Enterprise Resilience Management Blog

Globalization and Economic Stability

In two previous posts, I examined articles that discussed two different aspects of globalization: capital flows [Financial Globalization] and the agricultural sector [Globalization, Food, and Resilience]. The post about financial globalization was about studies that question whether the free flow of capital (one of the three legs that prop up the globalization stool) is really good for developing countries. Those raising the questions note that "when investment opportunities are scarce, capital inflows simply displace domestic savings and encourage consumption." They also note that countries that tie their currencies to another currency (like the dollar) inevitably track the economic gains or woes of the economy to which their money is pegged. The rapid devaluation of the dollar has had a significant negative effect on many such economies. Their point was that dumb policies (like a lack of regulation in critical economic sectors) as well as poor savings and spending habits can generate ripple effects throughout the global economy -- especially when the economy that causes the perturbation is as large as the United States.

In the post about the agricultural sector, Anthony Faiola of the Washington Post examined why globalization hadn't made agricultural products more widely available around the globe and kept down the prices of food. One of the reasons, of course, is that there is no free flow of agricultural products as a result of food subsidies and hoarding. The point of these posts was to show that globalization is not the culprit that causes bad things to happen. Bad things happen when people do dumb things. Globalization takes the rap when those same people go looking for a scapegoat. Washington Post columnist Robert J. Samuelson examines the current global economy and wonders why globalization hasn't helped stabilize it ["A Baffling Global Economy," 16 July 2008]. He writes:

"We've been having the wrong discussion about globalization. For years, we've argued over whether this or that industry and its workers might suffer from imports and whether the social costs were worth the economic gains from foreign products, technologies and investments. By and large, the answer has been yes. But the harder questions, I think, lie elsewhere. Is an increasingly interconnected world economy basically stable? Or does it generate periodic crises that harm everyone and spawn international conflict?"

Those are excellent questions. Just as sound is transmitted faster through a solid substance than through the air, bad economic effects spread faster through the international economy the denser the economic connections. On the other hand, benefits spread faster as well. As a result, stability becomes more important with each new economy that joins the global economy. Samuelson continues:

"These questions go to the core of a great puzzle: the yawning gap between the U.S. economy's actual performance (poor, but not horrific) and mass psychology (almost horrific). June's unemployment rate of 5.5 percent, though up from 4.4 percent in early 2007, barely exceeds the average of 5.4 percent since 1990. Contrast that with consumer confidence, as measured by the Reuters-University of Michigan survey. It's at the lowest point since 1952 with two exceptions (April and May 1980). Granted, the present U.S. economic slowdown -- maybe already a recession -- stems mostly from familiar domestic causes, dominated by the burst housing 'bubble.' The Bush administration's rescue of Fannie Mae and Freddie Mac, the struggling government-sponsored housing enterprises, is the latest reminder. Still, global factors, notably high oil and food prices, have aggravated the slump. The line between what's local and what's global seems increasingly blurred, and there is a general anxiety that we are in the grip of mysterious worldwide forces."

I suspect the rest of the world would argue that the global economy is in the grip of bad choices made in America -- not so mysterious at all. Samuelson doesn't really address that point. Instead, he goes on to examine whether fingers can or should be pointed at the usual suspect -- globalization.

"The good that globalization has done is hard to dispute. Trade-driven economic growth and technology transfer have alleviated much human misery. If present economic trends continue (a big "if"), the worldwide middle class will expand by 2 billion by 2030, estimates a Goldman Sachs study. (Goldman's definition of middle class: people with incomes from $6,000 to $30,000.) In the United States, imports and foreign competition have raised incomes by 10 percent since World War II, some studies suggest. Job losses, though real, are often exaggerated. But a disorderly global economy could reverse these advances. By disorderly I mean an economy plagued by financial crises, interruptions of crucial supplies (oil, obviously), trade wars or violent business cycles. This is globalization's Achilles' heel. Connections among countries have deepened and become more contradictory. Take oil producers. On one hand, high oil prices hurt advanced countries. But on the other, oil countries have an interest in keeping advanced countries prosperous, because that's where much surplus oil wealth is invested."

Samuelson goes on to note that the current situation involves the greatest redistribution of wealth in the world's history.

"Vast global flows of money threaten unintended side effects. Foreigners own more than $1 trillion of debt issued or guaranteed by Fannie Mae and Freddie Mac, reports economist Harm Bandholz of UniCredit. In the past six years, he notes, foreigners have purchased $5.7 trillion of U.S. stocks and bonds. Bandholz says the inflow of money cut U.S. interest rates by 0.75 percentage points. So: Surplus savings from Asia and the Middle East, funneled into U.S. financial markets, may have abetted the 'subprime' mortgage crisis by encouraging sloppy American credit practices. Too much money chased too few good investment opportunities."

That is basically the argument put forth in the post about financial globalization noted above. The solution, of course, is common sense investing. There are many such investments around the world, especially in emerging market countries -- and they could use the funds. Unfortunately, they don't have the cachet of an investment in the U.S. The problem, as Samuelson points out, is that when people lose money investing in the U.S. the negative consequences can be severe.

"A loss of confidence in U.S. financial markets could be calamitous; that was one reason for the rescue of Fannie and Freddie. But just possibly, we're at a crucial -- and desirable -- turning point. For several decades, the U.S. economy has been the world's economic locomotive. Americans borrowed and shopped; the U.S. trade deficit ballooned to $759 billion in 2006, stimulating exports from other countries. The trouble is that this pattern of growth could not continue indefinitely, because it required that Americans raise their debt burdens indefinitely. Now, China and other emerging markets may be moving beyond export-led growth. Unfortunately, that shift could abort, if high inflation (8 percent in China and India) derails domestic expansion."

America needs to retool its economy. There will be some short-term pain, but if it emerges from the transformation with a higher savings rate, lower per capita debt rate, and jobs being created in new economic sectors, the pain will soon pass. Samuelson, however, writes that those who must instigate this transformation seem to be lost at sea.

"Today's global economy baffles experts -- corporate executives, bankers, economists -- as much as it puzzles ordinary people. Countries are growing economically more interdependent and politically more nationalistic. This is a combustible combination. The old global economy had few power centers (the United States, Europe, Japan), was defined mainly by trade and was committed to the dollar as the central currency. Its major countries shared democratic values and alliances. Today's global economy has many power centers (including China, Saudi Arabia and Russia), is also defined by finance and is exploring currency alternatives to the dollar. Major trading nations now lack common political values and alliances."

One had to be deaf, blind, and dumb not to have understood that America's consumer economy would eventually run out of steam if it continued to be fueled by credit. Fortunately, the new centers of power hold so many petro-dollars and so much U.S. debt that they have a vested interest in helping ensure that the U.S. economy doesn't collapse. Clearly, the U.S. can use the help. That's where globalization plays a role.

"It is no more possible to undo globalization than it was possible, in the 19th century, to undo the Industrial Revolution. But our understanding of international markets, shaped by impersonal economic forces and explicit political decisions, is poor. Countries try to maximize their advantages rather than make the system work for everyone. Considering how much could go wrong, the record is so far remarkably favorable. Alas, that's no guarantee for the future."

Samuelson hit the nail on the head when he implied that the answer to the current financial downturn is making the system work for everyone. Unfortunately, U.S. politicians on both sides of the congressional aisle are appealing to base nationalism in their attempts to get elected. This "America first" mindset will ultimately result in an "America last" outcome. America's fate rests in cooperating and collaborating with the rest of the world. The sooner this is understood, the sooner solutions for many of the challenges raised by Samuelson can be addressed.

Dealing with Failed States

Regular readers of this blog are familiar with Enterra Solutions' Development-in-a-Box™ approach for helping emerging market countries achieve sustainable development. It will come as no surprise, then, that a book review in The Economist entitled "Nation-building for dummies" caught my eye [28 June 2008 print edition]. The book being reviewed was written by Ashraf Ghani and Clare Lockhart [Fixing Failed States: A Framework for Rebuilding a Fractured World (Oxford University Press, 2008)]. The review begins by naming a few countries that could be classified as "failed or failing states," namely, Afghanistan, Iraq and Somalia.

"Although there are many differences between them, these nations also have certain characteristics in common. At any one time, these can include political and economic instability, poverty, civil disorder, terrorism, human trafficking, ethnic conflict, disease and genocide."

The review also provides a quick overview of the authors' expertise about the subject at hand.

"Ashraf Ghani and Clare Lockhart have worked in many of these countries. In 2005 they founded the Institute for State Effectiveness in Washington, DC, to help advise countries that are trying to make the leap from failed to functioning state. Before that, Mr Ghani was finance minister in the first post-Taliban government in Afghanistan."

What intrigued me most about the book and The Economist's review of it was the idea that it presents a "framework" for dealing with failed or failing states. Since Development-in-a-Box also provides a framework for dealing with those states, I was curious if the review would reveal anything new.

"Past efforts at state-building have been dogged, Mr Ghani and Ms Lockhart argue, by a failure to understand what developing countries need in order to be effective in the modern world, particularly with regard to engaging their citizens and connecting to the global network of economic and political power. The outside world has also failed to help struggling governments become effective. Instead, it veers between two unsatisfactory extremes: imposed solutions tinged with a colonial or imperial flavour, and the hands-off neglect of 'interested observers'."

Although I agree completely with that assessment, even if it contains little new about past approaches or the challenges faced by failed states [see Explaining Development-in-a-Box]. The review does explicitly stress a point that my discussions about Development-in-a-Box have only implied.

"It is often said that globalisation makes the traditional nation-state less relevant than it was before. Mr Ghani and Ms Lockhart disagree. Building an effective sovereign state is more crucial than ever, they say. In order to achieve this, developing countries must focus on establishing legitimacy at home and in the wider world at the same time."

That observation is both accurate and important. The nation-state may have less influence in some areas than it did in the past, but it is far from becoming irrelevant. There are activities in which nation-states engage that cannot easily (or ever) be assumed by other organizations. To be successful, states need to assume their place at the table of nations and connect with other countries in a myriad of ways that ensure diplomatic, security, and economic activities work together for the good of the globe. Other organizations may try to influence nations to act in a particular way, but only nation states can work together to bring about global change in a legitimately recognized way.

Ghani and Lockhart recommend a two-pronged framework for development, with one prong focusing on domestic challenges and the other prong focusing on international challenges. First, they address the home front:

"At home, even before democratic processes are put in place, the authors favour extensive consultation, decisions taken from the bottom up and the introduction of autonomous spending powers. A new foreign-backed leader, taking decisions from the top down and often in secret, is far less likely to be seen as legitimate by citizens, or to inspire their loyalty. New programmes should be transparent and accountable. One success the authors cite, in a moment of justified self-congratulation, is the transformation of Afghanistan’s public-finance system under Mr Ghani, who defied gloomy IMF predictions by introducing a new currency within four months, thanks in part to the use of the existing hawala informal banking network."

Even though the authors talk about the importance of "transparent and accountable" programs for domestic development, those characteristics are just as important for programs aimed at attracting foreign direct investment and connecting to the global economy. Although some things, like regulations and legal protections, require a top down approach, I agree that governments gain true legitimacy only when they are perceived as representing the interests of those being governed. The perception of how well those interests are being met is much more important than the type of government in place.

The authors then turn to the framework for addressing international challenges.

"To improve legitimacy abroad, the authors argue for co-operation with international bodies and, above all, for a focus on integrating the domestic economy—and the majority of workers, not just a few elite companies—with the global economy. They point to the success of countries such as Singapore and Ireland in creating effective states and escaping from poverty through pro-market openness. Yet citing such rare examples of effective economic transformation can make the reader gloomier about the chances of doing the same in today’s basket-case countries. The authors could have done more to explain why these countries are plausible models for civil-war-torn states such as Afghanistan and Iraq, especially as they seem sceptical about advocating the greater use of force, which lately seems to be working in Iraq and is necessary in Afghanistan."

I'm not surprised that individuals who have worked closely with humanitarian and development groups would eschew the use of force. Conflict always affects most those least prepared to deal with its consequences -- the very victims of poverty who are the focus of humanitarian and development groups activities. As I have constantly stressed, however, security and development must go hand-in-hand. Regular readers know that I certainly agree with any approach that favors "co-operation with international bodies and ... focus[es] on integrating the domestic economy—and the majority of workers, not just a few elite companies—with the global economy." International bodies help establish the standards that can be used by failed states to earn trust for programs where there is no previous history or tradition of trust. Those standards, regulations, and best practices are essential if the second part of the framework -- connecting to the global economy -- is to be achieved.

The authors then go on to tackle another of my favorite subjects -- leadership (or the lack thereof).

"Lack of leadership is one of the main reasons why attempts at fixing failed states so often fail. Mr Ghani and Ms Lockhart advise those in charge to immerse themselves in the proliferating business-management literature in order to understand the importance of putting in place a strategy, communicating it widely, prioritising what needs to be done and doing these in the most efficient sequence. The books they cite are Alfred Chandler's 'The Visible Hand' and 'Execution' by Larry Bossidy, the no-nonsense former boss of Honeywell, a computer company, and Ram Charan, a management guru; not the usual set-texts of nation-building."

One of the things that differentiates Development-in-a-Box from other approaches is its business-like approach to transforming economies. It begins with taking a holistic and realistic look at a global economy and then developing a long-range plan against which decisions can be made. "No nonsense" is a good way to think about helping failed states. They have neither the resources nor the time to be pampered or coddled. That doesn't mean that those trying to help should be either patronizing or dictatorial -- they just need to be honest and forthright. Dramatically reducing corruption at all levels of government and business is essential to ensuring that the right kind of leadership is in place for sustainable development.

The review goes on to note that the authors also have a problem with "the international aid system, which they say is 'now deeply out of synch with the challenges of the contemporary world'. All too often, they point out, it is an obstacle to change rather than a catalyst." Aid, although important in many areas, is not as important as foreign direct investment for getting an economy up and moving. The bottom line, however, is that all parties interested in seeing a failed or failing state progress must work together in an accepted framework. The review concludes:

"Mr Ghani and Ms Lockhart have produced a useful book. Their chapter on the ten functions of the modern state should be helpful for policymakers everywhere. Yet their dense, academic style represents a missed opportunity, particularly for two authors with so much inside knowledge. Readers would have benefited from more straight storytelling about what happened in Afghanistan and Iraq, and what an America seriously committed to nation-building might have done better."

I find it encouraging to see others supporting a holistic and realistic approach to sustainable development. There are so many seemingly insurmountable challenges associated with such efforts that getting people and programs moving in a common direction is an essential first step.

Qatar Punches above its Weight

Qatar, the small Middle Eastern nation that pokes like a stubby finger into the Persian Gulf, has found a niche for itself in the diplomatic world ["Qatar, Playing All Sides, Is a Nonstop Mediator," by Robert F. Worth, New York Times, 9 July 2008]. Qatar's latest diplomatic foray was helping broker a deal in Lebanon.

"Editorialists praised the Qatari emir as a modern-day Metternich. Huge billboards went up on the road to the Beirut airport, proclaiming, 'We all say: Thank you Qatar.' An ice cream shop in downtown Beirut put out a sign offering a Doha Agreement Cone. But the Qataris did not linger over their diplomatic triumph. They were too busy trying to solve every other conflict in the Middle East."

Worth goes on to explain that the Qataris are becoming masters of gaining and using leverage in finding diplomatic solutions to nagging problems.

"In the past year alone, the Qatari foreign minister, Hamad bin Jassim bin Jaber Al Thani (widely known as H.B.J.), has flown his jet — repeatedly — everywhere from Morocco to Libya to Yemen, using charm, guile and large amounts of money to mediate disputes, with varying success. This work has not always earned him gratitude. In an increasingly divided Arab world, the Qataris have fashioned a reputation for themselves as independent-minded arbitrators who will cozy up to anyone — Iran, Israel, Chechen separatists — in pursuit of leverage at the bargaining table. ... Qatar has close ties with Iran, yet it also is host to one of the world’s biggest American air bases. It is home both to Israeli officials and to hard-line Islamists who advocate Israel’s destruction; to Al Jazeera, the controversial satellite TV station; and (at least until recently) to Saddam Hussein's widow. Saudi Arabia is a trusted ally, but so is Saudi Arabia's nemesis Syria, whose president, Bashar al-Assad, received an Airbus as a personal gift from the Qatari emir this year. 'They really put all the contradictions of the Middle East in one box,' said Mustafa Alani, a security analyst at the Gulf Research Center in Dubai."

Maintaining all of these strange bedfellow relationships has resulted in some interesting activities, including questionable gifts and investments. Worth reports:

"The Qataris also back their diplomacy with some eclectic investments. Many Americans know about the emir’s gift of $100 million to help Hurricane Katrina victims, but Qatar is also building a $1.5 billion oil refinery in Zimbabwe, a huge residential complex in Sudan and a $350 million tourist project in Syria."

Investments in so-called pariah states have raised more than just eyebrows. They have sometimes raised ire.

"Some call Qatar's policy deranged. The Qataris prefer to think of it as useful. Blessed with enormous oil and natural gas reserves, Qatar is surrounded by large and ambitious neighbors: Iran, Iraq and Saudi Arabia. Diplomacy has become a way for Qatar to protect itself and its riches, by forming alliances and by trying to stabilize the region. 'The idea is to try to keep everybody happy — or if we can't, to keep everybody reasonably unhappy,' said one former Qatari official, who spoke on the condition of anonymity because he was not authorized to discuss foreign policy. 'If that makes the Americans or the Russians a little cross, well, tough luck.' It does make them cross. American officials have been quietly furious about Qatar’s assistance to Iran and Syria, which includes substantial financial investments as well as votes against sanctions on Iran during Qatar's tenure on the United Nations Security Council. The Americans are also angry about Qatar’s hefty financial aid to the militant Palestinian group Hamas after it won elections in 2006."

Such patchwork pragmatism has kept both friends and foes a bit out of balance -- never really knowing what the Qataris are going to do next.

"Mr. bin Jaber, the foreign minister, who is also prime minister, has been coy about the details of Qatar's unusual diplomacy. He has given some interviews in which he says Qatar wants 'good relations with everyone' and defends his country's relationship with Israel. ... Qatar's policy was born in 1995, when the current emir, Sheik Hamad bin Khalifa Al Thani, carried out a bloodless coup against his father, who was on vacation in Switzerland. The new emir instantly began transforming Qatar from a sleepy, inward-turned backwater into a dynamic new state. At home, he began an ambitious remodeling of the emirate’s education policies with the help of his wife, Sheikha Mozah bin Nasser al-Missned. Abroad, the emir and his cousin, Mr. Jaber, began building a bold new way to engage with the world while maintaining their country’s independence."

Although its foreign policies have been met with both anger and amusement, according to Worth, they seem to be working for the country.

"Qatar ... has an absolute monarchy and virtually no domestic dissent. It is therefore free, unlike almost every other country in the world, to pursue iconoclastic policies abroad without worrying about how they play at home. The fact that Qatar also has the world's highest per capita gross domestic product, at more than $80,000, probably helps to keep things quiet. Unlike some other countries in the region, Qatar has had only one terrorist attack, a suicide bombing in March 2005 in a Doha theater popular with Westerners. One British citizen was killed and a dozen other people were wounded. Despite occasional diplomatic problems and frequent complaints, Qatar's policy seems to have worked, catapulting the country to new levels of recognition around the globe."

As further proof that Qatar has gained both reputation and respect, the country and its monarch were featured in a short article in The Economist ["Small country, big ideas," 7 June 2008 print edition]. The Economist article also alluded to the Emir's success in brokering the deal in Lebanon and it provided a bit more background on the country.

"In 1952, the year that Sheikh Hamad bin Khalifa al Thani was born, Qatar had fewer than 40,000 people, most of them barefoot nomads and fishermen, and not a single school. The emirate he rules now hosts Education City, a complex of branch campuses from some of the world's most prestigious colleges. According to IMF figures, the country's 950,000 residents this year surpassed those of Luxembourg to become the world's richest. They enjoy an income per person of $80,870. Yet that plump figure belies the far greater private wealth of native Qatari citizens, who number fewer than 200,000 but who own nearly all the emirate's assets, as opposed to the army of foreign guest workers who serve them."

Like many Gulf states, Qatari citizens enjoy the benefits of oil revenue and leave the hard work to foreigners. This may become problematic for Qataris in the long term. It's good to have money, but the day will come when the oil runs out. History has also shown that people are happiest when engaging in meaningful work that contributes to supporting the family. In the meantime, as Worth noted above, the Qataris are using their wealth to bolster their diplomatic missions. The Economist article continues:

"Qatar's oil money has certainly helped to make peace. A free week spent in one of Doha's six-star hotels would dull the meanest fighting spirit, and there are wags in Lebanon, for instance, who contend that their politicians pocketed other, bigger sweeteners. But there has been plenty of fast Qatari footwork too. Since Sheikh Hamad ousted his father in a bloodless coup in 1995, observers have questioned the apparently erratic course of Qatari foreign policy. But under the guidance of his distant cousin, Sheikh Hamad bin Jasim, the long-serving foreign minister, and more recently also prime minister, Qatar has cut the apron strings that traditionally tie smaller Gulf states to bigger, older regional powers such as Saudi Arabia and Egypt, and adopted a firmly independent line."

With Qatar's liquid natural gas output expected to double over the next five years, the short-term future of the country looks bright. Wise investments will likely keep the country flush and the growing reputation of its leaders as diplomatic troubleshooters will likely keep Qatar punching above its weight.

Privacy and Connecting-the-Dots

The seeds of my current company, Enterra Solutions, can be traced back to the days following the terrorist attacks of September 11, 2001. As a serial entrepreneur, I was between companies and looking for my next project. My sister, who was working in the now-condemned Deutsche Bank building which sat next to the World Trade Center towers, had definitely been in harm's way and I was motivated to do something to help. As the details of those tragic events emerged, it was clear that the intelligence community needed a better way to share information and I thought I could help them find it. The short story is those events catalyzed my thinking about rule set automation and how it could be used to make processes of all kinds (including information sharing) more efficient and effective. Sharing information (i.e., making sure the right person, with the right clearance, and a need to know gets the right data) is a very difficult challenge. Sources need protecting and privacy issues abound. It is the tension between the benefits of sharing information and the privacy concerns that it raises that is the focus of a recent article in the Washington Post ["Post-9/11 Dragnet Turns Up Surprises," by Ellen Nakashima, 6 July 2008]. Nakashima writes:

"In the six-and-a-half years that the U.S. government has been fingerprinting insurgents, detainees and ordinary people in Afghanistan, Iraq and the Horn of Africa, hundreds have turned out to share an unexpected background, FBI and military officials said. They have criminal arrest records in the United States. There was the suspected militant fleeing Somalia who had been arrested on a drug charge in New Jersey. And the man stopped at a checkpoint in Tikrit who claimed to be a dirt farmer but had 11 felony charges in the United States, including assault with a deadly weapon. The records suggest that potential enemies abroad know a great deal about the United States because many of them have lived here, officials said. The matches also reflect the power of sharing data across agencies and even countries, data that links an identity to a distinguishing human characteristic such as a fingerprint."

I have repeatedly, in my posts, trumpeted the power of connectivity -- not just for law enforcement purposes but for commercial activity as well. Although there are privacy concerns about information sharing in the commercial sector, they pale in comparison to the concerns raised in the security sector. Anyone whose name is on a terrorist watch list knows that life suddenly becomes more complicated and irritating. People don't really mind making life difficult for a person who is an actual security risk, but when an innocent person is affected we all feel his or her pain. We get outraged when they find themselves caught in a Catch 22 situation where everybody sympathizes but nobody does anything about it. Nakashima reports that warning flags have been raised anew by privacy advocates as a result of a recent directive issued by President Bush.

"The fingerprinting of detainees overseas began as ad-hoc FBI and U.S. military efforts shortly after the Sept. 11, 2001, terrorist attacks. It has since grown into a government-wide push to build the world's largest database of known or suspected terrorist fingerprints. The effort is being boosted by a presidential directive signed June 5, which gave the U.S. attorney general and other cabinet officials 90 days to come up with a plan to expand the use of biometrics by, among other things, recommending categories of people to be screened beyond 'known or suspected' terrorists."

Privacy advocates are not just concerned that the program is expanding in the United States, their concerns include the fact that databases are being shared globally.

"Fingerprints are being beamed in via satellite from places as far-flung as the jungles of Zamboanga in the southern Philippines; Bogota, Colombia; Iraq; and Afghanistan. Other allies, such as Sweden, have contributed prints. The database can be queried by U.S. government agencies and by other countries through Interpol, the international police agency. Civil libertarians have raised concerns about whether people on the watch lists have been appropriately determined to be terrorists, a process that senior government officials acknowledge is an art, not a science. Large-scale identity systems 'can raise serious privacy concerns, if not singly, then jointly and severally,' said a 2007 study by the Defense Science Board Task Force on Defense Biometrics. The ability 'to cross reference and draw new, previously unimagined, inferences,' is a boon for the government and the bane of privacy advocates, it said."

People are always wary about "big brother." That is why the Defense Science Board Task Force claim that information sharing is "a boon for the government" touches a nerve that sends shivers up the spine of privacy advocates. Proponents of sharing biometric information undoubtedly have a different perspective and use different language. They would argue that sharing biometric information is a boon for the traveling public and helps make people safer. Both sides have valid points. Nakashima's focus is on the benefits of such information sharing. She continues:

"The effort, officials say, is bearing fruit. 'The bottom line is we're locking people up,' said Thomas E. Bush III, FBI assistant director of the Criminal Justice Information Services division. 'Stopping people coming into this country. Identifying IED-makers in a way never done before. That's the beauty of this whole data-sharing effort. We're pushing our borders back.'"

The U.S. military has always stressed "defense in depth," by which it means defending the country as far away from its shores as possible. Law enforcement agencies have come to appreciate this approach. Nakashima reports that the current effort to collect fingerprints of possible terrorists began shortly after 9/11.

"In December 2001, an FBI team was sent on an unusual mission to Afghanistan. The U.S. military had launched a wave of airstrikes aimed at killing or capturing al Qaeda fighters and their Taliban hosts. The FBI team was to fingerprint and interview foreign fighters as if they were being booked at a police station. The team, led by Paul Shannon, a veteran FBI agent embedded with U.S. special forces, traveled to the combat zone toting briefcases outfitted with printer's ink, hand rollers and paper cards. The agents worked in Kandahar and Kabul. They traversed the Afghanistan-Pakistan border. They hand-carried the fingerprint records from Afghanistan to Clarksburg, W.Va., home to the FBI's criminal biometric database. As they analyzed the results, they were surprised to learn that one out of every 100 detainees was already in the FBI's database for arrests. Many arrests were for drunken driving, passing bad checks and traffic violations, FBI officials said."

Although that description of offenses would lead one to believe that the offenders were not very religious (e.g., Islam teaches that people are supposed to be honest and aren't supposed to drink alcohol), the FBI learned they were very committed to their cause.

"The people being fingerprinted had come from the Middle East, North Africa and Pakistan. They were mostly in their 20s, Shannon recalled. 'One of the things we learned is we were dealing with relatively young guys who were very committed and what they would openly tell you is that when they got out they were going back to jihad,' he said. 'They'd already made this commitment.'"

Nakashima provides other anecdotal evidence of the success of the fingerprinting program.

"One of the first men fingerprinted by the FBI team was a fighter who claimed he was in Afghanistan to learn the ancient art of falconry. But a fingerprint check showed that in August 2001 he had been turned away from Orlando International Airport by an immigration official who thought he might overstay his visa. Mohamed al Kahtani would later be named by the Sept. 11 Commission as someone who allegedly had sought to participate in hijackings. He currently is in custody at Guantanamo Bay. Similarly, in 2004, an FBI team choppered to a remote desert camp on the Iraq-Iran border, home to the Mujahedin-e-Khalq (MEK), whose aim is to overthrow the Iranian government. The MEK lead an austere lifestyle in which men are segregated from women and material goods are renounced. The U.S. State Department considers the organization to be a terrorist group. The FBI team fingerprinted 3,800 fighters. More than 40, Shannon said, had previous criminal records in the agency's database."

The FBI is not the only organization collecting biometric data. Nakashima reports that the U.S. military also a program.

"While the FBI was busy collecting fingerprints, the military was setting up its own biometrics database, adding in iris and facial data as well. By October, the two organizations agreed to collaborate, running queries through both systems. The very first match was on the man who claimed to be a poor dirt farmer. Among his many charges were misdemeanors for theft and public drunkenness in Chicago and Utah, a criminal record that ran from 1993 to 2001, said Herb Richardson, who serves as operations manager for the military's Automated Biometric Identification System under a contract with Ideal Innovations of Arlington. Many of those with U.S. arrest records had come to the United States to study, said former Criminal Justice Information Services head Michael Kirkpatrick, who led the FBI effort to use biometrics in counterterrorism after Sept. 11. 'It suggests there was some familiarity with Western culture, the United States specifically, and for whatever reason they did not agree with that culture,' he said. 'Either they became disaffected or put up with it, and then they went overseas.'"

Nakashima also provides anecdotal evidence about why civil libertarians are concerned with such programs.

"Errors in matching, though rare, have occurred. In a noted 2004 case, Oregon lawyer Brandon Mayfield was erroneously named as a suspect in the Madrid train bombings that killed 191 people. FBI lab analysts matched a print lifted from a plastic bag at the crime scene to his fingerprints that were stored in the FBI's criminal database because of a 1985 arrest for auto burglary when he was a teenager. The charge had been dismissed. After a critical Justice Department Inspector General audit, the FBI made fixes in its system. A recent inspector general report found the FBI fingerprint matching to be generally accurate. Civil libertarians, however, worry that the systems are not transparent enough for outsiders to tell how the government decides who belongs on a watch list and how that information is handled. 'The day when the federal government can tell people the basis they've been put on the watch list is the day we can have more confidence in biometric identification,' said Marc Rotenberg, executive director of the Electronic Privacy Information Center."

Nakashima goes on to report why watch lists are so problematic.

"Vetting the data is the job of analysts at the National Counterterrorism Center, an office park-like complex in McLean run by the Office of the Director of National Intelligence. Analysts there scour intelligence reports to create the master international terrorist watch list. 'You cannot draw a bright red line and say that's a terrorist, this person isn't,' said Russ Travers, an NCTC deputy director. 'If somebody swears allegiance to Bin Laden, that's an easy case. If somebody goes to a terrorist training camp, that's probably an easy case. What if a person goes to a camp and decides, "I don't want to go to a camp, I want to go home." Where do you draw the line?' Investigators are working on ever more sophisticated ways to evaluate the data. Analysts at the Army's National Ground Intelligence Center in Charlottesville, for instance, use software to scrutinize intelligence reports from sources such as electronic surveillance and informants. They then link the information to a person's biographic and biometric data, and look for relationships that might detect terrorists and plots. For example, a roadside bomb may explode and a patrol may fingerprint bystanders because insurgents have been known to remain at the scene to observe the results of their work. Prints also can be lifted off tiny fragments of exploded bombs, said military officials and contractors involved in the work. Analysts are not just trying to identify the prints on the bomb. They want to find out who the bomb-carrier associates with. Who he calls. Who calls him. That could lead to the higher-level operatives who planned and financed attacks. Already, fingerprints lifted off a bomb fragment have been linked to people trying to enter the United States, they said. In a separate data-sharing program, 365 Iraqis who have applied to the Department of Homeland Security for refugee status have been denied because their fingerprints turned up in the Defense Department's database of known or suspected terrorists, Richardson said."

The fact that vetting watch lists is so difficult is what makes civil libertarians so wary. While some privacy advocates insist that no personal data should be collected, stored, shared and analyzed, I believe most people understand that those activities play an important security role. There has to be some compromise reached. It may not make everybody happy, but such a compromise should make people on both sides the least unhappy it can. Nakashima concludes with an overview of how the program is changing to include the collection of domestic biometric data.

"If Iraq and Afghanistan were a proving ground of sorts for biometric watch-listing, the U.S. government is moving quickly to try to build a domestic version. Since September 2006, Homeland Security and the FBI have been operating a pilot program in which police officers in Boston, Dallas and Houston run prints of arrestees against a Homeland Security database of immigration law violators and a State Department database of people refused visas. Federal job applicants' prints also are run against the databases. To date, some 500 people have been found in the database and thus are of interest to Homeland Security officials. Steve Nixon, a director at the Office of the Director of National Intelligence, said the effort is key to national security. 'When we look at the road and the challenges, globalization and the spread of technology has empowered small groups of individuals, bad guys, to be more powerful than at any other time in history,' he said. 'We have to know who these people are when we encounter them. A lot of what we're doing in intelligence now is trying to identify a person. Biometrics is a key element of that.'"

As I noted above, there will undoubtedly be compromises in data collection programs that will leave neither side happy. The intelligence and law enforcement communities are always pursuing perfect information and civil libertarians are always looking to keep the government out the lives of individual citizens. The resulting tension may be uncomfortable, but it is also healthy and necessary. A free society that willingly surrenders its liberties doesn't remain free for long. On the other hand, a society without some norms and enforcement mechanisms quickly erodes into anarchy and chaos. Checks and balances relating to security and privacy issues will only remain strong as long as both sides keep up the good fight.

Little Sacrifices that Make Big Differences

One of the reasons that I enjoy reading New York Times op-ed columnist Nicholas Kristof is that he is basically an optimist. He travels to some of the most devastated, war-torn, poverty-stricken places on earth and reports the terrible conditions he finds there; but he doesn't write about doom and gloom. Rather, Kristof looks at the situation and asks, "What can be done to make the situation better?" In one of his more recent columns, he related the story of how a group of Sunday School children may end up having a great impact on the future of an African nation ["The Luckiest Girl," 3 July 2008]. He begins:

"This year's college graduates owe their success to many factors, from hectoring parents to cherished remedies for hangovers. But one of the most remarkable of the new graduates, Beatrice Biira, credits something utterly improbable: a goat ... and it's appropriate that the goat that changed her life was named Luck."

So far we know that Beatrice Biira graduated from college and that a goat played an important role. As radio commentator Paul Harvey would say, "Now it's time for the rest of the story."

"The tale begins in the rolling hills of western Uganda, where Beatrice was born and raised. As a girl, she desperately yearned for an education, but it seemed hopeless: Her parents were peasants who couldn’t afford to send her to school. The years passed and Beatrice stayed home to help with the chores. She was on track to become one more illiterate African woman, another of the continent’s squandered human resources. In the meantime, in Niantic, Conn., the children of the Niantic Community Church wanted to donate money for a good cause. They decided to buy goats for African villagers through Heifer International, a venerable aid group based in Arkansas that helps impoverished farming families. ... One of the goats bought by the Niantic church went to Beatrice's parents and soon produced twins. When the kid goats were weaned, the children drank the goat's milk for a nutritional boost and sold the surplus milk for extra money. The cash from the milk accumulated, and Beatrice's parents decided that they could now afford to send their daughter to school. She was much older than the other first graders, but she was so overjoyed that she studied diligently and rose to be the best student in the school. An American visiting the school was impressed and wrote a children's book, 'Beatrice’s Goat,' about how the gift of a goat had enabled a bright girl to go to school. The book was published in 2000 and became a children's best seller."

The tale is already a remarkable one and the Sunday School children in Niantic, CT, would have undoubtedly been delighted had the story ended there. But, as we know, Beatrice's education did not stop with reading, writing, and arithmetic.

"There is now room for a more remarkable sequel. Beatrice was such an outstanding student that she won a scholarship, not only to Uganda's best girls' high school, but also to a prep school in Massachusetts and then to Connecticut College. A group of 20 donors to Heifer International — coordinated by a retired staff member named Rosalee Sinn, who fell in love with Beatrice when she saw her at age 10 — financed the girl's living expenses."

Beatrice has now graduated, as Luck (the goat) would have it. So what does the future hold for her? Kristof continues the story:

"Beatrice plans to earn a master's degree at the Clinton School of Public Service in Arkansas and then return to Africa to work for an aid group. Beatrice dreams of working on projects to help women earn and manage money more effectively, partly because she has seen in her own village how cash is always controlled by men. Sometimes they spent it partying with buddies at a bar, rather than educating their children. Changing that culture won't be easy, Beatrice says, but it can be done."

Beatrice's graduation was such a momentous event that, Kristof reports, "villagers in western Uganda recently held a special Mass and a feast to celebrate the first local person to earn a college degree in America." That's a great story, but Kristof is a realist and admits that humanitarian assistance doesn't always produce such amazing outcomes. The biggest challenge that prevents better results from aid is corruption and, according to Beatrice, there is a lot of corruption in Uganda. That is why she considers herself the luckiest girl in the world -- because everything fell in place to make her dreams a reality. Kristof writes about all of the things that could have gone wrong:

"Granted, foreign assistance doesn't always work and is much harder than it looks. ... A crooked local official might have distributed the goats by demanding that girls sleep with him in exchange. Or Beatrice's goat might have died or been stolen. Or unpasteurized milk might have sickened or killed Beatrice. In short, millions of things could go wrong. But when there's a good model in place, they often go right."

I entirely agree with Kristof about the value of good models. Using best practices and internationally recognized standards is part of the philosophy behind Enterra Solutions' Development-in-a-Box™ approach. Models, standards, and practices may have to be adjusted to fit local conditions, but if you don't start with a good model, good things are unlikely to result -- except by chance. Kristof concluded his column by encouraging people to get involved.

"When people ask how they can help in the fight against poverty, there are a thousand good answers, from sponsoring a child to supporting a grass-roots organization through globalgiving.com. (I’ve listed specific suggestions on my blog, nytimes.com/ontheground, and on facebook.com/kristof). The challenges of global poverty are vast and complex, far beyond anyone's power to resolve, and buying a farm animal for a poor family won't solve them. But Beatrice's giddy happiness these days is still a reminder that each of us does have the power to make a difference — to transform a girl's life with something as simple and cheap as a little goat."

Kristof notes that a dairy goat in Heifer’s online gift catalog costs $120; a flock of chicks or ducklings costs just $20. In previous posts, I've talked about how you can help provide microloans to people around the world (see, for example, Financing the Poor). Kristof may be right that it is "far beyond anyone's power to resolve" global poverty, but he is also correct that each of us can "make a difference." Our efforts at charity may never be written up in the New York Times or even have much of an impact beyond the few lives we touch. That's okay. To the person or family we touch, the impact can be enormous. Even if no one else ever knows what you did -- you'll know -- and life will be better.

Reviving U.S. Manufacturing

In a recent post entitled "Development-in-a-Box™ at Home in America," I focused on an op-ed piece by Thomas Friedman. In that piece, he chided U.S. politicians for not embracing policies that fostered the "next great global industry — renewable energy and clean power." Their lack of vision and action, he lamented, meant that America was not taking advantage of an opportunity clearly ready to be exploited. In another New York Times' op-ed piece, former Democratic senator and presidential candidate Gary Hart called on his party's candidate, Barack Obama, to use the campaign to outline a new chapter for American politics ["America’s Next Chapter," 25 June 2008]. Hart argues that new political chapters are, historically, written about every three decades and that the time is ripe for a new one.

"Henry Adams believed that 'a period of about 12 years measured the beat of the pendulum' during the era of the founders. Schlesinger, borrowing from his historian father, estimated that the swings between eras of public action and those of private interest were nearer to 30 years. What matters more than the length of the cycles is that these swings, between what [Arthur] Schlesinger called periods of reform and periods of consolidation, clearly occur. If we somewhat arbitrarily fix the age of Franklin D. Roosevelt as 1932 to 1968 and the era of Ronald Reagan as 1968 to 2008, a new cycle of American political history — a cycle of reform — is due."

Hart, of course, hopes that his party's nominee wins the White House and implements a new era of reform. Never one to shy away from expressing his opinions Hart goes on to tell Obama what he believes are the themes that must form the basis of this new era.

"No individual can entirely determine the architecture of a historical cycle. But much of the next one will be defined by how we grapple with a host of new realities, ones that reach beyond jihadist terrorism. They include globalized markets; the expansion of the information revolution into places like China; the emergence of new world powers including India and China; climate deterioration; failing states; the changing nature of war; mass migrations; the proliferation of weapons of mass destruction; viral pandemics; and many more. Senator Obama's attempt to introduce the next American cycle should include, at minimum, three elements. National security requires a new, expanded, post-cold-war definition. America must transition from a consumer economy to a producing one. And the moral obligations of our stewardship of the planet must become paramount."

I was struck when I read that "America must transition from a consumer economy to a producing one." Hart doesn't make what he means entirely clear, but it sounds like he wants the U.S. to start manufacturing more things and stop buying them from overseas. One could argue, of course, that in the information age a service economy (as opposed to a manufacturing economy) does "produce" value. Nevertheless, I suspect Hart was referring to generating new manufacturing jobs -- some of which, I assume, would be in the renewable energy and clean power sector supported by Friedman. Hart's vision raises another question, however: Can the U.S. recapture its manufacturing base? Pete Engardio, writing in BusinessWeek, asks just such a question ["Can the U.S. Bring Jobs Back from China?" 30 June 2008 print edition]. His answer is "maybe." But he warns, "American industry may not be ready to seize the opportunity" even when it presents itself. He begins his article with the story of a New England battery developer who couldn't find a U.S. company to produce her batteries.

"Christina Lampe-Onnerud has a long-lasting, fast-charging battery for notebook computers that she believes will revolutionize the industry. Her company, Boston-Power, would like to make the batteries in the U.S., which she says is feasible despite high American wages. But Lampe-Onnerud has had trouble finding anyone in the U.S. even to make a prototype, let alone manufacture the battery in bulk. China, by contrast, is home to more than 200 battery manufacturers. On visits to the mainland, Lampe-Onnerud toured dozens of factories with ample staff and laboratories, and none wanted the millions of dollars up front that one contract manufacturer in the U.S. had demanded. She recalls a negotiating session last year that started at 9 a.m. and ended with a midnight dinner. Despite parting with 30 unresolved questions, 'at 9:00 the next morning, the entire management team was there with pressed white shirts and a PowerPoint presentation addressing every issue,' she says. 'That's how badly they wanted the business.' In six months, Boston-Power was ramping up production in a 400-worker factory in Shenzhen."

In the post I mentioned at the beginning of this blog, I indicated that I had observed the same thing about U.S. businesses and workers. They seem to have lost their competitive edge, especially when dealing with emerging economies. I argued that America needs to reinvigorate the culture of hard work and ambition that made it great in the first place. As Lampe-Onnerud found, there are plenty of people elsewhere in the world who still have those qualities and use them to their advantage. Engardio explains why this is a good time to consider increasing U.S. manufacturing.

"The economics of global trade are starting to tilt back in favor of the U.S. to a degree unseen in a generation. Since 2002 the dollar has plunged by 30% against major world currencies and is falling against the yuan. Wages in China are rising 10% to 15% a year. And spiking oil prices are driving up shipping rates. The cost of sending a 40-foot container from Shanghai to San Diego has soared by 150%, to $5,500, since 2000. If oil hits $200 a barrel, that could reach $10,000, projects Toronto financial-services firm CIBC World Markets. But as the experience of Boston-Power and countless companies like it shows, the map of global commerce can't be redrawn overnight. American factories and supplier networks in many industries have withered in the era of globalization, so it will take lots of time and capital before the U.S. can become a big player again. In electronics, for instance, there has been a mass migration of component makers to China in the past decade. Ditto for suppliers to Midwest heavy-equipment makers and North Carolina's furniture industry."

Engardio isn't naive enough to believe that the U.S. can recapture all of the manufacturing jobs that have gone elsewhere. He writes:

"The bulk of goods made in China—clothing, toys, small appliances, and the like—probably won't be coming back, because they require abundant cheap labor. If anything, their manufacture will go to other low-wage nations in Asia or Latin America. And in industries from machinery to motorbikes, China's productivity gains nearly offset rising wages and fuel prices."

So where does Engardio see opportunities?

"In areas where the U.S. is at the forefront of innovation—renewable energy, nano materials, solid-state lighting—the U.S. must compete with Asian and European nations willing to lavish entrepreneurs with start-up capital, cash grants, and cheap loans. Similar help may be needed to persuade U.S. companies to build capacity. The global industrial landscape certainly appears to be in the early stages of a realignment. The euro's breathtaking rise against the dollar has spurred European makers of cars, steel, aircraft, and more to shift production to the U.S. Now the soaring cost of fuel is making it pricier to send goods across the Pacific. Consider Japan's steel industry, which depends on imported iron ore and coal to create high-end metal for Japanese automakers in the U.S. In 2003 it cost $15 to ship a ton of iron ore costing $30 from Brazil to Japan. By last fall, while the ore had jumped to $80 per ton, shipping costs had risen to $90. Shipping of raw materials now accounts for 13% of the price of rolled steel used in car bodies, estimates CLSA Asia-Pacific Markets. The finished steel must then be sent to factories in the U.S., pumping up the price even further. Rising costs are starting to eat into what American managers fearfully call the China Price, the once-formidable 40% to 50% cost advantage enjoyed by Chinese manufacturers—and demanded by customers."

In another post [Looking for Jobs that Last], I wrote: "Countries that want to benefit from globalization must reconcile themselves to the reality that it fragments supply chains and sends jobs in all directions. As my colleague Tom Barnett puts it, 'Globalization integrates trade by disintegrating production chains and dispersing them across economies.' ... The fact is that the vast majority of global trade involves multinational corporations. If you want to get in front of that money you had better embrace them. Why? Not only are multinationals involved in the bulk of global trade, but half of that trade is intra-network trade -- meaning trade within industry sectors or within the multinational companies themselves. ... Understanding the supply chain is critical for understanding what types of job will last." Engardio is basically making the same point. As transportation costs rise, supply chain routes are likely to change and that provides companies with new opportunities.

"Examples of production shifts abound. Chinese steel exports to America are down 20% in the past year, notes CIBC, while U.S. steel output has jumped 10% despite the slowdown in construction. Big electronics manufacturers are expanding assembly of high-end telecommunications, computer, and medical equipment in Mexico and some parts of the U.S. for greater proximity to corporate buyers."

Engardio reports, however, that many U.S. industrial sectors have downsized so dramatically that they cannot easily gear back up for increased production.

"Look behind these examples, though, and obstacles to a broad manufacturing migration become clear. Iron castings maker Donsco, on the banks of the Susquehanna River in eastern Pennsylvania, illustrates the dilemma. In recent years, Donsco has laid off hundreds of workers as customers shifted production of gear boxes, oil rig parts, and much more to Chinese competitors. Now, Donsco says it's flooded with order inquiries from U.S.-based clients. 'All of a sudden our customers are saying, Whoops, it's cheaper to buy in our backyard,' says Donsco Chairman Art Mann Sr. While Donsco managed to keep its doors open, many of its U.S. rivals shut down, so there's now a shortage of capacity."

Engardio goes on to report that industries like Donsco are not rushing to increase capacity because the costs are high and so are the risks. The story, he writes, is same in industry after industry -- furniture, lighting fixtures, heavy equipment, and so on. The risks are high because increased capacity doesn't guarantee clients. Companies that have spent millions to move production to China and elsewhere aren't eager to spend millions more relocating back to the U.S. For its part, the Chinese are working hard to keep manufacturing jobs they have attracted.

"How has China been able to keep its edge in the face of soaring costs? One factor that's widely overlooked is rising productivity. For the past decade, U.S. manufacturing productivity growth has averaged 4.8%. That's impressive for an industrialized nation, and bodes well for U.S. industry when the economy recovers. But productivity at medium and large Chinese manufacturers—the backbone of country's export boom—has averaged nearly 19% over the same period, says Bart van Ark, chief economist at the Conference Board, a business research group. While American manufacturers have been tightening their belts, producers in China have been plowing money into bigger and more advanced facilities that are ahead of their U.S. counterparts. Douglas Bartlett, chairman of Bartlett Manufacturing, a Cary (Ill.) maker of high-end circuit boards used in defense and medical systems, doesn't see a big reversal in store. A decade ago the U.S. accounted for one-third of global circuit-board output. Today that's down to 10%, with China making 80%. Chinese boards are still 40% to 50% cheaper than the ones Bartlett makes in the U.S., in part because producers there have superior technology."

That is why any increase in U.S. manufacturing jobs is likely to come in emerging economic sectors rather than in more traditional sectors. Engardio concludes:

"The new cost equation likely will influence many decisions about where to locate production in the future. America remains the world's biggest manufacturer, after all, because it's still the largest market for everything from drugs and packaged foods to high-end medical equipment. The U.S. may have as good a chance as anyone of being a strong player in nascent industries, whether next-generation wind turbines, medical devices with nano-scale sensors, or electric cars. The challenge will be to persuade reluctant venture capitalists and corporations to invest again in modern U.S. production facilities."

He believes that government agencies can also play a role by providing seed capital to promising startups and by building industrial parks with low-cost facilities and services that rival those found in China. Friedman called that "nation-building at home" and I referred to it as Development-in-a-Box™ at home. Whatever you call it, America needs to build world-class facilities to support emerging economic sectors as well as reinvigorate the pioneer spirit that made American workers the most productive in the world.

Kristof Pleads for Books, not Bombs

New York Times' columnist Nicholas Kristof spends a lot of his time traveling to locations never seen by most globe-trotting tourists. Such ventures, however, provide him with a world view that can only come through such experiences. I am working with the U.S. Chamber of Commerce and U.S. Department of Commerce to introduce U.S. business people to opportunities in Iraq, especially opportunities in the Kurdistan region where the environment is sufficiently stable to permit economic growth. A group of such business people were recently brought to Iraq to see conditions there for themselves. Sometimes that is the only way to really appreciate a situation. One of Kristof's latest ventures took him to countries surrounding Iraq and into areas where Iraqi refugees have fled over the course of the conflict there. He now fears that we are creating a new intractable security situation that will rival the Israeli-Palestinian situation ["Books, Not Bombs," 26 June 2008]. He writes:

"The dirty little secret of the Iraq war isn't in Baghdad or Basra. Rather, it's found in the squalid brothels of Damascus and the poorest neighborhoods of East Amman. Some two million Iraqis have fled their homeland and are now sheltering in run-down neighborhoods in surrounding countries. These are the new Palestinians, the 21st-century Arab diaspora that threatens the region’s stability. Many youngsters are getting no education, and some girls are pushed into prostitution, particularly in Damascus. Impoverished, angry, disenfranchised, unwanted, these Iraqis are a combustible new Middle Eastern element that no one wants to address or even think about."

Kristof is right to be concerned. As Bradd C. Hayes and Jeffrey I. Sands wrote in their book Doing Windows: Non-Traditional Military Responses to Complex Emergencies:

"[Refugees from conflict] become economic liabilities, have increased health risks, and form the core of politically discontent groups. Therefore, getting them out of refugee camps is one of the international community's highest priorities."

Policymakers (in the U.S. and elsewhere) apparently have not read the book because Kristof reports that Iraqi refugees have been all but forgotten. He believes the U.S. in particular owes it to these people to set things right.

"American hawks prefer to address the region's security challenges by devoting billions of dollars to permanent American military bases. A simpler way to fight extremism would be to pay school fees for refugee children to ensure that they at least get an education and don’t become forever marginalized and underemployed. We broke Iraq, and we have a moral responsibility to those whose lives have been shattered by our actions. Helping them is also in our national interest, for we'll regret our myopia if we allow young Iraqi refugees to grow up uneducated and unemployable, festering in their societies."

Kristof writes about the enormity of the challenge and why nobody wants to discuss it:

"Iraqi refugees don't get help in part because this is a problem that almost everybody wants to hide. Syria and Jordan worry that if the refugees get assistance, then they will stay indefinitely. The U.S. doesn't want to talk about a crisis created by our war, and Iraq's Shiite leaders don't much care about Sunnis or Christians displaced by Shiite militias. 'It's among the largest humanitarian crises in the world today,' said Michael Kocher, a refugee expert at the International Rescue Committee, which recently published a report on the crisis. 'It's getting very little attention from the Security Council on down, which we feel is scandalous and also bad strategy.' It's easy to blame the surrounding countries, such as Jordan and Syria, for not being more hospitable to Iraqis. But those countries have, however grudgingly, tolerated the influx despite the burden and political risk. Iraqi refugees are hard to count but may now amount to 8 percent of Jordan's population of six million. The average Jordanian family, which opposed the war in the first place, is now bearing a cost that may be as much as $1,000 per year for providing for the refugees."

Keeping the Iraqis in refugee camps in perpetuity is both bad policy and morally indefensible. What we need is a change of perspective -- a different way of looking at the challenge. Jonathan Moore has argued that the "reintegration into society of millions of repatriated refugees, returned displaced [persons], and demobilized soldiers presents an opportunity for wholesale progress in recovery and renewal" [The UN and Complex Emergencies: Rehabilitation in Third World Transitions (Geneva: UN Research Institute for Social Development, 1996)]. Looking at Iraqi repatriation as an opportunity rather than a problem may help garner support for Kristof's course of action. Kristof concludes:

"We have already seen, in the case of Palestinians, how a refugee diaspora can destabilize a region for decades. If Jordan were to collapse in part from such pressures, that would be a catastrophe — and the best way to prevent that isn't to give it Blackhawk helicopters, but help with school fees and school construction. If we let the Iraqi refugee crisis drag on — and especially if we allow young refugees to miss an education so that they will never have a future — then we are sentencing ourselves to endure their wrath for decades to come. Educating Iraqis may not be as glamorous as bombing them, but it will do far more good."

Kristof is being too sarcastic when he writes that "educating Iraqis" is not "as glamorous as bombing them." I have met far too many military people who are genuinely excited about helping the Iraqi people get back on their feet. These military people appreciate far more than their political masters the importance of programs that bring stability and prosperity to people's lives. There is far more satisfaction in helping people than in killing enemies -- although both may be necessary.

Iraq will probably not be the last intervention undertaken by the international community. When the next one comes around, they should not ignore the lessons that were re-learned during the Iraq War. Andrew Natsios has identified three operational principles that militaries should observe that would help mitigate future refugee crises ["Eleven Iron Laws for Responding to Complex Humanitarian Emergencies," speech given to participants in Exercise Agile Lion, U.S. European Command, 27 June 1995].

"First, avoid military actions that will encourage population movements and the subsequent creation of displaced camps;

"second, work with humanitarian relief organizations to develop a mix of incentives so people will not leave their home villages in the first place, and

"third, if camps are already formed, work with humanitarian relief groups -- as the military did so successfully in Kurdistan -- to return people voluntarily and as soon as practicable to their homes."

In Iraq, we are way beyond the "soon as practicable" timeframe, but it is not too late to address this challenge in a positive way. Returning Iraqis will need homes and jobs. Refugees should be given jobs helping to build the homes and other supporting infrastructure. Children need to get into school and off the streets. Hope needs to replace despair. This is best done by giving people a stake in Iraq's future. Living in camps outside the country gives them neither hope nor a stake in the future.

Poverty and Progress in Peru

When one thinks about emerging market tigers around the world, I imagine that Peru is not the first country that pops into one's mind. Peru, according to The Economist, is South America's fastest growing economy. While that is good news for a country that has been mired in poverty, the bad news is that economic progress is not spreading evenly throughout the country ["Poverty amid progress," The Economist, 10 May 2008 print edition].

"[Lima, Peru's capital,] is the visible face of a boom that has made Peru South America's fastest-growing economy. That performance owes much to record prices for mineral exports. But newer export products, from designer cotton T-shirts to mangoes and artichokes, are also flourishing. As well as trade, private investment, growing at 20% a year, and domestic consumption are driving the economy forward at an accelerating pace (in the year to February, GDP grew by 9.2%). Thanks to high world prices for food and fuel, inflation has spiked to 5.5%, having been low for years. Nevertheless, the growth looks to be built on solid foundations. The national savings rate has risen to 24% of GDP, high by regional standards, and the government last year posted a fiscal surplus of 3% of GDP. A free-trade agreement with the United States is about to come into effect. In recognition of such achievements, Peru's debt was awarded an investment-grade credit rating last month by Fitch, a ratings agency."

The United States wishes it were in such good financial condition. It, too, faces increasing inflationary pressures, but the U.S. has a much slower rate of growth and Americans save at a rate below 14%. As I noted at the beginning, however, not everyone in Peru is feeling the impact of the country's economic boom.

"Despite the growth, poverty has fallen only slowly. And many Peruvians are disgruntled. ... There are several reasons for the relatively slow fall in poverty. Although the number of formal-sector jobs is expanding at 9% a year, many Peruvians still labour in the informal sector of unregistered businesses, where productivity is low. Wages for the unskilled have been slow to rise."

We have witnessed uneven economic progress in other emerging countries, like China and India. These, however, are large countries and some geographical differences should be expected. China, after all, covers some 3,646,448 square miles and is home to about 1.3 billion people. Peru, on the other hand, covers 496,226 square miles (less than 14% of China's size) and is home to about 28 million people (roughly 2% of China's population). The fact is that geography nevertheless plays a large role in how economic development spreads, even in a small country like Peru. The Economist reports:

"The capital, the Pacific coastal strip and most of the north of the country are all thriving. The problem is the southern Andean region, where poverty reaches 70% of the population. Helped by tourism, mining and microcredit some Andean cities, such as Cajamarca, Cusco, Huaraz and Huancayo, are prospering. The big divorce is with the surrounding, often mountainous, countryside, where many Andean Indians remain trapped in subsistence farming on small plots. Whereas 60% of the labour force in Lima are waged workers, only 27% are in Apurímac, notes Efraín González, an economist at Lima's Catholic University. These unwaged people are often more or less cut off from the market economy. And it is market connections that make economic growth 'trickle down' to the poor, points out Richard Webb, a social researcher and former central-bank governor. Enabling that to happen is thus a job for public policy. Better roads, education and social policy are all needed."

As my colleague Tom Barnett and I have been preaching for some time, people need to be connected in order to take advantage of the economic benefits associated with globalization. It comes as no suprise that those "more or less cut off from the market economy" continue to struggle. Although Peru's government recognizes that they must improve infrastructure and social policy to help its citizens break poverty's grip, The Economist reports that knowing something must be done and actually doing it are two different things.

"With the help of the World Bank, the government has drawn up a new anti-poverty strategy which focuses on trying to end the malnutrition that affects 30% of Peruvian children, most of them in the southern Andes. It has ramped up social spending while trying to target it more closely on the poorest areas. But Ivan Hidalgo, the official in charge, accepts that a lack of good managers, especially in local governments, is hindering this effort. ... Similarly, money for public investment in roads or to help farmers lies unspent at all levels of government, partly because of fears of corruption. In another paradox, Peru has created 'a culture of fiscal propriety' whose side-effect is that officials are ignoring a social emergency in the Andes, says Mr Webb. Tackling this effectively means reforming the education and health ministries as well as local government. [The] government has made some effort to improve the performance of teachers, but has otherwise done little. 'It's a government that insists on investment and not on reforms,' says Julio Cotler, a sociologist at Lima's Institute of Peruvian Studies."

Another way of looking at the situation in Peru is that while money has begun to flow the capacity to spend that money wisely has not. Most organizations involved in development work understand that building indigenous capacities is critical to the success of sustainable development. It makes no sense to invest money in a place that has no capacity to handle the money. Capacity-building is one of the basic philosophical tenets behind Enterra Solutions' Development-in-a-Box™ approach. The Economist article concludes that changes are coming slowly to Peru and warns that they must continue (probably at a faster pace) lest the unfulfilled expectations of those being left behind creates such anger that it results in growing unrest that unravels the gains that have been made.

"The economic boom is going hand in hand with a deeper cultural change. In the 1970s and 1980s, Peru was a collectivist country: first a military government nationalised much of the economy and then Mr García, in his first term, took over a chunk more, egged on by a powerful left-wing opposition. Since then Peru has undergone a 'capitalist revolution', as Jaime de Althaus, a liberal journalist, argues in a recent book. This revolution is based not just on big mining companies, but on thousands of small-scale farmers on the coast, who broke up their state co-operatives into commercial plots, and on small businessmen in the shanty towns, who are exporting everything from clothes to electrical components. When leftists complain the capitalism is 'savage' they sometimes have a point: while some companies post record profits, many Peruvians work long hours for low wages with few labour rights. Away from Lima and the north coast, which have embraced globalisation, many Peruvians cling to nationalist and statist attitudes, says Alfredo Torres of Ipsos-Apoyo. Unless the politicians do a better job of defending the capitalist revolution and spreading its benefits, it will be threatened by the rancour of those who feel left out."

Socialist generally attempt to redistribute wealth in ways that are more likely to create dependencies than foster development. Good jobs with decent pay are what most emerging market countries need. Those jobs are generally found in societies that have healthy and educated populations and that are connected by good critical infrastructure to each other and the rest of the world. That is why economic and social capacities must develop simultaneously. Given a chance to succeed, most people will.

IBM and Global Voluntary Service

A New York Times article a couple of months ago detailed an innovative IBM program that sends some of its most promising employees overseas to provide pro bono services in developing countries ["Volunteering Abroad to Climb at I.B.M.," by Claudia H. Deutsch, 26 March 2008]. Deutsch writes:

"In July, a team of 8 to 10 I.B.M. employees will travel to Ghana to help tiny businesses make their operations more professional. Another team will help entrepreneurs seek microloans in Turkey, while yet another will create training programs on information technology in Vietnam. The projects, which were devised by I.B.M.'s citizenship group and are being coordinated through nonprofit organizations, have all the trappings of corporate philanthropy. But that is not why they were created, or how they are being used. 'This is a management development exercise for high-potential people at I.B.M.,' said Randy MacDonald, senior vice president for human resources."

Although IBM certainly must be credited for its altruism, IBM also understands the program can be good for the company's bottom line -- eventually.

"I.B.M.’s program, which it calls the Corporate Service Corps, stands out on several counts. It uses the volunteer ethos to bring together employees who might otherwise never meet, even as it gives I.B.M. a high profile in countries where it does not yet have a significant presence. 'I.B.M. doesn't have a big footprint in a lot of these places,' said Kevin B. Thompson, the senior program manager in corporate citizenship who is running the Service Corps project. 'And their experiences will be a lot more useful than research that says, say, that the Internet has a 12.7 percent penetration rate.' Management experts say I.B.M. is onto something."

Management gurus interviewed by Deutsch claim the return on investment for this kind of skills development program is quite high.

"'As a development tool, this is a four-for-one,' said Allan R. Cohen, dean of the Olin Graduate School at Babson College, near Boston. 'It's stretching to work in another culture, to work in a nonprofit where the measurement of accomplishment isn't clear, to take a sabbatical from your everyday routine and to learn to accomplish things when you can’t just bark orders.' Indeed, Paul Ingram, a management professor at the Columbia Business School, is planning a similar program for this fall, in which executives attending the school's Senior Executive Program will work with nonprofit groups in New York. Because 80 percent of the students are not from the United States, the New York location is outside their comfort zone. 'The fact that you are an excellent programmer or salesman, or can lead a project in your own area and culture, doesn't mean you can be a great leader outside of your technical or cultural expertise,' he said."

One of the things that the article doesn't state, but that is implied, is that the talent level and skills of the people running the non-governmental organization programs is high enough that even IBM's best and brightest can learn something from them. People don't go to work for NGOs to get rich. They receive personal rewards in other ways; although they certainly deserve to make a decent living by helping others. Unfortunately, they often fail to receive the recognition and thanks they deserve. Back to the IBM program.

"[IBM] views the Service Corps as a way to learn how well employees work with strangers, in strange lands, on unfamiliar projects. And it plans to use that knowledge to customize further development programs for the participants. Clearly, the Service Corps concept sits well with the I.B.M. employees. More than 5,500 of them, from more than 50 countries, applied for the program. I.B.M. narrowed the pool to those who had been designated as fast-trackers, who had familiarity with volunteerism and who submitted the best short essays on how participation would help them develop as leaders. The applications of those that passed that first cut were sent to the heads of I.B.M.'s eight geographic regions, who chose which of their employees to send. The final list comprises 100 people from 33 countries, who will form 12 teams that will be deployed to projects in Romania, Turkey, Vietnam, the Philippines, Ghana and Tanzania. I.B.M. said it would select another 100 before the end of the year and have a total of 600 participants over the next three years. The first projects will not begin until July, but the team members are expected to immediately begin studying the countries they will visit and their cultures. They will also begin interacting with one another, possibly through a virtual venue, similar to Second Life, that I.B.M. will set up. Each team will have electronic 'facilitators,' executives who are well versed in the countries they will visit and the types of businesses they will be advising. After their four-week trips, the participants will go through two months of intensive debriefing to discuss what they learned about leadership — and about the countries they visited."

To support a program like this, a company needs the kind of resources that an IBM has available. Smaller companies could not afford either the expense of the program or to lose the services of valuable employees for an extended period of time. Nevertheless, IBM deserves credit for supporting the program. Other companies with sufficient resources would do well to watch how the program unfolds.

Changing the World from the Edges

As I have noted in previous posts on innovation, many of the most interesting ideas come from the edges of various disciplines, especially when those edges butt against the edges of other disciplines. Sometimes disciplines are deliberately brought together to produce the "Medici Effect" and sometimes it happens by chance. John Hagel and John Seely Brown, writing for BusinessWeek, report how "impassioned student-led movements for social change can teach executives about innovation." ["Changing the World from the Edge," 30 May 2008, online article] They begin their column by recalling events taking place on the UC Berkeley campus four decades ago.

"Forty years ago, in May, 1968, protests, demonstrations, and marches—not all of them peaceful—put students at the University of California, Berkeley, at the forefront of the antiwar, free speech, and civil rights movements. Today, Cal Berkeley is again in the vanguard as a new generation of student activists emerges to help address some of the most pressing social issues of our era: energy efficiency, Third World poverty and disease, and sustainable housing, among others. The quiet activism pursued by today's activists may not generate as many headlines as the actions of their well-known predecessors, but they may ultimately have greater impact as they mobilize the edge to transform the core."

Hagel and Brown report that the students are getting help with their activism from the university's administration.

"A key catalyst for this new generation of student activism is Tom Kalil, special assistant to the chancellor for science and technology at UC Berkeley. Kalil, formerly an official in President Bill Clinton's White House, has the specific charter of helping foster initiatives on the edge of multiple academic disciplines, including information technology, nanotechnology, and biology. Kalil has two tightly linked aspirations. First, to transform academic institutions by mobilizing engaged and empowered students. Second, to transform society by taking on some of the most challenging social problems and connecting resources across a variety of edges to come up with innovative and high-impact solutions. From Kalil's perspective, tackling difficult social problems like environmental pollution, inadequate health care, and sustainable development will be much more successful if the energy and creativity of engaged students can be unleashed."

For long-time readers of this blog, you know that I believe Kalil is on the right track by traveling the edges of disciplines looking for interesting ideas to connect and promote. I'm just as impressed that the solutions for which Kalil is searching address "difficult social problems." While profit is undoubtedly a motive (and it should be), tapping the youthful idealism of young minds will likely provide greater motivation than monetary reward alone. According to Hagel and Brown, Kalil has used a three-pronged strategy.

"To achieve these aspirations, Kalil has fostered three related initiatives. First, in 2006, he helped launch the Big Ideas contest at Berkeley in collaboration with the student government and various research centers across Berkeley's campus. With seed funding provided by Pierre Omidyar's Network Enzyme Program and support from companies such as AT&T (T), the contest has become an annual event, offering students $170,000 in prizes to come up with creative ideas for tackling 'grand challenges.' Second, Kalil helped organize the Big Ideas @ Berkeley Marketplace, an online forum, to increase the visibility of promising ideas and connect specific student projects with interested alumni and potential donors to make tax-deductible donations and in-kind contributions. Third, he has gathered resources to help mentor, coach, and inspire student leaders. Kalil always asks students what they would do if they were no longer limited by their resources, which encourages them to think on a larger scale. He also works with a large network of individuals and institutions, both on and off campus, to help with strategic planning, fundraising, and recruiting additional partners."

In other words, Kalil is creating a mini-globalization system by connecting people, resources, and capital to help push promising ideas forward. The strategy seems to be working. Hagel and Brown report:

"These attempts to mobilize and support the edge are beginning to yield significant results. Initially, the impact has been greatest within the academic institution. A number of student-led initiatives have been mobilized and have focused resources across traditional disciplinary and institutional boundaries on the campus. One example—backed by Kalil—is the Berkeley Energy & Resources Collaborative (BERC), a student-led initiative designed to connect academic resources focused on cleantech. This 700-member collaborative brings together students and professors from such diverse disciplines as law, chemistry, engineering, and business, and builds bridges into the larger San Francisco Bay Area cleantech entrepreneurial community. In addition to organizing an annual Energy Symposium, the student leaders of this collaborative have also persuaded Berkeley faculty to launch a new Center for Energy & Environmental Innovation (CEEI)."

The initiatives have also led to a push for more interdisciplinary courses -- mini-Medici Effect incubators for studying cross-sector ideas.

"The collaborative and CEEI are supporting student-led initiatives to design and offer new interdisciplinary courses at Berkeley addressing such topics as 'energy and infrastructure project financing" and "energy, sustainability, and business innovation.' These initiatives are particularly exciting because UC Berkeley and the Lawrence Berkeley National Lab have joined forces to become the 'Bell Labs' of clean energy research, and have started major new research programs such as the $500 million Energy Biosciences Institute, and other efforts in photovoltaics and zero-energy-use buildings. By attracting students interested in becoming cleantech entrepreneurs, BERC will help accelerate the transition of energy technologies from the lab to the marketplace. The Big Ideas contests have also promoted the adoption of a new form of collaboration invented by students, known as 'idea labs.' These idea labs, organized by the students themselves, bring together graduate students with shared interests in such areas as photovoltaics, green-collar jobs, and energy efficiency. For example, the photovoltaics idea lab is accelerating the pace of academic research by bringing together 30 graduate student researchers in nine different labs across campus to share early results and explore implications for future research."

There is likely to be a huge marketplace for clean technologies in the coming decades. Getting some of America's best and brightest students interested in the science behind those technologies will pay dividends far beyond the Berkeley campus.

"One example of early impact is an initiative led by Berkeley engineering students to develop a water filter to help residents of slums in Mumbai battle the spread of diarrheal diseases. Collaborating with women's groups in Mumbai, Berkeley students have designed an innovative 'point of use' system for water treatment that costs under $10 and can be made with local materials. The Berkeley students have already begun to engage Indian MBA students to develop a plan for marketing, distribution, and scale-up of production."

The other valuable thing that happens when students get involved solving real-life challenges is that they begin to understand how complex the world can be and that they must deal with that complexity if they want their ideas to have impact.

"The students quickly realized technology innovation