How Bush Can Transcend the Shoe Thrower

A small outrage requires a grand gesture.

As a holiday gesture, President Bush ought to ask the Iraqi government to pardon Muntazer al-Zaidi — the Iraqi journalist who tried to hit him with his shoes.

[Commentary] AP

Sometimes a small outrage affords an opportunity for a grand gesture. The president was not harmed by the stunt. He had the grace to joke immediately afterwards that the missiles were a “size 10.” Video of the shoe-throwing, which went viral on the Internet and has been seen now by just about everyone on the planet, has mostly elicited laughter.

But already the consequences have been no joke for Mr. Zaidi. By most accounts, he has been roughly treated in prison, where he was taken after Iraqi Prime Minister Nouri al-Maliki’s guards were seen beating him after he threw the second shoe. He now faces as many as 15 years in prison, one for every one of his 15 minutes of fame.

This is clearly out of proportion. The stunt was rude and no doubt embarrassing to the Iraqi authorities, but it is hardly a high crime. For Americans, the only serious issue raised by the shoe-throwing episode is how Mr. Zaidi was able to throw the second one. With its national pride at stake, the Iraqi government is unlikely to cut the journalist a break. If a gesture is to be made, it has to come from Mr. Bush.

Pardoning him would be the fair thing to do, and would cost nothing. It would reflect positively on a president who, face it, could use some good publicity, and would instantly deflate whatever folk hero status Mr. Zaidi now enjoys.

It would also be a small way of acknowledging that Iraqis have borne by far the greatest measure of pain in this war, and that America’s handling of the country since chasing Saddam Hussein from power, while trending in the right direction currently, has not been a singular and shining success. Many Iraqis have come by their anger toward the U.S. honestly.

Magnanimity is a strong prerogative, too seldom used. It is a chance for the man to be as large as the office. No one was better at this than Abraham Lincoln, whose frequent public acts of forgiveness, from promoting his political rivals to commuting the death sentences of Union soldiers, earned him an enduring legacy of kindness and humility. Less remarked upon is Lincoln’s shrewdness. He was no softy. He signed many a death warrant for deliberate acts of cruelty or criminality in the ranks, but he understood that sparing a “simple soldier boy” for panicking or for falling asleep would do far more for the army’s morale than another execution would do for its discipline.

Mr. Bush missed an opportunity to rise above the fray a few years ago when the popular country-music trio The Dixie Chicks publicly insulted him. If the president, who professes to be a country music buff, had taken a public opportunity to praise the group’s harmonies, which are excellent whatever its politics, Mr. Bush would have diminished the insult and elevated himself.

As the video now plays, and plays, and plays, with just the action sequence of hurled shoes and the ducking president, Mr. Bush appears ridiculous. It will stay that way and is certain to become, with several other unfortunate tableaus (“Mission Accomplished” comes to mind), an iconic moment in the Bush presidency. With a simple gesture of reprieve, he could completely rise above it. Mr. Zaidi would be nothing more than a rude prankster. The president would be the story’s hero.

Mr. Bowden, a national correspondent for the Atlantic Monthly, is the author of “Guests of the Ayatollah” and, more recently, “The Best Game Ever,” both published by Atlantic Monthly Press.

Clinton’s Donor List Raises Lots of Questions

Can’t the United Way find better uses for its money?

This is not about former President Bill Clinton’s shakedown of the sheikhs. They can take care of themselves, Clinton Foundation or no Clinton Foundation.

[Commentary] AP

This is also not about Hillary Clinton’s vulnerability to her husband’s donors. She can tell him to “go stuff it,” which people say she’s been doing for a long time anyway. Rest assured, the next secretary of state will not shirk her diplomatic obligations for the benefit of some scummy foreign mineral magnate’s uranium.

What I’ve been tying to discern about the Clinton Foundation is why — aside from the annual fancy party in New York — foreign governments, other foundations and charities have given money to fund what they already do themselves.

I understand why McDonald’s of central Arkansas would make a contribution to Mr. Clinton’s present career. He has spent so much cash on Big Macs over three decades that they actually owe it to him. But I fail to grasp why the “I Won’t Cheat” foundation gave a donation to Bill’s charity. He isn’t exactly an ideal poster boy.

None of these gifts were really big money, at least not for Mr. Clinton, for whom a million dollars isn’t at all big anymore. But the scrounging operation seems to have dug down very deep to pull in thousand-dollar gifts.

There were four United Way contributions, one from the national outfit, three from local branches. Since when is the Clinton Foundation one of the approved charities of the United Way?

Then there are more serious questions about operating charities. What was the purpose of a contribution by the National Opera of Paris? Or of hospitals themselves in strained circumstances, like Maimonides Medical Center in Brooklyn and Arkansas Children’s Hospital?

The University of Cambridge and Liverpool University in the United Kingdom threw into the pot from the other side of the pond. American universities like Tufts, Columbia, Georgetown, Iowa State, Texas, Brown, Rensselaer Polytechnic, UCLA and its school of public health all gave, plus the University of Judaism with a whopping sum between $100,000 and $250,000. (Is Bill Clinton now supporting studies in theology?) Do these educational institutions have such deep pockets to share with Bill Clinton’s ego?

On the donor list are also the names of the charities we all give to generically: Human Rights Watch (well, not me), Feed the Children, and the Hunger Project. The foundation also receives funding from the International Bank for Recovery and Development of the World Bank, and the World Health Organization. They have their own, far-reaching projects. Why would they give cash to charitable work for which Mr. Clinton is at most a matchmaker?

There’s a certain looseness here that spreads downwards: District 1199 of the Service Employees International Union gave old comrade Bill somewhere in the range of half a million bucks. And then spreads upwards, so to speak: Citi gave him from $1 million to $5 million. Perhaps Citi’s gift was just a pledge. In that case, is Treasury now paying up?

Many are focused on the contributions of the Arab states. Mr. Clinton started his charity in 1997 with four years to go in his presidency, a period when no American law provided for the most elementary public reporting of the enterprise. Still, the fact that Saudi Arabia is on the donor list comes as no surprise.

What we now know is that Mr. Clinton was indiscriminating when it came to accepting cash from all sorts of countries. He took money from poor countries like Jamaica, and more prosperous countries like Italy. He dipped into the Irish Aid Fund and the Swedish Postal Lottery for big money, and for small money from the Social Economic Council of the Netherlands. And then there was an especially strange source from which he schnorrered: Citgo, Hugo Chávez’s oil company. Even if the revolucion didn’t gain points for this, it is unseemly for an American president to ask the energy company of the Venezuelan dictatorship for spare cash.

So where did all this fund-raised money go? Wouldn’t you want to know to which philanthropic undertaking the King of Saudi Arabia and the Custodian of the Two Holy Mosques committed himself? This information is not in the report — and it doesn’t look like President-elect Obama has any interest in pushing for further disclosure. Maybe the king just gave to general expenses.

Mr. Peretz is editor in chief of The New Republic.

Get Ready for a Lost Decade

Bad times don’t produce good policy.

How many times have you heard that we’ve learned the lessons of the Great Depression and won’t repeat the same mistakes?

[Business World] Corbis

What ‘stimulus’ looks like.

That statement is a bit of a false promise, since there was only one Great Depression, and many, many steps were taken and not taken, with no chance to rerun the experiment over and over to figure out what worked, or would have worked, and what didn’t.

Letting hundreds of banks collapse, destroying savings and confidence, is one mistake we won’t make again. But many want to insist, without evidence, that more government spending would have ended the depression. That’s the direction the Obama administration is taking. Others say government did not do enough to restore business confidence, or did too much to damage it, piling on taxes, regulation and labor unions. This at least is firmer ground. Plenty of evidence from history shows that actions hostile to business tend to be related to an absence of prosperity.

But more important than these talismanic assurances about what we’ve learned from the Great Depression is the mistake in assuming that, even if we had a coherent view of what should be done, coherent polices would therefore be implemented.

This has little relation to how policy is made in a democracy.

Policy is always bad to a degree, but long periods of prosperity tend to be self-reinforcing since powerful interests are born with the means and motive to preserve the status quo. That status quo may really be a contributor to prosperity, such as regulatory restraint and moderate tax rates. That status quo may in some respects be ill-advised, such as excessive subsidy to housing debt.

But once prosperity blows up, the quasi-virtuous policy circle becomes an unvirtuous one as new interest groups come to the fore to exploit an appetite, previously weak, to impose their costly or vindictive wish lists. And even well-meaning policy gets twisted and rendered incoherent.

It’s already happening to our banking bailout. If injecting government capital to improve confidence in banks was a good idea, it did nothing to improve the banks’ own confidence in their borrowers. Yet now that banks have government capital, they’re being pressed to lend to politically favored constituents regardless of their own judgment about whether the borrower is good for the money.

Or take the gathering auto bailout: Taxpayer dollars are being thrown at Detroit auto makers to make them “viable,” even as Congress imposes new fuel-mileage mandates requiring them to incur tens of billions in costs unlikely to be recouped from their customers — the definition of “nonviable.”

Mr. Obama’s troops palpitate with excitement at the prospect of $1 trillion in “stimulus,” though any net benefit to the economy likely will be incidental. Al Gore has thrown out the window any unpopular carbon taxes in favor of direct subsidies to his green energy investments. He sees the moment for what it is — alarm about global warming has degenerated into a pretext. Billions will be diverted from useful purposes to create “green jobs” that deliver no meaningful impact on climate or the accumulation of atmospheric carbon.

Large “confidence” costs were always destined to flow from the extreme steps being taken, even if advisable, to prop up the economy. The federal government’s alternating takeovers and bailouts of companies are inherently destabilizing and create massive uncertainty in investors and businesses. The Fed’s shocking steps to print money and acquire every kind of private asset and, soon perhaps, washing machines and Chevy Tahoes, may in retrospect be seen as just the right medicine. At the moment, no rational investor or business manager looks upon such doings with confidence in our economic future.

On top of it all, the Madoff scandal is peculiarly demoralizing in ways that may make its impact greater than the sum of its parts.

Our point here is that the bad policy vicious circle probably has a long way to run. While it’s still possible to entertain wild hopes about an Obama administration, such hopes are partly self-liquidating on closer inspection — they exist in the first place only because Mr. Obama has given us so little to go on, except campaign boilerplate.

Bottom line: Politics is in charge — in a way that makes a lost decade of subpar prosperity more likely than not.

Happy Holidays.

Defense Spending Would Be Great Stimulus

All three service branches are in need of upgrade and repair.

The Department of Defense is preparing budget cuts in response to the decline in national income. The DOD budgeteers and their counterparts in the White House Office of Management and Budget apparently reason that a smaller GDP requires belt-tightening by everyone.

[Commentary] AP/USAF

We could use some more F-22s.

That logic is exactly backwards. As President-elect Barack Obama and his economic advisers recognize, countering a deep economic recession requires an increase in government spending to offset the sharp decline in consumer outlays and business investment that is now under way. Without that rise in government spending, the economic downturn would be deeper and longer. Although tax cuts for individuals and businesses can help, government spending will have to do the heavy lifting. That’s why the Obama team will propose a package of about $300 billion a year in additional federal government outlays and grants to states and local governments.

A temporary rise in DOD spending on supplies, equipment and manpower should be a significant part of that increase in overall government outlays. The same applies to the Department of Homeland Security, to the FBI, and to other parts of the national intelligence community.

The increase in government spending needs to be a short-term surge with greater outlays in 2009 and 2010 but then tailing off sharply in 2011 when the economy should be almost back to its prerecession level of activity. Buying military supplies and equipment, including a variety of off-the-shelf dual use items, can easily fit this surge pattern.

For the military, the increased spending will require an expanded supplemental budget for 2009 and an increased budget for 2010. A 10% increase in defense outlays for procurement and for research would contribute about $20 billion a year to the overall stimulus budget. A 5% rise in spending on operations and maintenance would add an additional $10 billion. That spending could create about 300,000 additional jobs. And raising the military’s annual recruitment goal by 15% would provide jobs for an additional 30,000 young men and women in the first year.

An important challenge for those who are designing the overall stimulus package is to avoid wasteful spending. One way to achieve that is to do things during the period of the spending surge that must eventually be done anyway. It is better to do them now when there is excess capacity in the economy than to wait and do them later.

Replacing the supplies that have been depleted by the military activity in Iraq and Afghanistan is a good example of something that might be postponed but that should instead be done quickly. The same is true for replacing the military equipment that has been subject to excessive wear and tear. More generally, replacement schedules for vehicles and other equipment should be accelerated to do more during the next two years than would otherwise be economically efficient.

Industry experts and DOD officials confirm that military suppliers have substantial unused capacity with which to produce additional supplies and equipment. Even those production lines that are currently at full capacity can be greatly expanded by going from a single shift to a two-shift production schedule. With industrial production in the economy as a whole down sharply, there is no shortage of potential employees who can produce supplies and equipment.

Military procurement has the further advantage that almost all of the equipment and supplies that the military buys is made in the United States, creating demand and jobs here at home.

Increased military spending should involve more than just accelerated replacement schedules. Each of the military services can identify new equipment and additional quantities of existing equipment that can improve our fighting ability in Afghanistan and our ability to protect our military forces while they are in combat.

Military planners must also look ahead to the missions that each of the services may be called upon to do in the future. Additional funding would allow the Air Force to increase the production of fighter planes and transport aircraft without any delays. The Army could accelerate its combat modernization program. The Navy could build additional ships to deal with its increased responsibilities in protecting coastal shipping and in countering terrorism. And all three services have significant infrastructure needs.

Although some activities like ship building cannot be completed in the two year stimulus period, the major part of the expenditures can be brought forward in time by acquiring components and materials quickly and holding them in inventory until they are needed in the ship building process. Such a departure from just-in-time inventory management would be wasteful under normal conditions, but makes economic sense when there is temporary excess capacity.

Now is also a good time for the military to increase recruiting and training. Because of the current very high and rising unemployment rates among young men and women, it would make sense to depart from the military’s traditional enlistment rules and bring in recruits for a short, two-year period of training followed by a return to the civilian economy. As a minimum this would provide education in a variety of technical skills — electronics, equipment maintenance, computer programming, nuclear facility operations, etc. — that would lead to better civilian careers for this group. It would also provide a larger reserve force that could be called upon if needed by the military in the future.

The budgets for homeland security, for intelligence activities, and for the FBI have increased substantially during the past decade. The greater terrorist threat fully justifies these additional funds. The current two-year stimulus period provides an opportunity for additional temporary spending increases with high payoffs.

Investments in port security would reduce a major homeland vulnerability. Expanding the government’s language training programs for new intelligence community recruits would provide more translators who can monitor the terrorist communications that we are able to intercept. Additional infrastructure for the FBI would remove an important constraint on the number of new FBI agents.

The Obama team’s goal of sending a stimulus package to Congress before the end of January may not leave enough time to work out the details of expanded military and intelligence budgets. If so, the stimulus plan should ask the Congress to provide a total of at least $30 billion a year of increased outlays in these budget categories. A substantial short-term rise in spending on defense and intelligence would both stimulate our economy and strengthen our nation’s security.

Mr. Feldstein, chairman of the Council of Economic Advisers under President Reagan, is a professor at Harvard and a member of The Wall Street Journal’s board of contributors.

Tuesday, December 23, 2008


Ricardo Valenzuela

Inicié las visitas a casa de mi tío, aunque durante las primeras, con el nerviosismo de todavía no haber asegurado un trabajo que me interesara, me resultaba difícil el concentrarme y aprovechar de esa forma los torrentes de sabiduría de ese gran hombre. Sin embrago, como el mismo Don Gilberto lo develara, finalmente Banco de Comercio me daba la oportunidad, no solo de un trabajo, sino de pasar a formar parte de las filas de su grupo elite conocido como; Desarrollo de Ejecutivos. Con esa noticia me presenté a la siguiente reunión la cual mi tío recibía con alegría pero como el mismo lo manifestaba con su; lo sabía—sin sorpresa.

Cuéntame de tu vida en Sahuaripa tío, le pido esa tarde. Me mira con algo de sorpresa e inicia. Mira hijo, me dice, yo nací a finales del siglo pasado en un Mexico totalmente controlado por el Porfirismo después de largas guerras que azotaron al país durante todo el siglo XIX. Nuestra guerra de independencia fue muy diferente a la de de los EU y, queramos o no, somos vecinos y siempre existirán las comparaciones de ambos bandos, los que admiran y los que odian a ese país. Porfirio Diaz llegaba al poder luego de años de caos y desorden, de invasiones de parte de Francia, los mismos EU, de una bacanal politica que llevó a Santana a ocupar la presidencia durante 11 veces y, ya sabemos, a perder la mitad del territorio.

La revolución de independencia de los EU, la iniciaron hombres totalmente convencidos de las ideas liberales que se expandían en Inglaterra desde el siglo XVII, pero con gran resistencia de parte de las monarquías del mundo y, en especial, de parte de la iglesia católica. Inglaterra había permitido que sus colonias se desarrollaran con gran autonomía en un experimento que el mundo entero observaba con gran curiosidad. Inglaterra, a diferencia de España, no había transplantado la monarquía a sus colonias sentando un campo fértil para esas ideas liberales. Cuando Miguel Hidalgo iniciaba los movimientos rebeldes de independencia, era ya un gran admirador de Jefferson y con voracidad leía a Rosseau, Locke, Montesquieu e inclusive, Adam Smith.

Para entender mejor la exposición de mi tío expreso lo siguiente: Es importante definir el entorno ideológico político de México tan diferente al de los EU y, sobre todo, el por qué. Uno de los primeros antecedentes de lo que luego se convirtiera en el populismo revuelto con proteccionismo, fueron las famosas Treinta Proposiciones Jurídicas de Fray Bartolomé de las Casas en 1552. Siendo el gran protector de los indios, nos daba un atisbo de la Teología de la Liberación de la Nueva España pues de ello nace la leyenda negra de la conquista. Ello seria el inicio del luego nacionalismo revolucionario que, en opinión de muchos, le ha cerrado las puertas al progreso del país.

Es decir, en lugar de cómo rezara la Constitución de los EU; Dios creo a todos lo hombres iguales, nosotros lo negábamos pidiendo protección y tratamiento especial para algunos lo cual, tal vez en esos momentos era algo válido, pero al haberse extendido a un esquema de un tipo de desigualdad aun mas cruel cuando, un pequeño grupo se adueñaba de la riqueza y después, con gran espíritu cristiano, decidían tirar migajas a esos desprotegidos en lugar de incluirlos en las oportunidades, sentaba las bases para el “nacionalismo revolucionario.”

Continúa don Gilberto; Hidalgo, prácticamente victorioso y a punto de tomar la ciudad de México con un ejército de campesinos hirviendo en odio contra las clases privilegiadas, cometía su gran error. Temiendo el saqueo y destrucción que eso provocaría, vacilaba cambiando su estrategia. Inició así una retirada que luego le costara no solo la derrota de su movimiento, sino el juicio de la sagrada inquisición y, finalmente, el ser ejecutado por el gobierno virreinal. Con la muerte de Hidalgo, morían también esas ideas liberales que ya le daban vida a los EU y, al continuar la lucha con Iturbide al frente hasta la victoria final, se iniciaba el cuento de nunca acabar: Esa enfermiza lucha de poder. Iturbide decide coronarse Emperador renegando de los principios liberales de la independencia.

A ese punto lo interrumpo. Oye tío; me describes un liberalismo muy diferente al que yo conocí en las clases de historia. ¿Estudiaste en colegio católico? Me pregunta. Si claro, le respondo. Bueno ahí tenemos el primer problema, me revira. La iglesia le declaró la guerra el liberalismo y no el liberalismo a la iglesia. En España y todas sus colonias, la iglesia y el estado vivían en una íntima sociedad para controlar sus pueblos en los cuales, la religión católica era única y obligatoria, y uno de los principios liberales es precisamente la libertad de culto. El otro, la separación de iglesia y estado. El liberalismo no es antirreligioso, pero en Mexico lo convirtieron anticatólico. El principio que le daba vida y expresado muy claramente, eran los derechos naturales del hombre heredados de Dios y, por lo mismo, superiores y anteriores al estado. Ello creaba la oposición al mandato divino de los monarcas.

Iturbide al ser coronado Emperador, surge esa figura mítica de Antonio Lopez de Santana para de inmediato derrumbar el novel imperio. A partir de esos momentos, se inicia una etapa vergonzosa en la cual, conservadores y liberales se disputan el poder en sangrientas guerras. Los conservadores luego en un acto de desafió, deciden importar a Maximiliano y establecer un nuevo imperio. Cuando Juarez los derrota, con ayuda de Don Porfirio, era ya tanto el odio entre los dos grupos que, de forma sádica, arremete contra la iglesia violando principios liberales básicos como; el de respeto a la propiedad al expropiar sus bienes; el de libertad de culto, cuando les establece una serie de límites a sus actividades y expulsa a cantidad de sus religiosos. Ahora, es importante tener en mente que la iglesia católica, en esos momentos, prácticamente controlaba la economía del país y era propietaria de bancos, negocios, el 60% de la tierra etc.

En esos años, fue cuando el liberalismo en Mexico se confundió con ese fervor antirreligioso que no es parte de su filosofía. El siglo XIX corría con velocidad, y la revolución industrial se expandía por todos los países que abrazaban el verdadero liberalismo creando enorme riqueza, mientras en Mexico nos hundíamos en luchas intestinas por el poder. Aun con el regreso de Juarez a la presidencia, luego de la ejecución de Maximiliano, el país seguía en un estado de zozobra y guerra, hasta que finalmente llega Porfirio Diaz y lo pacifica. Díaz era liberal, no hay duda. De lo que hay duda, es cómo es que su estilo tan personal de liberalismo se desarrolló.

En los EU ya se desarrollaban los mercados, instituciones, un sistema judicial autónomo, su sociedad civil, un sistema bancario y, desde su nacimiento; la declaración de independencia, su llamado “Bill of Rights” y su Constitución. Desarrollaban una cultura de trabajo y recompensa con oportunidad para todos que Jefferson bautizara como Meritocracia. México, en esos momentos, era cincelado por ideas como: El fatalismo; la vida es moldeada por fuerzas fuera de nuestro control. La herencia; la escalera social se estructura siendo parte del grupo privilegiado por nacimiento. La dignidad; la persona tiene valor independientemente de derechos, iniciativa, esfuerzo, o igualdad de oportunidades. La superioridad del hombre sobre la mujer con sus derivados del machismo y paternalismo.

Ante ese panorama, Porfirio Díaz desde el famoso grito de Gabino Barrera y con base al positivismo de Compte, dibujaba un liberalismo especial con un estado fuerte e interventor, que luego lo harían igualitario. Es decir, Diaz pensaba que los mexicanos no estábamos listos, preparados, ni queríamos decidir nuestro propio destino. Carecíamos de los ingredientes básicos como; capital, educación, instituciones, mercados, un sistema judicial, la sociedad civil. Luego, él mismo se identificaba como el único que podía llevar al país de la mano hasta su vida adulta y, por ello, se apolillaba en el poder a pesar ya inclusive de su edad.

El mismo Díaz declaraba con sorna: “En los EU la democracia funciona porque, una vez que el presidente es electo, todos se suman y lo apoyan. En México todos se suman de inmediato, para quitarlo.”

Ese era el entorno que rodeaba mi vida en Sahuaripa, un pueblo alejado de la civilización en lo alto de la sierra. Mi padre era un hombre que, a pesar de haber admirado a Díaz, se había convertido en miembro de organizaciones antireleccionistas que pensaban muy diferente. El que México estaba listo para la democracia y para asumir al timón de su nave. Desde muy chamaco absorbí esas ideas y me fui formando, no tanto antireelecionista, sino como un demócrata muy influido por el Prof. Vieyra, un gran liberal que arribara al pueblo para hacerse cargo de la secundaria. Con ese cargamento fue que partí a continuar mis estudios en Guadalajara en 1908.

U.S. to Fund Afghan Militias, Applying Iraq Tactic

KABUL, Afghanistan — The Afghan government will formally start a U.S.-funded effort to recruit armed local militias in the battle against the Taliban in remote parts of the country, exporting the tactic to Afghanistan from Iraq.

The first militias will be established in Wardak Province, in eastern Afghanistan, in coming weeks, officials said. If the effort in Wardak is successful, U.S. commanders hope to create similar forces in other parts of Afghanistan in early 2009.

The militia push is part of a growing American effort to bypass the struggling Afghan central government and funnel resources to Afghan villages and provinces. Senior American officials have stepped up their criticism of Afghan President Hamid Karzai in recent weeks, making clear that they believe his government needs to do more to fight corruption and deliver basic services.

In Iraq, the U.S. decision to recruit tens of thousands of Sunni Arab fighters, including many former insurgents, is widely credited with improving the country’s security situation.

Agence France-Presse/Getty Images

The U.S. is funding an effort to recruit local militias in Afghanistan to fight the Taliban. Above, Taliban fighters in Wardak Province.

“Afghanistan historically has been known as a country where local communities took care of themselves,” U.S. Ambassador William Wood said in an interview in Kabul. “The way to counter the Taliban today is to make the communities themselves stronger, so they can protect their villages, their fields, their towns and their valleys.”

During a weekend visit, Adm. Mike Mullen, the chairman of the Joint Chiefs of Staff, said the U.S. focus on establishing a strong central government in Afghanistan may have been “overstated.” He said the U.S. would now focus more on “enabling the communities, the tribes and their leaders.”

“How strong the central government will be in the future, I think, is yet to be determined,” he told reporters.

The militia push is controversial. Mr. Karzai vetoed an earlier American proposal to create local forces because he feared they might one day fall under the sway of regional warlords, according to a senior official in the Interior Ministry.

Some U.S. allies also oppose the idea. Canadian Defense Minister Peter MacKay told the Canadian Press news agency this week that creating local forces could prove “counterproductive” and said the Canadian government was “not on board” with the idea.

Still, many Afghan and U.S. officials believe local forces could help stabilize the country and prevent the Taliban from securing footholds in remote parts of Afghanistan.

“This will be a grass-roots, community-defense layer against the Taliban,” Wardak Gov. Mohammed Halim Fidai said in an interview. “We believe that the more people you involve in security, the greater the impact.”

[afghan militias]

In the first phase of the pilot program, villages throughout Wardak will convene “shura” meetings of local tribal, religious and political figures. The community elders will then be responsible for recruiting the local militias and overseeing their conduct.

As in Iraq, the new Afghan militias will be paid by the U.S. A senior American military official in Kabul said the money would likely be first funneled to the individual village shuras, which would in turn be charged with disbursing salaries to their fighters.

The U.S. won’t provide weapons or ammunition to the militias, but the local forces will be allowed to keep and use the weapons they already have. “The honest truth is that these guys don’t need us to give them guns,” the U.S. official said.

Gov. Fidai said that he hopes the local militias will attract some former insurgents, potentially boosting the Afghan government’s efforts to win over moderate members of the Taliban.

“Young people who might have joined the Taliban for financial reasons will have another option,” he said.

Still, Mr. Wood, the American ambassador, cautioned that the Taliban hadn’t yet signaled any willingness to open talks with Mr. Karzai.

Monday, December 22, 2008

Washington Is Killing Silicon Valley

Entrepreneurship was taken for granted. Now we’re seeing a lot less of it.

Even as economic losses and unemployment levels mount, America’s most effective engine for wealth and job creation is being dangerously — perhaps fatally — compromised.

[Commentary] Martin Kozlowski

For more than 30 years the entrepreneurship-venture capital-IPO cycle centered in Silicon Valley has generated new wealth, commercialized innovation, and created new companies and industries. It’s also spun off millions of new jobs. The great companies created by this process — Intel, Apple, Google, eBay, Microsoft, Cisco, to name just a few — have propelled most of the growth in the U.S. economy in the last two decades. And what began as a process almost exclusively available to scientists and engineering Ph.D.s became open to just about anyone with a good business plan and a healthy dose of entrepreneurial drive.

At its best, the cycle is self-perpetuating. Entrepreneurs come up with a new idea, form a team, write a business plan, and then pitch their idea to venture capitalists. If they’re persuaded, the VCs invest, typically through several rounds during which the start-up company must meet performance benchmarks. Should the company succeed, it then makes an initial public offering of stock.

The IPO can reward the founders and venture-capital investors, and enables the general public to participate in the company’s success. Thousands of secretaries, clerks and technicians at these companies also have come away from the IPO richer than they ever dreamed. Meanwhile, some of those gains are invested in new venture funds, and the cycle begins again.

It has been a system of amazing efficiency, its biggest past weakness being that it sometimes (as in the dot-com “bubble”) creates too many companies of dubious viability. Now, this very efficiency may be proving to be its downfall.

From the beginning of this decade, the process of new company creation has been under assault by legislators and regulators. They treat it as if it is a natural phenomenon that can be manipulated and exploited, rather than the fragile creation of several generations of hard work, risk-taking and inventiveness. In the name of “fairness,” preventing future Enrons, and increased oversight, Congress, the SEC and the Financial Accounting Standards Board (FASB) have piled burdens onto the economy that put entrepreneurship at risk.

The new laws and regulations have neither prevented frauds nor instituted fairness. But they have managed to kill the creation of new public companies in the U.S., cripple the venture capital business, and damage entrepreneurship. According to the National Venture Capital Association, in all of 2008 there have been just six companies that have gone public. Compare that with 269 IPOs in 1999, 272 in 1996, and 365 in 1986.

Faced with crushing reporting costs if they go public, new companies are instead selling themselves to big, existing corporations. For the last four years it has seemed that every new business plan in Silicon Valley has ended with the statement “And then we sell to Google.” The venture capital industry is now underwater, paying out less than it is taking in. Small potential shareholders are denied access to future gains. Power is being ever more centralized in big, established companies.

For all of this, we can first thank Sarbanes-Oxley. Cooked up in the wake of accounting scandals earlier this decade, it has essentially killed the creation of new public companies in America, hamstrung the NYSE and Nasdaq (while making the London Stock Exchange rich), and cost U.S. industry more than $200 billion by some estimates.

Meanwhile, FASB has fiddled with the accounting rules so much that, as one of America’s most dynamic business executives, T.J. Rodgers of Cypress Semiconductor, recently blogged: “My financial statements are a mystery, even to me.” FASB’s “mark-to-market” accounting rules helped drive AIG and Bear Stearns into bankruptcy, even though they were cash-positive.

But FASB’s biggest crime against the economy and the American people came when it decided to measure the impossible: options expensing. Given that most stock options in new start-up companies are never worth anything, this would seem a fool’s errand. But FASB went ahead — thereby drying up options as an incentive for people to take the risk of joining a young company and guaranteeing that the legendary millionaire secretaries would never be seen again.

Not to be outdone, the SEC has, through the minefield of “full disclosure” requirements and other regulations, made sure that corporate directors would never again have financial privacy and would be personally culpable for malfeasance anywhere in the company. This has led to a mass exodus of talented people from boards of directors in places like Silicon Valley. Full disclosure was supposed to make boards more responsible. Instead, it has made them less competent.

The most important government actions to foster business creation were the 1978 Steiger Amendment, which cut taxes on capital gains to 28% from 49%, and President Ronald Regan’s tax cuts, which reduced them still further to 20%. These tax cuts unleashed the PC and consumer electronics booms of the 1980s, just as the Taxpayer Relief Act of 1997 restored the 20% rate and did the same for the Internet economy in the late 1990s.

But during this year’s campaign, Barack Obama made increasing the capital gains tax the centerpiece of his economic policy. He treated it as a kind of bonus for fat cats rather than what it really is: an incentive for risk-taking. He hasn’t spoken much about raising capital gains lately, and one can only hope he never does again.

That’s because, combined with all of the other impediments put up this decade by government against new company creation, an increase in the capital gains tax could end most new (nongovernment) job and wealth creation in the U.S. for a generation. If Mr. Obama is serious about getting the country out of this recession using something more than public make-work projects, he should restore the integrity of the new company creation cycle: rewrite full disclosure, throw out options expensing, make compliance with Sarbanes-Oxley rules voluntary, and if he won’t cut it, then at least leave the capital gains tax rate alone.

Otherwise, Mr. Obama might end up being remembered as the second Herbert Hoover, not the next FDR.

Mr. Malone, a columnist for, is the author of “The Future Arrived Yesterday,” forthcoming from Crown Business.

Will El Salvador Veer Left?

Wishes for peace on Earth are on the lips of the faithful throughout Latin America this week. But in El Salvador, these hopeful sentiments mask trepidation about what 2009 will bring.

[The Americas] AP

President Saca has given capitalism a bad name.

The fears stem from the fact that the former guerrilla group Farabundo Marti Front for National Liberation — aka the FMLN — is now leading in the opinion polls for the March 15 presidential elections. FMLN candidate Mauricio Funes is widely considered a moderate leftist. But other party honchos — including vice-presidential candidate Salvador Sánchez Cerén — are of the more traditional (i.e., militant) FMLN variety. Many Salvadorans are worried that if the party comes to power, its radicalized elements will overwhelm the likes of Mr. Funes and pull the country hard to the left.

This would be tragic for the tiny, market-oriented Central American nation, which suffered so much in the 1980s at the hands of the Soviet-backed FMLN. Yet if the FMLN wins the election, don’t blame Hugo Chávez, Fidel Castro or neighboring Nicaraguan President Daniel Ortega, who still fly the revolution’s tattered banner.

Mary Anastasia O’Grady tells Kelsey Hubbard that economic discontent may drive voters in El Salvador towards some radical candidates. (Dec. 22)

Instead, look to Salvadoran President Elias Antonio Saca of the center-right Arena Party. Mr. Saca was in Washington last week promising President Bush Salvadoran help in fighting the U.S. “war on drugs” and trying to pass himself off as a champion of traditional American economic values. But back home in El Salvador, his actions have earned him a reputation for undermining democratic capitalism through the abrogation of contracts.

Take the case of Pacific Rim Mining Corp. As I reported in this column four months ago, the company says that from 2002-2006 it invested $77 million in an old gold mine near the Honduran border with the encouragement of the Salvadoran government. By 2006, Pacific Rim says it had exceeded all environmental requirements at the El Dorado mine and fully expected to get the permit needed to begin operating.

The Americas in the News

Get the latest information in Spanish from The Wall Street Journal’s Americas page.

Two years later the company still doesn’t have a permit, nor does it have any word from the government that it has not complied with the law. CEO Thomas Shrake says the government’s “inaction” has put his company in desperate straits. So desperate that two weeks ago it filed a “notice of intent” to seek arbitration under the Central American Free Trade Agreement (Cafta) for “breaches of international and El Salvadoran law.” If there is no resolution by March 9, Pacific Rim says it will proceed to arbitration and ask for monetary damages in the hundreds of millions of dollars.

That’s a high price for a poor country. More expensive, however, is the lost opportunity for Salvadorans. Mr. Shrake, who is a geologist, says that El Salvador sits in the center of the Central American Gold Belt and that gold, as an engine of growth, has the potential to transform the country’s economy in the same way that copper changed Chile. But Mr. Saca’s government, he says, has “effectively shut down the mining industry.”

Why the government has refused to act on the Pacific Rim project remains unclear, and my many efforts to get an explanation from the government have gone unanswered. Certainly Mr. Saca can’t blame it on politics. Though some nongovernmental organizations have tried to block the mine, polls show that a majority of Salvadorans and politicians across party lines support mining, providing there are environmental precautions. Mr. Shrake says the government has not given him a reason for the permit denial.

Meanwhile, another mystery has gained attention in Salvador: From late September to early November, especially high volumes of Pacific Rim stock traded on the American and Toronto stock exchanges. This means that a large quantity of stock was being acquired and at a very good price; after the company’s announcement in August that it had to suspend operations at El Dorado, the share value dropped 90%. This seems like a risky trade but should the permit come through the stock is likely to recover, making buyers at distressed prices very rich.

Pacific Rim is not the only company claiming its rights are being violated by Mr. Saca’s administration. In November, the Italian power company Enel filed a suit against the government alleging it broke a contract that would have allowed Enel to increase its ownership in the state energy company LaGEO.

Allegations that the Saca government is violating its own laws have damaged the country’s image at a time when foreign investors already are skittish due to election-year uncertainty and global economic weakness. Pacific Rim used to have 262 direct employees in Salvador. It expected the mine would create 500 direct jobs in all and another 2,500 indirectly. Instead, the company’s El Salvador staff is now down to 36.

This is precisely why voters are likely to take a chance on the FMLN come election day. If they do, Mr. Funes will have Mr. Saca to thank.

Quantum of Solis

Big labor wants Obama to dilute union disclosure rules.

There is joy in Unionville this Christmas. Barack Obama’s pick for Secretary of Labor — Hilda Solis — brings impeccable big labor credentials. The California Congresswoman first rode to power with labor backing against a fellow Democrat, has voted with the AFL-CIO 97% of the time, and got three-quarters of her campaign contributions from unions.

[Review & Outlook] AP

Hilda Solis.

Ms. Solis says her goal is to expand the reach and power of unions in America, and she supports such union priorities as the Employee Free Choice Act, which would do the opposite of its name and end secret balloting to unionize a workplace. Look for a showdown on that legislation in 2009. Meanwhile, the other drama to watch is whether Ms. Solis will turn a blind eye to union corruption by weakening federal oversight.

From day one of the Obama era, union leaders want the lights dimmed on how they spend their mandatory member dues. The AFL-CIO’s representative on the Obama transition team for Labor is Deborah Greenfield, and we’re told her first inspection stop was the Office of Labor-Management Standards, or OLMS, which monitors union compliance with federal law.

Ms. Greenfield declined to comment, citing Obama transition rules, but her mission is clear enough. The AFL-CIO’s formal “recommendations” to the Obama team call for the realignment of “the allocation of budgetary resources” from OLMS to other Labor agencies. The Secretary should “temporarily stay all financial reporting regulations that have not gone into effect,” and “revise or rescind the onerous and unreasonable new requirements,” such as the LM-2 and T-1 reporting forms. The explicit goal is to “restore the Department of Labor to its mission and role of advocating for, protecting and advancing the interests of workers.” In other words, while transparency is fine for business, unions are demanding a pass for themselves.

Current Secretary Elaine Chao boosted Labor’s enforcement office and tightened disclosure rules after years of neglect by the Clinton Administration. Staffing rose to 331 from 274 in 2000 — still modest by federal standards — and picked up the pace of surprise audits and investigations of abuse. Big labor wants Ms. Solis to reverse all that, though with its growing political clout it deserves more scrutiny than ever.

In the Illinois pay-to-play scandal, Gov. Rod Blagojevich’s chief of staff approached the two-million strong Service Employees International Union about a possible job for the Governor. The SEIU was Mr. Blagojevich’s biggest campaign donor. No one at the union has been charged with any wrongdoing and the SEIU says it is cooperating with the federal investigation.

In Puerto Rico, meanwhile, the SEIU supported Gov. Aníbal Acevedo Vilá, who was indicted this year for corruption. The biggest fraud case of the year involved the SEIU’s home-care workers local in Los Angeles. Its boss, the 39-year-old Tyrone Freeman, was a protégé of SEIU chief Andy Stern. Both Mr. Freeman and his former chief of staff were ousted; a third senior SEIU official is on leave pending an internal investigation, while a federal probe is also under way.

As some labor officials privately admit, Ms. Chao’s financial disclosure rules helped to expose Mr. Freeman. Hundreds of thousands of misspent dollars — including a $13,000 tab Mr. Freeman had rung up at the Grand Havana Room cigar club in Beverly Hills and $650,000 for his wife’s video company — were pulled from the same revised LM-2 forms that unions had so vociferously opposed in 2004.

Anna Berger, the SEIU’s secretary-treasurer, says the information required by Labor now is “incredibly ridiculous,” adding “there was huge transparency” before. But Sal Rosselli, president of the dissident SEIU-United Healthcare Workers-West, told us Friday that the union does a poor job of policing itself. He noted that an internal investigation revealed that the California problems were brought to the union’s D.C. leadership’s attention as far back as 2001, without prompting any action.

We’re as allergic to government red tape as anyone. But union complaints about administrative burdens aren’t borne out by the LM-2s, which include their accounting costs. Compared to the burdens of Sarbanes-Oxley, they’re hardly onerous. And one constituency is grateful that Labor makes this information public and, if necessary, prosecutes abuse: Dues-paying union members.

As for Mr. Obama, this spring he quietly promised to end federal oversight of the Teamsters, imposed in 1992 to eliminate mob influence; the union endorsed him over Hillary Clinton. Another California House liberal, George Miller, last year pushed through a cut in funding for the OLMS. Congress will surely target the office again next year. Ms. Solis backed the Miller measure in 2007. It’d be nice to think that in her new job she’ll make union supervision as much of a priority as union promotion, but don’t expect it.

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