Im-Politic: The Mainstream Media Keeps Abetting Think Tank Fraud

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AICGS, American Institute for Contemporary German Studies, Carnegie Endowment for International Peace, idea laundering, Im-Politic, lobbying, Mainstream Media, national security, NATO, Swamp, The Johns Hopkins University, think tanks, Trade, Trump

The following item didn’t even merit a full article in the eyes of Politico editors. But it speaks volumes on how the nation’s journalists continue to do a terrible job of reporting on the vested interests behind much of the opinion and analysis on which they rely to flesh out their coverage of any number of issues.

Here it is in full, beneath the headline “Hopkins Pushes U-Turn on German Trade Policy:

“A new report from Johns Hopkins University advises the winner of the U.S. presidential election to reverse many of the trade and defense policies the Trump administration has pursued with Germany.

“The paper from the the school’s American Institute for Contemporary German Studies [AICGS] recommends redoubling the U.S. commitment to NATO, which Trump has de-emphasized over his term, and pursuing a “safe trade” strategy that would aim for a new U.S.-EU trade agreement to lower tariffs across the Atlantic. It also argues the countries should commit to reform the WTO to counter China’s rise.”

To begin on a personal note, I first encountered the Institute in the mid-1980s, when I was an editor at FOREIGN POLICY magazine. It was newly created, and my reaction to its appearance was probably much the same as your reaction to its mention in this press item: It’s a think tank, it’s connected with a major university, so its work must top some kind of quality threshhold.

Revealingly, this period came before private sector and other special interest donors became so dominant in the think tank world and, more important, began actively and indeed strategically using these institutes to further highly self-interested, specific agendas. (See this history for an excellent account of how and why it changed.)

In other words, many and probably most of them weren’t chiefly engaged in what I’ve called “idea laundering” – seeking to advance these agendas by using think tanks to garb them in the raiment of traditional, truth-seeking scholarlship. So I didn’t ask myself who was funding the Institute. (Full disclosure: The think tank that then published FOREIGN POLICY magazine, the Carnegie Endowment for International Peace, was at that time financed by big bucks provided for its creation by Gilded Age industrial magnate Andrew Carnegie. To my knowledge, that endowment to that point was so big, and managed and invested so smartly, that no outside fund-raising was necessary.)

But precisely because times have changed so dramatically, I not only wondered who pays for the Institute – I investigated the subject. And what I found is that not only is the AICGS financed significantly by large banks and corporations who have had a strong vested stake in restoring what was for them a very lucrative pre-Trump U.S.-Germany economic status quo (one of whose main beneficiaries was China). It’s also financed significantly by the German government – which has at least as strong a vested stake in restoring a pre-Trump status quo that was not only economically profitable, but strategically advantageous. For under President Trump’s predecessors, the United States was willing to subsidize heavily  Germany’s defense because numerous German governments (including today’s) have preferred to free ride militarily and spend public monies elsewhere – or let German taxpayers keep them.

Specifically, the Institute’s donors include the “Transatlantic Program of the Federal Republic of Germany with funds from the European Recovery Program (ERP) of the Federal Ministry of Economics and Energy” the Landesbank Baden- Wurttemberg (a regional-level German central bank), and the German Academic Exchange Service – which sounds non-governmental, but whose budget, its own website tells us:

“is derived mainly from the federal funding for various ministries, primarily the German Federal Foreign Office, but also from the European Union and a number of enterprises, organisations and foreign governments.”

Nor are these government funds trivial. According to the latest information AICGS has provided to the U.S. Internal Revenue Service (as required), in 2016, the organization raised just under $2.61 million in total revenue. Roughly half of this amount came from “contributions and grants” (a category that, oddly, doesn’t include “fund-raising events” income). And of the $1.34 million taken in through contributions and grants, the German economic affairs and energy ministry donated $206,434, and the German Academic Exchange Service gave $113,590. (No Landesbank contributions were recorded, presumably because they fell below the $1,000 level mandated by the Internal Revenue Service for reporting – although there’s no way to know how much this official German financial agency, or the other German government agencies, contributed to one of AICGS’ fund-raising events.),

And there can be no doubt that both the businesses and the German government consider it much more effective and convincing to have a scholarly sounding American Institute for Contemporary German Studies carrying their water than spreading their messages themselves. In fact, Politico fell for this ruse hook, line, and sinker, and indeed reinforced the deception – with a headline describing the study’s results as coming not even from a think tank, but from a leading U.S. university. 

As I’ve argued often before (e.g., the Congressional testimony linked above), there’s nothing inherently wrong with any special interest using a think tank to push its priorities. Nor is there anything wrong with a foreign government engaging in the same practice.

But there’s a great deal wrong with these donors using think tanks on the sly. And when it comes to foreign governments, a legal issue comes up: whether these think tanks should be required to register a foreign lobbyists, as required by law.

As suggested above, AICGS is hardly the only idea launderer in Washington, D.C. and elsewhere in the country, and if you look hard enough – as I did – you can find the information on-line. But why should anyone have to make any significant effort? Why shouldn’t sponsorship information be displayed prominently on all the publicly released products of AICGS and think tanks generally? And since it’s not, why do Politico and other media outlets not report this information routinely?

Oncc the Trump era began, the Mainstream Media began ostentatiously adopting official slogans like “Democracy Dies in Darkness.”  I’m not aware of any references to “Draining the Swamp.”  And these news organizations’ continuing failure to expose idea laundering and similar strategies can’t help but keep feeding suspicions that they’re part of this morass.   

Following Up: Vital Background on “Idea Laundering” — and Washington Corruption

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Bloomberg.com, conflicts of interest, corruption, hedge funds, idea laundering, Im-Politic, James K. Glassman, journalism, lobbying, Mainstream Media, Nick Confessore, special interests, The Washington Monthly, think tanks

Since I’m a great believer in giving credit where it’s due, I feel honor-bound to report that I just learned that a development I thought I first identified (along with a catchy name) wasn’t spotted first by me after all. At the same time, it’s also a pleasure to make this confession, because it creates a golden opportunity to recommend two excellent pieces of journalism that shine much needed additional light on this development – which has tremendously deepened corruption in American policymaking.

The development? “Idea laundering” – which I’ve defined as the now widespread practice of special interests (like corporations) using think tanks to issue materials that push the particular agendas of these funders while garbing them in quasi-academic raiment to create the impressions of objectivity and intellectual respectability. In other words, it’s become practically standard operating procedure in the policy world for outfits with scholarly-sounding names like “The Brookings Institution” to put out reports and articles that flack for the companies and other donors (now including foreign governments) that pay the rent without disclosing the hand that’s feeding them. Just as bad, journalists almost never reveal these conflicts of interest – or even ask about them.

I thought that I was the first to spotlight and name this deception, in 2006 testimony before Congress on Chinese influence-peddling operations in America. But yesterday, while reading a terrific piece on Bloomberg.com on how hedge funds have been using an especially insidious variant of the practice, I learned that it was first described in a 2003 Washington Monthly article by Nick Confessore, who is now a reporter for The New York Times. Interestingly, the individual at the center of both articles is James K. Glassman, a long-time fixture in the Washington, D.C. chattering class scene who Confessore credited with pioneering this deceitful new version of lobbying.

I do believe that I’ve been writing and warning about idea laundering more than anyone else. But I’m glad to acknowledge publicly that I was beaten to the punch when it comes to parenthood. It’s also great to see that more and more journalists are looking underneath the hood of the writings and Congressional and media appearances that so profoundly shape America’s approach to virtually all foreign and domestic issues.

Unfortunately, as made clear by this recent post, we’re a long way from the point at which reporters name the donors routinely, and when editors demand this vital information just as often. Until they do, the idea launderers and their paymasters will keep winning far too many victories at the expense of Main Street Americans.

Im-Politic: A Think Tank-/China-Gate That Should be Investigated?

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China, China-United States Exchange Foundation, Hong Kong, Im-Politic, John Podesta, lobbying, Podesta Group, The Swamp, think tanks, Tony Podesta, Tung Chee-hwa

If you (like me) thought that revelations about the corrupting funding practices of leading American think tanks couldn’t get any worse, we’ve been proven wrong in a jaw-dropping article in FOREIGN POLICY by contributing writer Bethany Allen-Ebrahimian.

Thanks to the author’s work, it’s now known that many of these organizations – on which U.S. policy-makers rely heavily for information and analysis that’s portrayed as the result of dispassionate research – not only receive contributions from a number of foreign governments. They receive contributions from an organization “bankrolled by a high-ranking Chinese government official with close ties to a sprawling Chinese Communist Party apparatus that handles influence operations abroad, known as the ‘united front.’”

The organization is a Hong Kong-based non-profit called the China-United States Exchange Foundation (CUSEF), and was founded in 2008 by Tung Chee-hwa, the former Hong Kong leader who strongly supported maintaining close ties with China following the city’s handover to the People’s Republic in 1997.

According to Allen-Ebrahimian, Tung “currently serves as the vice chairman of one of the united front’s most important entities — the so-called Chinese People’s Political Consultative Conference, which is one of China’s two rubber-stamp assemblies. The body is one of Beijing’s most crucial tentacles for extending influence.”

In addition, CUSEF “has cooperated on projects with the the People’s Liberation Army and uses the same Washington public relations firm that the Chinese Embassy does.”

Allen-Ebrahimian’s entire article is well worth reading – and essential to keep in mind in evaluating any China-related research or analysis from these organizations. But two other related points are well worth mentioning. First, CUSEF is a foreign agent registered with the Justice Department. In other words, it lobbies, which means that organizations accepting its donations arguably should be required to register, and identify themselves as lobbies, too – which think tanks so far haven’t done. Even those who think it’s perfectly for the leaders of an increasingly belligerent China to be perfectly should be free to buy influence in America’s policy-making process would surely agree that Chinese government sponsorship should be displayed front and center on these efforts.

Second, one of the D.C. lobbying mainstays the Foundation had hired to influence Congress on U.S.-China relations was the Podesta Group, which closed down last month after being connected with Donald Trump’s former presidential campaign chair Paul Manafort’s indictment for breaking American lobbying law.

The Podesta Group was founded and run by Tony Podesta and his brother John, former Secretary of State Hillary Clinton’s 2016 presidential campaign chair. And the Senate Intelligence Committee is investigating John Podesta’s possible involvement in the Democratic National Committee’s decision to pay for opposition research on Trump based partly on Russian sources.

So Allen-Ebrahimian’s article is a timely reminder that the Washington, D.C. swamp constantly attacked by President Trump and others entails many actors other than the standard industry lobbyists, that it’s totally bipartisan, and that Russia isn’t the only potentially dangerous foreign country that’s been swimming in it under the radar.

Our So-Called Foreign Policy: Why Opposition to the September 11 Law is Completely Stupid

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Bob Corker, energy, foreign policy establishment, international law, lobbying, Middle East, Mitch McConnell, Obama, oil, Our So-Called Foreign Policy, Paul Ryan, Saudi Arabia, September 11, September 11 bill, sovereign immunity, terrorism

Thanks to foreign policy establishmentarians on the Left and Right, ranging from President Obama to Congress’ Republican leaders, we’ve just gotten a moment when the folks we’ve entrusted to chart our country’s course in world affairs have not only gotten something massively wrong, but literally stopped thinking.

I’m talking about reactions to Congress’ override of the president’s veto of the September 11 bill, which will now enable the families of American victims of terrorism on U.S. soil to seek legal damages from foreign governments found to be responsible. Sure, all or most of the misgivings being expressed by figures like House Speaker Paul Ryan, Senate Majority Leader Mitch McConnell, and Senate Foreign Relations Committee Chair Bob Corker could be resulting from lavish campaign contributions they’ve received from Washington’s big Saudi Arabia lobby. (I have no concrete evidence of this, but the Saudis have always been major Beltway players, and they’re one of the governments sure to be sued under the new law.)

But what’s most revealing about the concerns and outright fears being expressed is their content. For the counter-arguments now being made – and made all along by the Obama administration – reflect jaw-dropping misunderstandings about geopolitics and the role of international law in international relations that have practically defined mainstream foreign policy thinking across the American political spectrum.

Two in particular stand out, and they’re related to the principle objection to the September 11 law: If American citizens can now bring court cases against foreign governments, in violation of the longstanding international legal principle of sovereign immunity, then foreign citizens will feel free to file all sorts of lawsuits against the U.S. government and its representatives at home and abroad.

First, though, does anyone really think that it’s international law that keeps American diplomats and official Washington safe from the reach of foreign legal systems (and the flagrant pseudo-legal systems found in so many countries – including Saudi Arabia)? If they do, they shouldn’t be allowed anywhere near the American foreign policy decision-making process.

What has really ensured these results is the shield that has always been America’s most reliable asset: American power in all its forms. This should be obvious when it comes to countries considered allies – since the United States is so inherently secure and prosperous that it needs them militarily and geopolitically much less than they need America. Indeed, if any allies are now considering or have ever even contemplated legally harassing American diplomats for any reason, that would count as a disgraceful failure of U.S. policymaking.

And P.S., that goes double for Saudi Arabia. In case the foreign policy establishment hasn’t noticed, even leaving aside the abundant support for Al Qaeda and other Islamic extremists influential Saudis have provided for decades, the days when the United States and the rest of the world needed to tremble at the thought that Riyadh might push through a big oil price hike or even shut off the spigots ended long ago. Even better, that’s mainly because of the energy production revolution in the United States.

So although Saudi retaliation for the September 11 bill might unnerve its hired guns in Washington, the United States is fully capable of telling its government, “Enjoy fighting Iran by yourself.”

Second, fears about a new global wave of anti-American lawsuits stupidly assume that most and even all foreign governments will react in the same way. The worrywarts don’t seem to understand that the September 11 bill only permits suits against foreign governments accused of supporting terrorism in the United States. Is this new law really likely to worry the British? Or the Japanese? Or even the Chinese?

The September 11 bill fear-mongers aren’t normally the types to softpedal the differences between America’s friends and foes, or between democracies and dictatorships, or even between ordinary foreign governments of whatever stripe and rogue states. So what’s going on? Simply put, their analytical compasses and even bedrock common sense apparently have been thrown off by the assumption – so crucial to modern international law – that all sovereign governments are created equal and much be so treated legally. Therefore, September 11 bill opponents seem convinced that all sovereign governments can be counted on to act in the same way as well.

Dickens famously characterized the law as “an ass” when, as is the case from time to time, its precepts produce head-scratching decisions. But in countries with legal systems worthy of the name, those bloopers are rightly accepted as one price of seeking and enforcing equitable societies and the common standards of behavior they require.

But the international sphere lacks the ingredients needed for effective legal systems – i.e., consensus about those standards. And no such meeting of an adequate number international minds is remotely foreseeable. Therefore, the ludicrous controversy about the September 11 bill should be reminding us that in the foreign policy sphere, the law is especially asinine – and should have no meaningful influence on American decisions and actions.

Im-Politic: Speech Transcript Shows China Lobby’s Still Got a Friend in Bill Clinton

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2016 election, Bilateral Investment Treaty, Bill Clinton, campaign finance, China, Hillary Clinton, Im-Politic, lobbying

Politico‘s Annie Karni has just gotten a very important scoop with potentially major implications for this year’s presidential election. She somehow got a hold of a transcript of one of the recent speeches that one of the Clintons has given recently to corporate groups in exchange for a handsome ($285,000 in this case) fee.

No doubt, the story will be seized upon by anyone engaged in or following presidential politics for the evidence it provides about questions that have been asked throughout the campaign: Why do businesses – especially big businesses – pay so much to listen to the Clintons in private? What do the former president and his presidential candidate spouse generally tell these corporate leaders behind closed doors? By extension, are the Clintons working to with these companies and industries to advance their agendas? If so, how energetically?

I found this transcript important for a related, but somewhat different, reason: what it reveals about Bill Clinton’s views nowadays about China, which has been an awfully high profile issue in the 2016 elections. Specifically, it sends a clear message that if voters expect a President Hillary Clinton to respond more effectively than her recent predecessors (including her husband) against Chinese economic and national security challenges, they’d better hope that she keeps the new First Gentleman as far out of the policy loop as possible. Because judging from this transcript, his views on the PRC are as dangerously unrealistic – if taken at face value – than when he occupied the Oval Office.

The transcript presents the remarks made by the former president at a “China-U.S. Private Investment Summit” held in Austin, Texas in March, 2015. The event described its purpose as “[bringing] together 50 Chinese Investor Delegates with over 300 US project sponsors, policy makers, entrepreneurs, trade associations, economic development groups, and professional service firms for the most important bilateral engagement program of the year” to “support the public interest through cross-cultural private investment” by deepening “understanding on the human motivations, market trends, deal models and structures, and key areas for growth in the coming year.”

Translation into plain English: It was a gathering of Americans trying to make money by doing business in China, and Chinese trying to promote their country’s investment in America. Nothing inherently wrong with the first aim (although in practice it has too often resulted in the offshoring of valuable American production, technology, and jobs). That second objective, though, is much more problematic, both because China’s government exercises complete effective control over all aspects of China’s finances, including the channeling of capital abroad; and because no one has ever adequately explained why expanding the U.S. footprint of a communist economic system benefits the U.S. economy on net in either the short run or the long run.

And some essential context: As Karni reported, the speech took place a bare two weeks before Hillary Clinton declared her candidacy for president. Indeed, she “was already scouting campaign office space….” As Karni did not report, however, the United States and China at the time were neck deep into negotiations to conclude a Bilateral Investment Treaty (BIT) that the Austin attendees obviously supported strongly, but which is bound to encounter strong opposition whenever it’s submitted to Congress. So it’s anything but unreasonable to suppose that the conferees viewed their payment to Bill Clinton as a great way to boost the odds that a Hillary Clinton presidency would fight for the agreement. (The Wall Street firms that have paid comparable amounts for her speeches love the BIT, too.)

Moreover, given the controversy the BIT is bound to spur simply because China policy has become so contentious, it’s noteworthy that Bill Clinton’s speech mentioned virtually none of it. Nothing about job loss due to offshoring and Chinese protectionism, nothing about the tightening squeeze Beijing is placing on U.S.-owned firms that are invested there, nothing about multiplying Chinese cyber-attacks on American targets, and scarcely anything about China’s intensifying challenges to declared American national security interests in the Asia-Pacific region (which at one point he seemed to attribute to “the rise of Japan” under its current nationalistic Prime Minister Shinzo Abe).

In fact, the former president set the tone art the very beginning: “[W]e all know what the problems are, but I want to talk about the opportunities and why I think it’s so important that you’re here.”

As implied above, Clinton’s appearance at this meeting sent the at least equally important message to the conferees that “he was here” – for them. But his determinedly rose-colored-glasses view of U.S.-China relations and their upside also arguably served another crucial purpose: morale building.

After all, surely Clinton’s audience knew better than most how troubled U.S.-China relations are. And surely Bill Clinton knew that as well. As a result, chances are, like everyone who has a stake in preserving the China policy status quo, these American investors in particular were feeling pretty discouraged even back then, since their road to success had become so much rockier.

As a result, whether or not they believed their own propaganda about possibilities for cooperation or not, the Austin attendees surely needed their spirits lifted. For even many who recognize themselves to be greedy and shortsighted often need reassurance that they’re genuinely devoted to seeking the greater good despite all appearances. It will certainly take the sting out of writing the new series of checks to American lawmakers that any upcoming BIT lobbying campaign will require. And who better to deliver this feel-good message than an engaging, popular former president?

It’s also entirely possible that the emotionally needy Clinton needed to convince himself again that his own China policies, which are now coming under such fire, ultimately advanced the Lord’s work. So much the better to get paid megabucks in the process.

(What’s Left of) Our Economy: If Washington Was Serious About the China Economic Challenge….

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aerospace, allies, Boeing, China, Cisco, cyber-security, Edward Snowden, forced technology transfer, imports, investment, lobbying, manufacturing, multinational companies, national security, offsets, offshoring, South China Sea, subsidies, telecommunications, Trade, Xi JInPing, {What's Left of) Our Economy

However understandable, the intense administration and media focus during Chinese leader Xi Jinping’s U.S. visit on Beijing’s cyber-hacking has overshadowed several other major Chinese threats to American national security and economic well-being – and the need to fix U.S. strategies that are failing badly to cope with them. High on the list is China’s widespread practice of extorting corporate investment and technology transfer by threatening to shut uncooperative companies out of its large and potentially bigger market. And this blackmail deserves special attention this week because two big examples of it have made it into the news recently.

The first involves Boeing, which apparently will build its first foreign factory in China – a move that not so coincidentally coincided with China’s announcement that it would buy 300 Boeing jets. The second was Cisco Systems’ decision to start cooperating with a Chinese server company on projects that reportedly could include developing new telecommunications hardware products. This deal has followed several years in which Cisco has encountered big trouble in China due to fall-out from Edward Snowden’s techno-spying revelations and charges, and to Beijing’s policy of punishing American companies after Congress in effect froze China’s version of Cisco out of the U.S. market due to espionage concerns.

Since aerospace and telecommunications are clearly central to military strength, these American corporate cave-ins could easily endanger national security – unless you believe that they’ll forever remain in their current limited form. So more effective responses are urgently needed – unless Washington wants to face ever more harmful Chinese cyber-hacking (see this article of mine on how American firms have undoubtedly shared advanced cyber-war-related technologies with China), or ever better armed Chinese forces in possible future military showdowns in the South China Sea and other disputed Asian waters.

The companies themselves explain their agreement to China’s trade and investment conditions with the “half-a-loaf” argument, and it’s not completely unreasonable. They’re obviously not thrilled to be helping create likely new competitors (whether they care about American security is another matter entirely), but they point out that any China business they preserve or gain via their cooperation is more than they’d have without the China market. In fact, Beijing has used its leverage to string them along effectively enough that they’re reluctant even to complain about their China troubles to Washington – for fear of becoming targets for Chinese retaliation, and of excessively rocking the boat of bilateral economic relations generally.

But although the companies’ behavior may be justifiable from their own individual standpoints, their unavoidably narrow, self-interested perspectives make clear why they can’t be relied to protect or advance broader U.S. interests. Washington needs to take the lead. But can it do so without imposing heavy costs on these firms? To me, the answer clearly is “Yes” – and not just because China’s economy is slowing down. The key to success is understanding that a case-by-case approach inevitably leaves China in the driver’s seat, and that the United States can and should capitalize on position as an export market desperately needed by China to ensure adequate growth.

Severely restricting China’s access to this American market would grab Beijing’s attention not only for economic reasons. Chinese leaders would begin worrying about their political futures – and their own personal well-being – since their hold on power depends so strongly on delivering jobs and rising incomes to the country’s increasingly restive population. Moreover, even keeping in mind that short-term costs for the U.S. economy are inevitable – because policy shifts of this magnitude are always disruptive, and because it may take Beijing a while to get the message – the most obvious objections are surprisingly easy to dismiss.

Where will affected companies find customers to replace those they may temporarily lose in China? In many cases, in the American market, because the smaller U.S. trade deficit with China that would result from import curbs would spur more American growth overall. Moreover, so much U.S.-China trade nowadays is “head-to-head,” (in which the same goods compete with each other), that many American firms could fill the gap left by missing Chinese imports. And when it comes to U.S. companies that can’t make up China losses this way, government compensation seems appropriate.

Given Washington’s willingness to bail out Wall Street and auto-makers for blunders largely of their own making, subsidies look defensible for firms in the line of fire of whatever trade conflict develops. (One possible caveat: Many larger, multinational companies rely on China business heavily because they lobbied so effectively for the U.S. China trade policies that have created their vulnerabilities – and other major damage to the American economy – in the first place. So there’s also a case for letting them take their lumps, at least to some extent.)

If such subsidies don’t pass muster politically in the United States, another alternative is available to Washington: using the power of the American market to dissuade non-Chinese competitors to U.S. firms from seizing the opportunities created by these new American policies to boost their own China sales. Although the American firms’ China sales would remain lost, they at least wouldn’t lose competitve ground to foreign rivals.

Further, giving these third-party companies and countries the choice of doing business with China, or with the far bigger – and more reliable – United States would have the added benefit of adding international support to American efforts to fight Chinese protectionism and economic predation.  Working with Washington would also aid foreign governments and companies by reducing China’s scope to play trade partners off against one another. 

Finally, it’s true that the kind of jobs and even technology extortion used by China are standard operating procedures – especially in aerospace and in military aerospace – for many foreign governments, including those of U.S. allies. So how could Washington justify singling out China for counter-measures? Yet when it comes to allies and their policies (called offsets), the answer couldn’t be more evident: They’re allies and China manifestly is not. It makes no sense whatever to treat all foreign governments and economies the same when their relationships with the United States are so dramatically different, and this kind of foolish consistency certainly shouldn’t hamstring America’s approach to China’s economic transgressions.

There is, however, one obstacle to this kind of revamp of U.S.-China economic relations that I don’t see being overcome anytime soon – the continued domination of China policy-making in Washington by those aforementioned multinational, offshoring-happy business interests. The China policy status quo has undermined the American economy’s productive core, and increasingly threatens national security. But the offshoring lobby believes it’s worked well enough for its members. So until a critical mass of national political leaders decides to reject their lavish campaign contributions, expect China to keep taking America to the cleaners. And when Chinese actions sting enough, expect a few grumbles from the multinationals – no doubt mainly for show.

(What’s Left of) Our Economy: A Blame-the-Victim Theory of Trade Policy

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consumers, free trade, free trade agreements, lobbying, Mancur Olson, manufacturing, multinational corporations, productivity, retailers, Robert Samuelson, special interests, trade policy, Wall Street

Nationally syndicated economics columnist Robert Samuelson deserves a nice hand for identifying a possible cause for America’s pronounced productivity slowdown that’s been generally overlooked: the relentlessly growing power in national politics and policy of special interest groups. In a column earlier this week, he drew on the ground-breaking analysis of the late Mancur Olson to argue that the numerous successes achieved by smallish but narrowly focused and highly motivated lobbies in securing specialized favors for themselves from government have encouraged countless other interests to pursue the same strategies. The net effect is to diminish the total resources expended by the economy on production, and to increase the resources used for winning and keeping economically unproductive privileges.

I have several big problems with Samuelson’s discussion, though – and in fact with some of the leading examples used by Olson – and they all involve trade policy.

As Samuelson explains it, companies and workers pressing for protection from imports show exactly how the system now functions – and malfunctions. A winning campaign “saves jobs and raises prices and profits. But consumers — who pay the higher prices — don’t create a counter-lobby, because it’s too much trouble and the higher prices are diluted among many individual consumers. Gains are concentrated, losses dispersed.”

The problem is that, however compelling this sounds in theory, at least when it comes to trade policy, it produces a picture that is simply unrecognizable to anyone with any real familiarity with the subject. Perhaps the most important flaw is the implicit assumption that the freest possible trade always results in the best possible outcomes for the greatest number of Americans – and indeed for the economy as a whole – while calls for interfering with such trade flows always result from special interest pleading.

That’s a tough argument to make when you consider that the relentlessly rising trade deficits generated by the standard free trade approach have slowed the growth of this already sluggish recovery considerably. It’s even tough to make given that the income losses that can be blamed on this trade strategy – which were extremely broad-based – spurred Washington to fill the gap with easy money and the mammoth debt it brought, helping to trigger the financial crisis.

The big-small actor aspect of Olson’s theory doesn’t hold up, either in the trade policy sphere. For decades, the biggest winners by far in the nation’s leading trade policy fights have been big, offshoring-oriented multinational corporations and the often bigger Big Box retailers and Wall Street banks with which they’ve worked fist in glove. The ranks of smaller manufacturers were split, but those opposed to free trade agreements and related decisions were most often defeated. And the smaller companies that did indeed seek to throw sand in the fears of trade liberalization in fact were actually the ones trying to promote broader economic and national interests.

And the smaller retailers and other small service companies not directly affected by trade liberalization generally sided with the corporate giants – in order to win a few easy brownie and lobbying log-rolling points with them (as in “You scratch my back and I’ll scratch yours.”) So they were acting first and foremost on their own narrow interests as well.

As for consumers, who supposedly benefited from those lower prices, they have indeed been pretty disengaged from trade policy disputes. But their apathy powerfully enabled decisions that wound up backfiring on tens of millions of them disastrously, as the crisis increasingly cost them their jobs and their homes. So the Olson theory holds up in the sense that the gains from winning trade positions were highly concentrated – they overwhelmingly benefited the limited constituencies that worked so energetically and effectively to prevail. And the losses were indeed dispersed – among workers and especially among apathetic consumers. The results, however, so damaged the entire economy that its ability to recover fully remains in doubt.

There’s an especially crucial productivity angle that needs to be recognized as well: Surely one of the most effective ways to undermine an economy’s productivity growth is to send much of its most historically productive sector – manufacturing – overseas. So in that sense, the political and lobbying dynamics highlighted by Olson have backfired against the broad national interest as well.

In addition, these trends fed on themselves in a widely unrecognized way: The smaller domestic manufacturing’s physical footprint became, in terms of its share of the workforce and of economic activity, the fewer Americans directly experienced the damage caused by its shrinkage – and the clearer the path to victory for the offshoring/trade liberalization lobby. The latter also benefited from the increased concentration of manufacturing in smaller cities and towns and semi-rural areas. So factories and their workers literally became harder for the rest of the population literally to see and interact with.

Since I’m much less familiar with the lobbying and politics of numerous other economic issues, I don’t feel comfortable commenting on how well the Olson theory describes their workings. But if its tenets are as off-base in these areas as they are in trade policy, it’s easy to see how these ideas would be prized by business, political, and media elites with such a strong stake in blaming the victims for their own grievous policy blunders.

(What’s Left of) Our Economy: Media Flattery for America’s Corporate China Lobby

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China, cyber-security, Financial Times, hacking, lobbying, multinational corporations, offshoring, protectionism, technology, technology transfer, The Wall Street Journal, {What's Left of) Our Economy

Even before checking out The Wall Street Journal this morning, I was going to post an item on some truly weird material quasi-buried in a Financial Times piece from last week. The Journal article, however, showed  that it’s become nothing less than vital to spotlight this latest instance of how the media spreads the most whoppingly one-sided information on many U.S.-China-related subjects in the most offhanded ways.

According to FT writers Geoff Dyer and Richard Waters in a September 11 piece on “High-tech diplomacy” between the United States and China, “The American business community once saw itself as almost a go-between in the US-China relationship, an embodiment of the two countries’ intertwined economic fates and a diplomatic actor that was sometimes able to take the edge off political arguments” and a “conduit between governments.”

More recently, they observe, the companies have “started to lean more heavily on Washington for support against Chinese policies that seemed designed either to shut them out of large sections of the Chinese market or pressure them to hand over key technologies.” And of course, the article dutifully quotes an “expert” from an American think tank (which happens to be heavily funded by such businesses) sympathetically describing the companies as “being pulled in many directions by both governments in what has become a much more complicated relationship….Most of them do not like being caught in the middle.” Who could help but feel their pain?

These offshoring companies have indeed been hoisted by Beijing on the petard of their longtime claims that expanding trade with China would greatly benefit the U.S. economy, too; that China was moving steadily towards Western business and even legal, and political norms; and that therefore Washington should mainly turn the other cheek in response to any continued economic predation by the Chinese. The firms also undoubtedly told the two FT reporters that they previously saw themselves as valuable diplomatic intermediaries – as is their right. And perhaps some executives actually believed that.  It’s true, moreover, that the FT didn’t present these descriptions as fact.

At the same time, because an alternative perspective was completely ignored, what else could a reader not steeped in these subjects conclude? And omissions like this matter, because what Dyer and Waters didn’t mention is all the evidence that American companies operating in China have actually served, and every effectively, as de facto lobbyists for a Chinese government. Their common interest? Preventing American officials from rocking the boat of bilateral economic relations in order to preserve profits both were reaping at the expense of domestic U.S. producers and their employees – aka the productive core of the American economy. For as the media has ignored ever since China trade issues have been stirring controversy, U.S.-owned firms whose products are made in China for export to the United States benefit every bit as much from Chinese subsidies and protectionism as Chinese-owned companies.

Where the Journal piece comes in is in providing crucial perspective about the growing number and volume of corporate complaints about China’s increasingly brazen protectionism. On top of refusing to support measures that arguably could counter China’s latest moves, the American firms – especially the tech companies – have massively caved to the pressure. As reported by the Journal’s Eva Dou and Don Clark (and as described by RealityChek for months), these companies are doubling down on their longstanding policies of transferring capital and, most important, cutting-edge technology, to Chinese enterprises. The FT referenced these moves, but only briefly, and deep into the second half of the article.

And by the way, if you look at the types of knowhow being provided to China (as I’ve been doing for years), it’s no mystery why it’s become so adept at hacking key U.S. government and private sector computer systems. In other words, reasons abound for viewing the corporations so indulgently portrayed in the FT not only as whiners, but as dangerously two-faced whiners.

No one should want the FT or any other news organization to take sides in this debate. But the media needs to do a much better job remembering that these giant companies already have their own flacks.

Our So-Called Foreign Policy: Reasons to Worry About Obama’s Iran Deal

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allies, China, European Union, Iran, Iran deal, Iran talks, lobbying, Middle East, multinational corporations, nuclear weapons, Obama, Our So-Called Foreign Policy, Russia, sanctions, United Nations

In order to evaluate the new deal to prevent Iran from developing nuclear weapons for the medium run, it’s necessary to examine it both down in the weeds, and at the 30,000-foot level. After reading the text that’s been made available so far, I have major concerns from both perspectives.

Regarding the details, the monitoring and verification provisions are of course paramount, given the nature of domestic politics and international relations generally, and the Iran regime’s record of violating agreements specifically. And major problems can be identified with both the Dispute Resolution Mechanism (DSM) the agreement sets up, and with its procedures for inspecting the full range of Iranian sites that might be engaged in now-banned nuclear activity.

The DSM (paragraphs 36 and 37 of Section I) lays out a process that could take as long as 80 days to complete. Disagreements over whether the agreement’s terms are being violated could in principle go through a Joint Commission established by the pact, a panel consisting of the foreign ministries of all members, an Advisory Board comprised of representatives of the two main parties to the dispute and “a third independent member,” then back to the Joint Commission, and finally to the United Nations Security Council.

Deadlines for all these phases look automatic, and if Iran is determined to be the guilty party, any sanctions that have been lifted would be reimposed if the matter is not resolved to everyone’s satisfaction within 30 days. That sounds good in principle.

But if you fly up to the 30,000-foot level, it becomes clear what is all too likely to happen in practice: Iran would have nearly three months to engage in banned activities. Moreover, influential companies in the United States and all the European countries party to the agreement would start lobbying furiously to paper over the problem and avoid both disrupting business they had already begun, and killing projects that were in works.

And even without such corporate campaigns, the European governments themselves, starved for growth, would feel major pressure to continue capitalizing on new investment, export, and thus job-creating opportunities in Iran. Indeed, economist Jeffrey Dorfman of the University of Georgia has written a terrific column making clear how powerful these appeasing commercial forces has already been in the post-Cold War era.

Moreover, all of the governments that had concluded this deal with Iran would have major vested interests in preserving it even in the face of compelling but less than overwhelming evidence of Iranian violations. It should go without saying that the leaders in power today would be highly reluctant to admit failure. But so would any successors from their political parties. And in Europe in particular, leaders across the spectrum would surely be tempted to cite one of the most prominent defenses offered for the new agreement: However flawed it may be, it’s better than nothing.

Drawn-out procedures appear to be an even bigger substantive problem when it comes to the agreement’s provisions for those sites not yet officially determined by previous diplomacy with Tehran to be part of Iran’s nuclear complex. Worse, this section of the deal (Annex 1, Section Q) arguably contains at least one major loophole.

Specifically, even before inspections of these facilities are even on the table, the international agency charged with this responsibility (the International Atomic Energy Agency) needs to “provide Iran the basis for [its] concerns and request clarification.” In other words, the IAEA needs to tell Iran exactly what it would be looking for. Iran has to respond, but only if its explanations are deemed unsatisfactory can the IAEA request access – while also being required to let the Iranians know what incriminating information it has at its disposal. And Iran can hem and haw enough to extend this process for a total of two weeks.

But access to the facilities could be denied by Iran for another week, as a series of “consultations” is undertaken. And if these fail, five of the eight members of the Joint Commission – made up of Russia and China, the European Union, and the Western countries that would feel the above “30,000-foot pressures” – would need to determine that intrusive measures were indeed required. And after that vote, Iran would have three more days to grant access. It’s not rocket science to figure out that these procedures would give the Tehran ample opportunity to hide whatever its interlocutors want to find.

And then there’s the possible loophole: The agreement requires that inspections “not be aimed at interfering with Iranian military or other national security activities.” This could simply mean that inspectors ultimately must be allowed anywhere they wish to go, but promise to tiptoe their way around. But the wording is so ambiguous that it’s easy to imagine Iran interpreting it as placing all military site completely off limits – because any foreign presence would interfere with their operations. Indeed, the very vagueness of the wording makes that scenario not a possibility but a likelihood – along with agreement by China and Russia, plus squishier western politicians and business interests.

We’re still left with that “better than nothing” argument. At this point, I worry that it’s at least nearly offset by the varying sunset provisions of the agreement. They mean that, by the Obama administration’s own reckoning, even if every syllable is implemented perfectly, largely because of the nuclear programs it will be permitted to keep, in 15 years Iran might be able to “break out” of the accord and build a functioning weapon in one year. (This break-out time today is thought by many – but not all – analysts to be two to three months.) The agreement can also be legitimately faulted for a sanctions relief schedule that could within months start greatly enriching a regime that Mr. Obama himself believes is threatening major American interests in the Middle East.

As a result, I’d vote it down if I was in the Senate and needed to decide right now. But there remain some important details that have not yet been made public, and the big strategic issues just mentioned (as well as others) are still eminently debatable. In addition, I can claim no expertise on the nuclear technology that the agreement is trying to control; those provisions might fall short of acceptability as well. So I’m glad I have some wiggle room of my own before coming to a definitive conclusion, and all Americans should be grateful that their legislators don’t need to rush to judgment, either.

Our So-Called Foreign Policy: Why Obama’s “Hope and Change” Iran Policy Could Backfire Big Time

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Binyamin Netanyahu, China, George Shultz, Henry Kissinger, investment, Iran, Jeffrey Dorfman, lobbying, Middle East, multinational companies, nuclear deal, nuclear weapons, Obama, Our So-Called Foreign Policy, Russia, sanctions, terrorism, Trade

Although President Obama can’t technically be accused of negotiating a deal to keep Iran nuclear weapons free based on a belief that moderates will be running that country by the time the final deal expires, he clearly views this outcome as distinctly possible. But the record of U.S. and western diplomacy versus rogue states and powerful dictatorships generally shows that even such cautious hopes can be misplaced, and that the kind of engagement the president champions can dangerously backfire.

The link between Mr. Obama’s Iran deal and his views about Iran’s political future has been among the major objections of critics like Israeli Prime Minister Binyamin Netanyahu. It’s a huge current issue because Iran is sponsoring lots of terrorism and instability in the Middle East right now and could of course foster more with the nuclear deal sanctions relief – as noted most prominently by former Secretaries of States Henry Kissinger and George Shultz. And it’s a huge long-term issue because of the threat Iran could pose once a successful deal’s curbs expire, if a regime enriched by decades of commerce with the rest of the world decides to seek nuclear weapons once more.

Perhaps mindful of these worries, the president told NPR’s Steve Inskeep that “the deal is not dependent on anticipating those changes. If they don’t change at all, we’re still better off having the deal.”

At the same time, Mr. Obama spoke at length about the chance of Iran reforming during the deal. Two of his points are especially important. First, the president expects that once sanctions are lifted, Iran’s economy would only “slowly and gradually improve.” Moreover, “a lot of that [improvement] would have to be devoted to improving the lives of the people inside of Iran.”

Second, Mr. Obama voiced confidence that “if in fact they’re engaged in international business, and there are foreign investors, and their economy becomes more integrated with the world economy, then in many ways it makes it harder for them to engage in behaviors that are contrary to international norms.”

The forecast about Iran’s likely post-sanctions economic priorities seems like nothing but a guess. He might be right about the minimal additions sanctions relief could initially add to Iran’s capacity for trouble-making.  But as he also noted, Iran has been aggressively trampling all over “international norms” with its economy under pressure. So Iran could indeed lavish most of its new largesse on its people, and still be a major danger.

The second Obama observation could be the most problematic, though. First, it’s not at all clear what, if any, precedents the president has in mind. Major engagement with the world economy has brought many stunning changes inside China. But not only is the regime’s hold on power seemingly as strong as ever. Its international actions recently have become more aggressive as well, especially in surrounding seas. As for Russia, before its burst of expansionism, Vladimir Putin’s government was open to foreign trade and investment. Look what’s happened.  (By the way, as I’ve written, Putin is by no means solely or even largely to blame for mounting tensions with the West. But given President Obama’s stated views about Moscow’s “aggression,” Russia’s recent behavior pokes a huge hole in his analysis of Iran.)   

Worse is a point made in a terrific recent piece by University of Georgia economist Jeffrey Dorfman: If anything, the free world’s relatively modest reactions to recent Russian and Chinese moves strongly indicates that, in addition to trade and investment expansion enabling such countries to have their cakes and eat it, too, they also afford significant protection from retaliation. For the multinational companies doing the most new foreign business with them tend to lobby powerfully against any moves that could endanger current or future profitability. In the case of China, these firms have gone even further on occasion, actively serving as apologists for Beijing’s behavior and policies.

Past is not always prologue, and Mr. Obama may turn to be right about Iran. But these remarks only strengthen the case that his approach to the nuclear deal, and his broader views of engagement with adversaries, stem excessively from the always worrisome practice of assuming the best.