner American votes. (We get the government we deserve.)

In 1991 the Soviet Union underwent a regime change that US politicians and generals could have only dreamed of. So what did the US do with this historic opportunity? Not much. America’s attention waned along with the fighting in the streets of Moscow. Most Americans were too busy with Christmas shopping to turn on the TV and watch the dreaded red flag with the sickle and hammer pulled down and the Russian tri-color rise above the Kremlin on the 24th of December 1991. To our credit, and unlike the French did to the Germans after WWI, we didn’t rub victory in the face of Russians, who, after all, were both the real victims of communism and the victors over it. To our discredit, we didn’t do much of anything to help the new Russia land on its feet. We treated Russia like a welfare case, giving kopecks at a time when we were drowning in our own wealth.

The reason Japan and Germany quickly became democratic after WWII was that America helped immediately and generously. Now Japan and Germany are the 2nd and 3rd largest economies in the world. Our generosity back then wasn’t pure altruism; it was motivated by enlightened self-interest.

To contain the spread of the Soviet Union, Japan and Germany had to be economically strong. So why, after 50 years of a tense, bi-polar stand off, were we so stingy with post-Soviet Russia? After all, wasn’t an economically strong Russia our best defense against the resurgence of a communist country with enough weapons of mass destruction to destroy, well, everything?

Perhaps it’s that we didn’t know what to support. I only wish we had had enough wisdom, and will, to pay the carpenter’s fees for rebuilding Russia’s courtrooms to support jury trials. For, although the Russian constitutional called for jury trials back in 1993, as this remarkable piece in the NYTimes points out, they are only now starting to take place. The delays being due to many things, but the most mundane and inexcusable is the legacy of Soviet courtrooms not having the physical space for juries. Also, if we’re feeling really generous, how about we subsidize the compensation Russian jurors receive (from $1.75 to $3.50 per day)?

After all, the limited use of jury trials has already brought down conviction rates from 99 percent to 88. This is a good thing if you think it is worse to imprison an innocent man than it is to let a criminal go unpunished.

In another, more recent, example of the US neglecting to win the peace after winning in war, This NYTimes piece describes President Karzai in Washington begging the US not to forget about Afghanistan if a war happens in Iraq. He also had to beg for money to pay the wages of troops that are going to defend the country from warlords after the US troops leave.

From the NYTimes:

Since shortly after 1917, when the new Soviet state outlawed juries, the fates of most accused Russians have been decided by three-member panels that served as judges, jurors and — sometimes — aides to the prosecution. As recently as 1996, the panels were grinding out convictions in 995 of every 1,000 criminal cases.

This winter — glacially, and sometimes grudgingly — their monopoly is starting to crack. An overhaul of Russia's criminal code, pushed through Parliament by President Vladimir V. Putin and adopted in July, gives defendants accused of the most serious crimes the right to demand a jury trial. It also guarantees them Western-style rights.

Much of that had already been written into Russia's Constitution in 1993. In 1999, after six years of fitful experiments, the nation's top court ordered the government to carry out the changes. But Parliament did not consider the legislation until last year. Even after the new criminal code became law, Parliament voted in December to delay the start of jury trials in 20 regions, including Moscow, because a decade's notice had still left officials unprepared.
In fact, there is a lot to prepare. By some measures, Russia's 20,000 judges are only half the number needed for the new system. Courtrooms must have jury boxes, microphones and other items. Juror lists must be compiled, and the jurors must be paid. Last year, an experimental trial in suburban Moscow stalled because the $1.75 per diem failed to lure jurors into the courtroom. The 2003 judicial budget was increased 25 percent $762 million.

Revealing Statistics

Usually there are two types of statistics: those that bore and those that lie. However, when several boring but true statistics are juxtaposed, often they become much more interesting and insightful. The Harper's Index is the most famous, perhaps infamous, example of this technique. Using this technique, plus the Jeopardy answer-then-question format, I decided to put together my own index below:

• 890,000: Number of inmates in Russia's prisons in 2002.
  
• 1,312,354: Number of inmates in US prisons in 2000.
  

• 118: Number of Russian sailors lost in the Kursk accident.
  
• 129: Number of dead in Moscow's theater siege last fall.
  
• 90: Average number of accident fatalities on Russia's roads...everyday.

• $10,881,700,000: Total exports from Siberia in 2002.
  
• $10,800,000,000: Exports from California in 2001...to Canada alone.
  
• 15,531,000 sq. mi: Size of Siberia (including Russian Far East).
  
• 15,081,000 sq. mi: Size of the United States (including Alaska).
  

• 16.3: Number of deaths (per 1,000) in Russia in 2002
  
• 9.8: Number of births (per 1,000) in Russia in 2002 (up from 9.1 in 2000)
  
• 8.7: Number of deaths(per 1,000) in the US in 2000
  
• 14.2: Number of births(per 1,000) in the US in 2001

• 24.18: Number of deaths(per 1,000) in Botswana in 2001 (hightest in the world)
  
• 48.79: Number of births(per 1,000) in Mali in 2001 (hightest in the world)

  
  

  
  
  • Hawaii: The most Southern State in the US.
    
  • Alaska: The most Northern State in the US.
    
  • Alaska: The most Western State in the US. (Aleutian Islands)
    
  • Alaska: The most Eastern State in the US (The Aleutians Islands again)
    
  Posted by Xander at 08:07 AM | Comments (0) | TrackBack

I hope the Russians Love their Children

The eXile, a bastard lovechild of a newspaper (part Onion, part Slate) sired by brilliant, bitter and irreverent expatriates living in Moscow, has a piece on Solnyshko, an absolutely horrific but relatively well-off orphanage in the remote (even by Russian standards) Amurskaya Oblast. I’m no supporter of communism or other zero-sum, Robin-Hood economic policies, but it does strike me as particularly callous and even dangerous for the US Administration to be cutting off aid to Russia (for it's economic success, no less) while simultaneously and relentlessly advancing tax breaks for the richest people (as they are clearly over burdened) of the richest country in all human history.

Sting, in one of his most annoying songs, worried aloud that we were in danger of incineration if the Russians didn't love their children. Well, be afraid. Be very, very afraid.

From:
The eXile
Bleak House
By Jake Rudnitsky ( jake@exile.ru )

“Visiting these kids is a truly sobering experience. Their condition is a far more direct and painful evidence of modern Russia’s complete degradation and moral bankruptcy than the looting of the country during market reforms, the lack of fundamental rights such as health care and heat, or even the war in Chechnya. Because, while these well-publicized crimes are abstract issues for the people who perpetrate them, the problem of orphans is an intensely personal and individual one. That these kids’ parents are alive and have inflicted such cruelty on their own children is mind-numbing.”

Animating Capital

The Moscow Times has a story highlighting one more quiet battlefield victory in Russia’s uncelebrated war for civil society. The battle over bureaucracy. Economist Hernando de Soto, in his most recent book, The Mystery of Capital, which I reviewed in the Industry Standard back in December 2000, makes a compelling case that a) legitimizing the assets of the poor and b) limiting bureaucracy to small businesses are crucial steps to elevating the tired, huddled masses from the bottom rung of the world economy.

Thus, I couldn't be happier about this line from the MT article:

"Competition became a bigger problem than bureaucracy for the first time," said Andrei Dvorkovich, deputy economic development and trade minister.

Industry Standard

Reanimator
By Alexander Blakely
Issue Date: Dec 04 2000

By Alexander Blakely

--------------------------------------------------------------------------------
Communism surrenders. Capitalism triumphs. And yet the Third World persists. In fact, as former communist countries atrophy into destitution, the Third World is actually growing in membership and hardship. For those who believe in the power of a market system, why capitalism hasn't panned out for the world's poorest nations remains a mystery.

Peruvian economist Hernando de Soto has spent a great deal of time trying to solve that mystery, and has garnered acclaim for his market-friendly theories in the process. Time magazine called him a "leader for the new millennium" and Fortune selected him as one of the 50 most stimulating thinkers of the 1990s. He is also the founder of the Institute for Liberty and Democracy - a think tank dedicated to helping developing countries actually develop.

And now, in his pioneering book The Mystery of Capital, de Soto sheds light not only on the Third World's inability to embrace prosperity but also on the West's remarkable ability to perpetuate it.

De Soto's guiding principle is the idea of "animating" capital. In his first book, The Other Path, de Soto found that the poor have unexpected amounts of assets. According to de Soto's calculations, real estate holdings in the Third World are worth $9.3 trillion. That's $2,325 per person. The catch is, the world's poor cannot leverage these assets to raise their standard of living. They have capital, but they can't unlock its real value. The reason for this, de Soto concludes, is that although the poor may physically hold assets, they don't legally own them.

The Mystery of Capital takes this idea and runs with it. Unless an asset is legally owned, it is "dead capital." Without a title, a house is just a temporary shelter. Without a deed, land is only as valuable as what can be stripped from it today. To animate capital, ownership must be fixed on paper and enforced by law. A legal homeowner can borrow money against the value of his home. A legal landowner can confidently invest in the land, and not recklessly extract from it.

But most poor nations have byzantine legal systems that isolate people from legitimate property. De Soto describes how it took his researchers 32 months to get legal approval from 11 agencies to open a manufacturing facility in Peru. The same task took three hours in Tampa, Fla. Then there are the 168 steps (and 13 to 25 years) necessary to legally own property in the Philippines.

In an example closer to home, de Soto examines the United States Homestead Act of 1862 to reveal how developing, agrarian nations can propel themselves toward prosperity. The Homestead Act, it turns out, didn't open the floodgates for mass migration into the Western frontier; the people were already there, illegally. What it did was turn millions of rebellious squatters into legitimate landowners overnight. In effect, it created vast amounts of capital.

De Soto's ideas are particularly significant as we explore yet another frontier in the form of cyberspace. Indeed, for a book about global poverty, it is a remarkably inspiring read. The Mystery of Capital supports Adam Smith's assertion that capital is the bedrock of the wealth of nations. But it also bolsters Marx's claims that the estrangement of people from das kapital is what keeps the poor down.

>Anybody who can make a case that both Smith and Marx were right should either be ignored categorically or listened to very, very carefully.

Post Regime-Change Politics

If (big if) the US military is successful in playing catalyst for regime change in Iraq, and if (another big if) the successive Iraqi government turns out to be democratic, not simply differently barbaric (think Pinochet), what will the US policy be towards fostering a healthy civil society there? Look at how the US now behaves toward Russia, a country that experienced self-imposed regime change from an internally repressive and externally oppressive government to a budding, but still fragile, democracy. Don't forget, while Iraq has lots of oil but no confirmed weapons of mass destruction, Russia has both.

RIA Novosti
2 Feb 03
"The US administration has announced its intention to gradually halt its financial aid to Russia, beginning with 2004, in view of the strengthening Russian economy."

WHITE HOUSE ACKNOWLEDGED RUSSIAN ECONOMIC GROWTH

WASHINGTON, February 4th, 2003 /RIA Novosti correspondent Arkady Orlov/ -- The US administration has announced its intention to gradually halt its financial aid to Russia, beginning with 2004, in view of the strengthening Russian economy.

This is stated in the covering letter of the White House's budgetary department to the US draft federal budget for 2004, which was submitted to US Congress on Monday.

Ten years after the start of the financial aid to Russia and a number of other republics of the former Soviet Union, the time has come to exclude them from the economic aid list as has been the case with many East European states, the document says.

As the information service of the Department of State reports, in 2002 and 2003 the American financial aid to Russia amounted to 159 million and 148 million dollars respectively. But the draft budget for 2004 allocates the sum of only 73 million dollars.

In comparison with this year, the financial aid by the United States to Russia will be cut by 32 percent and later on will be stopped at all. The US will only contribute to the programmes for strengthening democracy and a civil society.

In the opinion of the American analysts, the decision of the George W. Bush administration to start "withdrawing" Russia from the list of countries receiving economic aid signifies the recognition of the fact that the present Russian leadership has succeeded in reaching the point when such aid is no longer needed.