Tuesday, January 30, 2007

Indifference and common sense

As I read this New York Times article, I was reminded – as occasionally happens – of why, at the end of the day, I am proud to be Italian (emphasis mine):
To chief executives, the threat of global warming seems very real in Asia, but not in the United States or Russia.
A survey of chief executives around the world, released at the World Economic Forum in Davos, Switzerland, this week, found widespread optimism about profits and nearly universal complaints about excessive regulation of business.
Over all, 40 percent of the chief executives surveyed said they were either somewhat concerned or extremely concerned about global warming. But in the United States, the figure was less than half as high, only 18 percent. By contrast, the figure was 49 percent for chief executives in China, 60 percent for South Korean chiefs and 70 percent for Japanese bosses.
Within Western Europe, the figures were all over the place. Italian bosses voiced less concern than Americans, but more than half of the German chief executives said they were worried.
Ironically, if the conventional narrative is to be believed, it is Germany which is set to gain from "climate change" and Italy which is set to lose out. No doubt this discrepancy has something to do with German eccentricity.
Meanwhile, there has been an amusing, Drudge-fuelled spat recently, which brought out some sensible arguments. It all started with an idiotic blog post by Weather Channel climate expert Heidi Cullen, who wrote:
If a meteorologist can't speak to the fundamental science of climate change, then maybe the AMS shouldn't give them a Seal of Approval. Clearly, the AMS doesn't agree that global warming can be blamed on cyclical weather patterns. It's like allowing a meteorologist to go on-air and say that hurricanes rotate clockwise and tsunamis are caused by the weather. It's not a political statement... it's just an incorrect statement.
James Spann, a metereologist for ABC 33/40, wrote a sensibly hard-hitting response:
Well, well. Some "climate expert" on "The Weather Channel" wants to take away AMS certification from those of us who believe the recent "global warming" is a natural process. So much for "tolerance", huh?
I have been in operational meteorology since 1978, and I know dozens and dozens of broadcast meteorologists all over the country. Our big job: look at a large volume of raw data and come up with a public weather forecast for the next seven days. I do not know of a single TV meteorologist who buys into the man-made global warming hype. I know there must be a few out there, but I can't find them. Here are the basic facts you need to know:
  • Billions of dollars of grant money is flowing into the pockets of those on the man-made global warming bandwagon. No man-made global warming, the money dries up. This is big money, make no mistake about it. Always follow the money trail and it tells a story. Even the lady at "The Weather Channel" probably gets paid good money for a prime time show on climate change. No man-made global warming, no show, and no salary. Nothing wrong with making money at all, but when money becomes the motivation for a scientific conclusion, then we have a problem. For many, global warming is a big cash grab.
  • The climate of this planet has been changing since God put the planet here. It will always change, and the warming in the last 10 years is not much difference than the warming we saw in the 1930s and other decades. And, lets not forget we are at the end of the ice age in which ice covered most of North America and Northern Europe.
If you don’t like to listen to me, find another meteorologist with no tie to grant money for research on the subject. I would not listen to anyone that is a politician, a journalist, or someone in science who is generating revenue from this issue.
In fact, I encourage you to listen to WeatherBrains episode number 12, featuring Alabama State Climatologist John Christy, and WeatherBrains episode number 17, featuring Dr. William Gray of Colorado State University, one of the most brilliant minds in our science.
WeatherBrains, by the way, is our weekly 30 minute netcast.
I have nothing against "The Weather Channel", but they have crossed the line into a political and cultural region where I simply won’t go.
You tell 'em, James! Obviously, as this was linked by Matt Drudge, it got enourmous amounts of attention (it even bogged down the servers of the US Senate website!). See here and here for some further links and information.
People who really do care about the environment - as opposed to political grandstanding - should follow the recommendations of a new report by the Globalisation Institute, entitled Positive Environmentalism: A Convenient Truth (pdf). The Institute's blog summarises:
The debate about climate change solutions has been hijacked by "negative environmentalism", the view that thinks that improving the environment has to be done through big government plans to restrict foreign holidays, limit trade, force local shopping, or curb GDP. It regards the rise of India and China with dread. Economic growth is seen as finite: the West, in this view, has become rich at the expense of the planet, and there are not enough resources to sustain increasing economic prosperity in the emerging economies.
Instead, the report says, policymakers need to adopt "positive environmentalism". This view recognises the importance of dealing with environmental problems but rejects the doom and gloom approach so commonly encountered. It sees the great environmental achievements over the past century and rejects the notion that there are long term limits to economic prosperity. It sees the importance of technology, innovation and economic growth in tackling climate change.
According to the report, there is a convenient truth about growth and the environment: "becoming wealthier and more prosperous in the coming century is not the enemy of environmental progress: it is its very heart and soul."
It says that: "Instead of a fear of economic growth, policymakers should see it as a force for good. Within decades, technological progress, funded by growth, will break the relationship between GDP and carbon emissions. An approach to climate change that emphasises technological progress hand in hand with growth offers the best way to tackle the issue of the developing economies. Our approach to India and China must be more savvy than trying to beat them into an international agreement that is not in their interests."
Do read the whole thing.

Monday, January 29, 2007

Why they oppose the "surge"

Tigerhawk spells out what should be obvious to all but the most blinkered leftists, namely that many (but not all) Democrats clearly want the "surge" and the war in Iraq in general to fail. And he explains why:
New York Senator Chuck Schumer seemed to give away the game -- at least implicitly -- on "Meet the Press." He quite obviously does not want the next election cycle to be "about" Iraq. One gets the sense that this sentiment is even more pronounced among the Democrats who will be vying for their party's presidential nomination. It is easy to see why: the problem of Iraq will be nothing but trouble for leading Democrats. The party activists who hold sway during the primary season will demand that candidates embrace the so-called "anti-war" agenda without reservation, but if Democrats do that too enthusiastically they will remind voters that their party has been all about defeat since 1972. Since none of them want to be caught in that Liebermanesque trap, leading Democrats are desperate for Iraq to be off the table by next fall. [UPDATE: Hillary's new and bizarre demand that all American troops be out of Iraq by January 2009 is the new, best evidence in support of my suspicions. This was a mistake on her part, for it reinforces the impression that in opposing the surge the Democrats are motivated by electoral considerations rather than an honest appraisal of the national interest.]
Do read the whole thing. Some people argued that the Democrats' coming to power would be a good thing, because it would force them to share responsibility for the war on terror. Increasingly, these hopes seem to have been vain. I am quite open-minded about the 2008 presidential election, but if this is the attitude going forward, it is increasingly unlikely that I will view the election of a Democrat with anything other than horror.

Post Scriptum:

Robert Kagan dedicated his latest Washington Post column to the political maneuvering over Iraq. It is absolutely obligatory reading:
Back in Washington, however, Democratic and Republican members of Congress are looking for a different kind of political solution: the solution to their problems in presidential primaries and elections almost two years off. Resolutions disapproving the troop increase have proliferated on both sides of the aisle. Many of their proponents frankly, even proudly, admit they are responding to the current public mood, as if that is what they were put in office to do. Those who think they were elected sometimes to lead rather than follow seem to be in a minority.
Those who call for an "end to the war" don't want to talk about the fact that the war in Iraq and in the region will not end but will only grow more dangerous. Do they recommend that we then do nothing, regardless of the consequences? Or are they willing to say publicly, right now, that they would favor sending U.S. troops back into Iraq to confront those new dangers? Answering those questions really would be honest and brave.
Of course, most of the discussion of Iraq isn't about Iraq at all. The war has become a political abstraction, a means of positioning oneself at home.
I would think that anyone wanting to be president in January 2009 would be hoping and praying that the troop increase works. The United States will be dealing with Iraq one way or another in 2009, no matter what anyone says or does today. The only question is whether it is an Iraq that is salvageable or an Iraq sinking further into chaos and destruction and dragging America along with it.
A big part of the answer will come soon in the battle for Baghdad. Politicians in both parties should realize that success in this mission is in their interest, as well as the nation's. Here's a wild idea: Forget the political posturing, be responsible, and provide the moral and material support our forces need and expect.
I'm hoping President Bush's tenacity will yield just such a result, but the breathtaking mendacity and short-sightedness of so many politicians and commentators is simply revolting.
Also see this MSM video, where similar sentiments are expressed by the troops themselves (via Instapundit):

Politicians should at least be honest: if they don't support the troops, their mission and what they believe in, they should at least say so.

Sunday, January 21, 2007

Following the money trail

Wretchard from The Belmont Club has some comments on Jimmy Carter (via Instapundit), and links to a hair-raising article by Alan Dershowitz, Ex-President for Sale, which goes some way to explaining Carter's peculiar world-view:
It now turns out that Jimmy Carter--who is accusing the Jews of buying the silence of the media and politicians regarding criticism of Israel--has been bought and paid for by Arab money. In his recent book tour to promote Palestine: Peace Not Apartheid, Carter has been peddling a particularly nasty bit of bigotry. The canard is that Jews own and control the media, and prevent newspapers and the broadcast media from presenting an objective assessment of the Arab-Israeli conflict, and that Jews have bought and paid for every single member of Congress so as to prevent any of them from espousing a balanced position. How else can anyone understand Carter's claims that it is impossible for the media and politicians to speak freely about Israel and the Middle East? The only explanation – and one that Carter tap dances around, but won't come out and say directly – is that Jews control the media and buy politicians. Carter then presents himself as the sole heroic figure in American public life who is free of financial constraints to discuss Palestinian suffering at the hands of the Israelis.
Each of these claims is demonstrably false, as I have shown in detail elsewhere. The plight of the Palestinians has been covered more extensively, per capita, than the plight of any other group in the world, certainly more than the Tibetans and the victims of genocides in Darfur and Rwanda. Moreover, Carter totally ignores the impact of Arab oil money and the influence of the Saudi lobby. In numerous instances where the Arab lobbies have been pitted against the Israeli lobby, the former has prevailed.
It now turns out that the shoe is precisely on the other foot. Recent disclosures prove that it is Carter who has been bought and paid for by anti-Israel Arab and Islamic money.
Journalist Jacob Laksin has documented the tens of millions of dollars that the Carter Center has accepted from Saudi Arabian royalty and assorted other Middle Eastern sultans, who, in return, Carter dutifully praised as peaceful and tolerant (no matter how despotic the regime). And these are only the confirmed, public donations.
Carter has also accepted half a million dollars and an award from Sheik Zayed bin Sultan al-Nahyan, saying in 2001: "This award has special significance for me because it is named for my personal friend, Sheik Zayed bin Sultan al-Nahyan." This is the same Zayed, the long-time ruler of the United Arab Emirates, whose $2.5 million gift to the Harvard Divinity School was returned in 2004 due to Zayed's rampant Jew-hatred. Zayed's personal foundation, the Zayed Center, claims that it was Zionists, rather than Nazis, who "were the people who killed the Jews in Europe" during the Holocaust. It has held lectures on the blood libel and conspiracy theories about Jews and America perpetrating Sept. 11.
Another journalist, Rachel Ehrenfeld, in a thorough and devastating article on "Carter’s Arab Financiers," meticulously catalogues Carter's ties to Arab moneymen, from a Saudi bailout of his peanut farm in 1976, to funding for Carter's presidential library, to continued support for all manner of Carter’s post-presidential activities. For instance, it was the Bank of Credit and Commerce International (BCCI), founded in Pakistan and fronted by a Saudi billionaire, Gaith Pharaon, that helped Carter start up his beloved Carter Center. According to Ehrenfeld: "BCCI's origins were primarily ideological. [Agha Hasan] Abedi wanted the bank to reflect the supra-national Muslim credo and 'the best bridge to help the world of Islam, and the best way to fight the evil influence of the Zionists.' As Ehrenfeld concluded:
"[I]t seems that AIPAC's real fault was its failure to outdo the Saudi's purchases of the former president's loyalty. There has not been any nation in the world that has been more cooperative than Saudi Arabia," The New York Times quoted Mr. Carter June 1977, thus making the Saudis a major factor in U.S. foreign policy.
"Evidently, the millions in Arab petrodollars feeding Mr. Carter's global endeavors, often in conflict with U.S. government policies, also ensure his loyalty."
It is particularly disturbing that a former president who has accepted dirty blood-money from dictators, anti-Semites, Holocaust deniers, and supporters of terrorism should try to deflect attention from his own conflicts of interest by raising the oldest canard in the sordid history of anti-Semitism: namely, that Jews have dual loyalty and use their money improperly to influence the country they live in, in favor of the country to which they owe their real allegiance.
Do read the whole thing. I find these disclosures to be particularly amazing considering that the Bush clan gets constantly harangued by the left for its supposed ties to the Saudis. It's always interesting to discover that what seemed to be a potentially legitimate criticism, is in reality only voiced if it applies to political opponents.
Incidentally, Commentary magazine has posted an essay by Joshua Muravchik that is to appear in the February 2007 issue: Our Worst Ex-President. No prizes for guessing who that refers to.

Thursday, January 18, 2007

Commentary's evolution

One of my favourite publications, Commentary, has been undergoing some significant changes. It has overhauled its website - which until now had simply been a portal to access the current issue and the magazine's archives - and it has started a group blog called Contentions. The blog looks very promising, and the slate of authors includes some of my favourite commentators.
The reasons behind these changes emerged late last year. The New York Sun reported on 21 December:
Commentary Magazine, a 61-year-old opinion journal that served as an incubator of neoconservative thought, is splitting from the American Jewish Committee. The Jewish-themed, editorially independent magazine initiated its secession, in an effort to court new and larger donors who wish to fund Commentary directly. Its editor, Neal Kozodoy, said the magazine is committed to increasing its online presence.
In the fall, the governing board of the American Jewish Committee granted the split, beginning with the January 2007 issue. The committee has transferred to Commentary all of the magazine's intellectual and financial assets. In the near-term, Commentary will pay rent to keep its offices at the committee's East 56th Street headquarters.
Founded in 1945 as a center-left, anti-Communist journal, Commentary had by the early 1970s shifted significantly to the right under its then-editor, Norman Podhoretz. Mr. Podhoretz, who led Commentary between 1960 and 1995, is now the magazine's editor-at-large.
Published 11 times a year, Commentary distributes about 32,000 copies of each edition of the magazine. Despite its relatively small circulation, the magazine has been disproportionably influential in matters of domestic and foreign policy. Its many notable contributors have included a former U.S. senator of New York, Daniel Patrick Moynihan, a former American ambassador to the United Nations, Jeane Kirkpatrick, and a prominent American philosopher, Francis Fukuyama.
I am quite excited by the possibilities that these changes portend, and from what I have seen, Commentary's editors are bringing the magazine into the 21st century with dignity and without sacrificing editorial quality. This is great news, as I think it is important - in order to remain relevant in the intellectual battles of our day - to maintain the sombre print model that has been so successful in fostering serious and innovative thinking and writing, while at the same time harnessing the new forms of communication that the internet age is offering us. Commentary's editors seem to be moving in exactly the right direction and I wish them continued success.

Tuesday, January 16, 2007

Striking blows for reason

Before the holidays, Christopher Monckton, a former policy adviser to Margaret Thatcher, was much in evidence in the debate over global warming. As far as I can tell, it all started with two essays by him in the Sunday Telegraph, which I first saw mentioned at Andrew Bolt Blog (here and here). The first essay, entitled Climate Chaos? Don't believe it appeared on November 5th, 2006. The relative references and technical notes can be found here (pdf), and some of the correspondence generated by the article can be found here (pdf). The second article, entitled Wrong problem, wrong solution was published on November 15th, 2006. Polemicist George Monbiot responded to the articles in the Guardian, to which Monckton responded here, and Al Gore responded in the Sunday Telegraph, to which Monckton responded with a thorough debunking here (pdf). And finally, Monckton also responds here (pdf) to the Rockefeller-Snowe letter sent to ExxonMobil CEO Rex Tillerson, and his letter's summary was picked up by the Drudge Report (which reportedly has an average of 10,000,000 visits a day).
Meanwhile, Andrew Bolt also points out an excellent speech on the subject by another peer, Nigel Lawson. The speech was delivered at the Centre For Policy Studies, and makes what he calls "an appeal to reason." The speech can be heard here, and the transcript can be found here. Highly recommended.

Sunday, January 14, 2007

Are CEOs paid too little?

In the course of my work I have to analyse the remuneration of corporate executives, mainly in the US. In these circles it is taken for granted that CEOs are massively overpaid, and that this is an outrage. Clearly there are many cases where the relation between a CEO's pay package and the company's performance seems to be totally unhinged. Nonetheless I am not totally sold on the idea that pay packages are immoral simply because they are especially large.
Recently, The American - a new business bimonthly published by the AEI - had a cover story which makes quite a contrarian, but well-reasoned, argument on this subject. The subtitle states:
Sure, some CEOs aren’t worth their outrageous compensation, but a bigger problem is that large public companies, in many cases, don’t pay enough. The best and brightest minds are increasingly drawn from running key businesses to other pursuits that may not be as socially useful—but pay much more.
Such an argument is also supported by some academic research. Professor Steven Kaplan, of the Chicago GSB, illustrates some of it in the HLS Corporate Governance Blog:
I was shocked (but encouraged) to read the New York Times yesterday. Instead of writing another article about how CEOs are massively [over]paid, dishonest, or both, Andrew Sorkin and Eric Dash make a strong argument that U.S. CEOs are underpaid! According to the article, private equity firms are increasingly successful in luring talented public company executives to run private equity-funded firms. A big part of the reason is that private equity firms pay those executives more.
Third, despite much that is written, realized CEO pay is strongly related to firm stock performance. In a recent paper, Josh Rauh and I sorted the firms in the ExecuComp database into ten groups based on realized compensation in 2004. We then looked at how the stocks of each group performed relative to their industry. According to the critics, we should not have found much of a correlation. In fact, we found a strong one. Realized compensation is highly related to performance. CEOs in the top decile of realized compensation saw their firms outperform their industries over the previous three years by more than 50%. CEOs in the bottom decile saw their firms underperform by more than 25%. As you go from the lowest-paid to the highest-paid executives, performance always increases.
Fourth, as Xavier Gabaix and Augustin Landier point out, CEO compensation should be tied to firm size. And firm size has increased markedly in the United States over the last thirty years.
It is a fact that top executives of public U.S. companies are paid a lot today, and a lot more than they have been paid in the past. The high pay combined with questionable behavior by some CEOs and boards has led the press and some academics to conclude that average CEO pay is excessive, driven by dishonest, manipulative top executives and ineffective boards.
The discussion and evidence above calls that conclusion into question. One has to wonder how overpaid public company executives are when private equity investors (who do not have an incentive to overpay) will pay them more. And public company boards appear to have been more active in managing CEOs than they are given credit for.
An interesting case in point is the recent firing of Bob Nardelli, the CEO of Home Depot. Kevin Lacroix at the D & O Diary points out:
There is no particular reason why I should bestir myself to defend ousted Home Depot CEO Robert Nardelli: He certainly bagged sufficient swag to soften the blows of even his most outraged attacker. Yet I think it is important to incorporate into the modern morality play that his departure has become a fair recognition that by some measures his tenure as Home Depot’s CEO was successful. From 2000 (when Nardelli joined the company) to 2005, Home Depot’s revenue nearly doubled, from $45.7 billion to $81.5 billion, and during that same period Home Depot’s profit increased, from $2.6 billion to $5.8 billion. Dividends quintupled. The company's return on capital increased almost 20 percent, a full 10 percentage points above its cost of capital.
Further down in the post Kevin points out that some compensation practices at Home Depot were indeed dubious, but, IMHO, those kinds of problems will be addressed quite effectively by the new disclosure rules that have been put in place by the SEC.
Meanwhile, there is a particularly ironic twist to Bob Nardelli's story: it has been touted as a shareholder victory. Why is this ironic? Well, it is a consistent refrain among shareholder activists that remuneration needs to be tied to performance, and that share price appreciation is not an appropriate performance measure because it is influenced by too many other factors for it to be considered the CEO's merit if the share price goes up. Apparently this logic flies out the window as soon as the share price goes down. Kevin spells it out:
Nevertheless, the consensus view seems to be that his ouster is a victory for shareholders, and that they have shareholder activists to thank. A typical example is the January 5, 2007 New York Times article entitled "Gadflies Get Respect and Not Just at Home Depot" (here), which states that "shareholder activists could claim one of their biggest prizes yet when Home Depot announced the resignation of its chairman and chief executive." The article also notes that since July, activists have also successfully pushed out the CEO's at Pfizer and Sovereign Bank.
In touting Nardelli's ouster as a shareholder activist success story, the Times article note that he had long been "a target of shareholder ire for his large compensation and the company’s flagging share price." It is this latter point – Home Depot's flagging share price – that really seems to be at the heart of Nardelli's problems. A January 3, 2007 Fortune.com article entitled "Nardelli's Downfall: It’s All About the Stock" (here) makes the connection explicit. Gretchen Morgen[son] made the same point in her January 4, 2007 New York Times article entitled "A Warning Shot By Investors to Board and Chiefs" (here, subscription required), in which she says that Nardelli's compensation was "completely at odds with the dismal performance of Home Depot stock on his watch."
One question that needs to be asked is how much of what happened to Home Depot's share price had to do with Nardelli and how much it had to do with where the share price was when Nardelli took over. As PointofLaw.com points out (here), Home Depot's share price was already at stratospheric levels when Nardelli arrived.
But the more troublesome aspect of the criticisms about Home Depot's share price is the clear implication that Nardelli would still have a job (although he would be $210 million poorer) if he had managed to get the share price to go up. It used to be the conventional wisdom that the market determined a company's share price, not the CEO. Moreover, it has not been that long since corporate America faced a series of crises and scandals because too many CEOs seemed to think it was their job to engineer their company's share price rather than to run their company. Corporate activists may be congratulating themselves for their "victory" at Home Depot, but they should be very careful about the lesson here. The danger, as pointed out on the ContrarianEdge blog (here) is that "the ousting of Bob Nardelli sent a wrong message to America's CEOs : it taught them an incorrect lesson – manage the stock, not the company."
So, the truth is that shareholder activists - if they truly believed what they were saying - should be outraged at the wrong message that Nardelli's ouster is sending the market. If this won't encourage "short-termism" and encourage CEOs to focus on share price, instead of the long-term success of their companies, I don't know what will.

Tuesday, January 09, 2007

An admission? Maybe not

As I have noted before, the major human rights organisations are a disgrace. The New York Sun had an excellent editorial last week, which underlines just how low Human Rights Watch has stooped:
Shortly before Christmas, the group released a 24-page report that attempts to rescue its earlier accusation that "On July 23, at 11:15 p.m., Israeli warplanes struck two clearly marked Red Cross ambulances in the village of Qana."
Based on photographic evidence of the ambulances that was inconsistent with the allegation, third parties, such as Australia's foreign minister, labeled the alleged incident a clear "hoax." That the group, which styles itself as an objective investigative human rights organization, accepted the claim without question is troubling.
Attempting to salvage its credibility following extensive criticism of its summer report, Human Rights Watch dispatched researchers to Lebanon to collect evidence on the alleged event. The new report summarizes their findings.
"Human Rights Watch originally reported that the ambulances had been struck by missiles fired from an Israeli airplane, but that conclusion was incorrect," the report states. The Lebanese ambulances could not have been struck by missiles fired by an Israeli warplane "as such missiles would have caused much more massive destruction and have left a huge crater." Additionally, "the limited damage caused, and the non-existence of heavy shrapnel, also rule out an artillery-fired round." Moreover, "none of the witnesses reported hearing helicopters in the air before or during the attack." And the researchers found no "diagnostic shrapnel or missile parts in the street." The report contains no evidence whatsoever of any other Israeli presence in the area that could have attacked the ambulances.
Yet, Human Rights Watch buries these critical admissions in the middle of the document and instead headlines the report with a claim that the group did no wrong. "On the basis of this investigation," the report says, "we conclude that the attack on the ambulances was not a hoax: Israeli forces attacked two Lebanese Red Cross ambulances that night in Qana, almost certainly with missiles fired from an Israeli drone flying overhead."
What is the evidence for the new allegation of an Israeli drone attack using missiles? The report makes clear that there is none. This time, Human Rights Watch is not being duped by a fabrication — it is the fabricator.
Do read the whole sickening exposé.

Monday, January 08, 2007

The situation in Iraq

There is no question that the current situation in Iraq is dramatic, and that a lot of work will be needed to stop the country from going over the precipice. However, this is no time to loose our heads, as they say.
Don Surber notes that despite all the talk of civil war etc., Iraq is still better off now than it was under the regime of Saddam Hussein, even when you look just at the number of average civilian casualties:
AP played the numbers game this week with reports about how many people have died in Iraq. I always have a problem reducing people to numbers but AP said that 16,273 violent deaths in Iraq in 2006 -- 14,298 of them civilians. Most of the dead are civilians, which the enemy targets. Prairie Pundit pointed out that is a war crime. Our side prosecutes its soldiers who flout this convention.
With 16,273 deaths in 2006, is Iraq still at war? AP called fighting in the Sudan "the world's worst humanitarian crisis" after the U.N. estimated 200,000 people died violently since 2003 -- or twice the carnage of Iraq in the same time period. Sudan's population is estimated at 6.5 million; Iraq's is four times that.
By the way, the 16,273 violent deaths in 2006 compares favorably to the 600,000 documented deaths under Saddam Hussein. Many more are likely. Hussein's carnage averaged 70 to 125 civilian deaths every day for the 8,000 days he reigned. His 20,000 civilian deaths a year (on average) were considered "peace" while last year, under war, there were 14,298 civilians deaths.
Meanwhile, despite all the problems, the Iraqi economy seems to be doing remarkably well. According to a report by Global Insight, an economics consultancy, the Iraqi economy grew by 17 percent in 2005 and is projected to have grown 13 percent in 2006. Newsweek reports:
Civil war or not, Iraq has an economy, and—mother of all surprises—it's doing remarkably well. Real estate is booming. Construction, retail and wholesale trade sectors are healthy, too, according to a report by Global Insight in London. The U.S. Chamber of Commerce reports 34,000 registered companies in Iraq, up from 8,000 three years ago. Sales of secondhand cars, televisions and mobile phones have all risen sharply. Estimates vary, but one from Global Insight puts GDP growth at 17 percent last year and projects 13 percent for 2006. The World Bank has it lower: at 4 percent this year. But, given all the attention paid to deteriorating security, the startling fact is that Iraq is growing at all.
How? Iraq is a crippled nation growing on the financial equivalent of steroids, with money pouring in from abroad. National oil revenues and foreign grants look set to total $41 billion this year, according to the IMF. With security improving in one key spot—the southern oilfields—that figure could go up.
However it's spent, whether on security or something else, money circulates. Nor are ordinary Iraqis themselves short on cash. After so many years of living under sanctions, with little to consume, many built up considerable nest eggs—which they are now spending. That's boosted economic activity, particularly in retail. Imported goods have grown increasingly affordable, thanks to the elimination of tariffs and trade barriers. Salaries have gone up more than 100 percent since the fall of Saddam, and income-tax cuts (from 45 percent to just 15 percent) have put more cash in Iraqi pockets. "The U.S. wanted to create the conditions in which small-scale private enterprise could blossom," says Jan Randolph, head of sovereign risk at Global Insight. "In a sense, they've succeeded."
Iraqna isn't the only success story. There is also Nipal, a money-transfer service that is the backbone of Iraq's cash economy, as well as a slew of successful construction firms in Kurdistan. Such companies are not waiting for Iraq's political crisis to resolve itself. Yet imagine how they would prosper if it did, and how quickly they would be joined by others.
But again, that's the remarkable thing. In a business climate that is inhospitable, to say the least, companies like Iraqna are thriving. The withdrawal of a certain great power could drastically reduce the foreign money flow, and knock the crippled economy flat.
Do read the whole thing. Meanwhile Amir Taheri comments in the New York Post:
Wherever some measure of security is assured - that is to say in more than 80 percent of Iraq - towns and villages long left to die a slow death are creeping back to life. Nowhere is this slow but steady return to life more startling than in Um Qasr, in the southeast extremity of Iraq on the Persian Gulf. Four years ago, this was a jumble of rusting quays, abandoned houses and gutted buildings. By the spring of 2003, its population had dwindled to a few dozen, along with hundreds of stray dogs. There was even talk of abandoning it altogether.
Today, however, Um Qasr is back in business as a port with commercial and military functions. Hundreds of families that had left after the first Gulf War in 1991 have returned - joining many more who have come from all over Iraq. The boom in Um Qasr is part of a broader picture that also includes Basra (the sprawling metropolis of southern Iraq), the Shi'ite "holy" cities of Najaf and Karbala, Mandali on the Iranian border and much of Baghdad.
But what about continued terrorist attacks? Most foreign investors coming to make money in Iraq shrug their shoulders. "Doing business in any Arab country is always risky," says a Turkish investor who has set up a trucking company and a taxi service. "In some Arab countries, you risk nationalization or straight confiscation by the ruler. In other Arab countries, you must give a cut to one of the emirs. Here, you face possible terrorist attacks. But such attacks are transitory."
The relatively low cost of labor is another attraction to investors. Wages in Iraq, where unemployment is over 30 percent, are less than a quarter of the going rates in Kuwait. Nevertheless, the Iraqi boom appears to be attracting some Iranian laborers from areas close to the border - people who come in for a few days to make some money before returning home.
But, judging by the talk in teahouses and the debate in Iraq's new and pluralist media, most people welcome the switch to capitalism and regard it as an exciting adventure.
As trucks are loaded with a variety of imports destined for Baghdad, I ask the drivers what they think would happen if the multi-national force, led by the United States, left Iraq soon. Most shrug their shoulders. "Why leave?" one driver asks. "Do I abandon the goods that have come from such a long way before they reach their destination?" This amounts to a plea to "stay the course." The man in Um Qasr does not know that in the United States the phrase "staying the course" drives so many up the wall.
I have the feeling that much of the ground work in putting the country on the right track has already been laid, and it is for this reason that I think that the Keane-Kagan plan (see Winds of Change for more comment), which seems to be the most likely strategy the Bush Administration will adopt (we'll see what the Democrats will do, though their power to influence war decisions is somewhat limited) - taken together with Nouri al-Maliki's recent reversal of policy towards militias - may have a good chance of succeeding.

Sunday, January 07, 2007

Bluffing one's way to influence

As in years past, I spent the holidays skiing in Lech am Arlberg, in the Austrian Alps. There was a bit less snow than usual, but plenty for skiing, and I had a lot of fun. I hope everyone else had a nice time during their holidays.
While I was there, I didn't have regular access to the internet, but I bought the Wall Street Journal Europe, which ran an interesting editorial (subs. required; free version here) about Russia's gas reserves:
At first sight the prospect of a significant supply shortage appears improbable. After all, Russia has 47 trillion cubic meters of proven gas reserves. On closer examination, including research by former Russian Deputy Energy Minister Vladimir Milov and the International Energy Agency (IEA), it is clear that Russian gas production is marked by two salient features. First, reliance on three old, declining, Soviet-era supergiant gas fields in the Nadym Pur Taz (NPT) region and the Zapolyarnoye field, a Soviet legacy project. Second, the lack of investment in opening up new major gas fields.
When challenged on this issue, Gazprom responds that it spends $11 billion annually on infrastructure, just as the IEA recommends. The trouble is that it's making the wrong sort of investments. Gazprom is not investing in new gas wells, pipelines and compressor stations, but in export infrastructure such as the North European Pipeline to Germany and the acquisition of foreign downstream energy assets. Taken together, the declining old fields and the lack of investment in new ones create a potentially major supply problem.
Mr. Milov, who now heads the Institute for Energy Policy in Moscow, estimates that by 2010 the deficit between Gazprom's supply and expected demand could be 126 billion cubic meters (bcm). To give that figure some context, the European Union imported approximately 155 bcm from Russia in 2005. Worse still, there are strong grounds for believing that the 126 bcm gap could grow. Mr. Milov assumes that the Central Asian states will be able to deliver 105 bcm annually. Unfortunately, there are doubts as to whether the Central Asian fields, which have seen even less investment than the Russian fields, can produce that amount of gas. And even if they could produce 105 bcm, according to the IEA they could only transport 50 bcm to Russia thanks to decayed pipelines. There are also concerns over the rate at which homes and factories in Russia are being hooked up to the main gas network, further increasing demand, and concerns that as the NPT fields begin to dry up their depletion rate, just as with the U.K. continental shelf fields, will accelerate.
Given the number of variables it is difficult to put a definitive number on the size of the deficit. But it looks as if the gap could be somewhere between 125 bcm and 200 bcm. Even at the lower end, such a deficit would severely strain EU gas supplies. Ironically Russia's greatest Western ally, Germany, stands to suffer most since it is at the end of the Russian supply system and it takes more Russian gas than any other country in Western Europe. The North European Pipeline will not be finished by 2010 -- and even if it were, there is the question of whether there would be enough gas for it.
Do read the whole thing, in which the author also proposes a way in which Europe can minimise the problem.
In a similar vein, there seems to be a growing number of voices arguing that the West should not adapt its foreign policy based on the fear that unsavoury regimes will use their energy supplies to blackmail us, particularly in the case of Iran. In a recent peer-reviewed paper entitled "The Iranian petroleum crisis and United States national security" which is to appear in Proceedings of the National Academy of Sciences, Roger J. Stern, a researcher at Johns Hopkins University sets out a convincing argument that the so-called "oil-weapon" is in reality toothless (see the press release). The Telegraph summarises (via Instapundit; emphasis mine):
Iran's oil exports are plummeting at 10pc a year on lack of investment and could be exhausted within a decade, depriving the world economy of its second-biggest source of crude supplies. A report by the US National Academy of Sciences said rickety infrastructure dating back to the era of the Shah had crippled output, while local fuel use was rising at 6pc a year.
"Their domestic demand is growing at the highest rate of any country in the world," said Prof Roger Stern, an Iran expert at Johns Hopkins University, Baltimore. "They need to invest $2.5bn (£1.28bn) a year just to stand still and they're not doing it because it's politically easier to spend the money on social welfare and the army than to wait four to six years for a return on investment," he said. "They've been running down the industry like this for 20 years."
Prof Stern said Teheran faces impending disaster since it relies on oil revenues for 70pc of its budget. "They cannot afford to carry out their threats to shut off oil supplies," he said. "There is no oil weapon, it's just a bluff."
Meanwhile, M. Simon of Power and Control, who is guest blogging at Classical Values notes (via Instapundit), that the situation is so bad that Iran seems to be having difficulties maintaining supply (in this case of natural gas) even now, as UPI reports:
Iran has stopped exports of natural gas to Turkey due to a tight domestic market caused by cold weather, but vows to restart shipments soon. Iran supplies Turkey from the Tabriz to Ankara pipeline as part of a 1996 contract. This year Turkey was to receive a total of 10 billion cubic meters of Iranian gas, the state-run IRNA news agency reports. "Currently our export to Turkey is zero," Oil Minister Kazem Vaziri-Hamaneh said. He said he called the Turkish energy minister and apologized "and promised to address these problems as soon as possible."
Also see this interesting Power and Control post, about Iran's current internal problems more in general. All this underlines the fact that, as I noted here and here, the West should stop telling itself that nothing can be done to resolve crises in these countries because they will ruin our economies by stopping fuel exports.
This is even more true in light of an interesting prediction made a few days ago by R. James Woolsey in the Wall Street Journal (free link; via Instapundit). After discussing various alternative fuels, he says:
All this is likely to change decisively, because electricity is about to become a major partner with alternative liquid fuels in replacing oil.
The change is being driven by innovations in the batteries that now power modern electronics. If hybrid gasoline-electric cars are provided with advanced batteries (GM's announcement said its choice would be lithium-ion) having improved energy and power density--variants of the ones in our computers and cell phones--dozens of vehicle prototypes are now demonstrating that these "plug-in hybrids" can more than double hybrids' overall (gasoline) mileage. With a plug-in, charging your car overnight from an ordinary 110-volt socket in your garage lets you drive 20 miles or more on the electricity stored in the topped-up battery before the car lapses into its normal hybrid mode. If you forget to charge or exceed 20 miles, no problem, you then just have a regular hybrid with the insurance of liquid fuel in the tank. And during those 20 all-electric miles you will be driving at a cost of between a penny and three cents a mile instead of the current 10-cent-a-mile cost of gasoline.
Utilities are rapidly becoming quite interested in plug-ins because of the substantial benefit to them of being able to sell off-peak power at night. Because off-peak nighttime charging uses unutilized capacity, DOE's Pacific Northwest National Laboratory estimates that adopting plug-ins will not create a need for new base load electricity generation plants until plug-ins constitute over 84% of the country's 220 million passenger vehicles.
Environmentalists should join this march with enthusiasm. Replacing hydrocarbons with fuels derived from biomass and waste reduces vehicles' carbon emissions very substantially. And replacing gasoline with electricity further brightens the environmental picture. The Environmental and Energy Study Institute has shown that, with today's electricity grid, there would be a national average reduction in carbon emissions by about 60% per vehicle when a plug-in hybrid with 20-mile all-electric range replaces a conventional car.
Subsidizing expensive substitutes for petroleum, ignoring the massive infrastructure costs needed to fuel family cars with hydrogen, searching for a single elegant solution--none of this has worked, nor will it. Instead we should encourage a portfolio of inexpensive fuels, including electricity, that requires very little infrastructure change and let its components work together: A 50 mpg hybrid, once it becomes a plug-in, will likely get solidly over 100 mpg of gasoline (call it "mpgg"); if it is also a flexible fuel vehicle using 85% ethanol, E-85, its mpgg rises to around 500.
Do read the whole thing.