The Koreas
In the court of King Kim
North Korean bluster falls on deaf ears
IF HIS spooks in Seoul dare to tell him the truth, then North Korea’s dictator Kim Jong Il, knows that all the threats he has levelled against South Korea and its president, Lee Myung-bak, have made little impression. Since his inauguration a year ago, Mr Lee has made it clear that he will engage properly with the North only when it makes real progress on dismantling its nuclear arsenal.
The stand has infuriated Mr Kim. For months he has abused the South Korean government, threatening it with “all-out confrontation”. In November North Korea cut the inter-Korean hotline and closed the Red Cross office at the border between the two countries. In December it expelled most South Korean officials at the Kaesong industrial complex, a symbol of economic co-operation. In late January the North declared a 1991 agreement on reconciliation, non-aggression and co-operation between the Koreas to be dead. It says it will no longer honour the western maritime boundary between the two countries, known as the northern limit line, which North Korea has long disputed. This week South Korea’s state press reported that North Korea appeared to be making preparations to test-fire its Taepodong-2 missile, whose 6,700-kilometer range, in theory, puts Alaska in its sights.
In a televised roundtable discussion, Mr Lee dismissed the threats as “not new”. Ordinary South Koreans appear equally impassive, though South Korea’s navy takes seriously the possibility of another clash in the Yellow Sea—the last, deadly, one was in 2002. Choi Kang at the Institute of Foreign Affairs and National Security predicts that the North will test South Korean resolve to defend the northern limit line.
It is probable that Mr Kim’s bluster is intended more for an American audience than a South Korean one—as well as for his own people. After an illness last year, the 67-year-old may want to underscore his grip on the country. Rallying North Korea’s military to his side by attacking South Korea is an old trick of Mr Kim’s. What is more, says Ren Xiao of Fudan University in Shanghai, North Korea feels “marginalised” by the United States as President Barack Obama’s new administration gets to grips with a daunting agenda. Through brinkmanship, says Mr Ren, North Korea is warning the Americans not to forget about its existence and, it thinks, putting pressure on the United States to change its supposedly hostile policy towards North Korea. It is a reminder of just how much the tinpot dictatorship hates to be ignored.
Like any thrower of hissy fits, the North can switch on the charm, too. At a banquet in Pyongyang last month for a Chinese Communist Party big cheese, Mr Kim assured his guest that he was “making efforts to denuclearise the Korean peninsula”; perish the thought, he continued, that he wanted tensions on the peninsula.
Han Sung-joo, a former South Korean foreign minister and now chairman of the Asan Institute, a think-tank, says that this behaviour is to be expected. North Korea regularly seeks to show a smiling face to China and America, while keeping a stern one for the South. It is incensed that Mr Lee’s administration will not discuss honouring inter-Korean agreements signed by Mr Kim when he met with then South Korean Presidents Kim Dae-jung and Roh Moo-hyun, in 2000 and 2007 respectively.
Both these presidents were also the targets of abuse at the start of their five-year terms, before historic meetings with the Dear Leader. Mr Lee may yet have such a summit too. For now, time is on his side. Last month he nominated Hyun In-taek, the architect of his tougher strategy towards North Korea, to head up the unification ministry, which traditionally conciliates the North. The president promises massive aide and investment, with the aim of raising North Korean per-head income to $3,000 a year within a decade, if only the North gives up its atomic bombs. As Mr Lee sees it, the ball is firmly in Mr Kim’s court.
Feb. 5 (Bloomberg) -- Asian stocks fell for the first time in three days as reduced earnings forecasts in Japan and share sales in Australia fueled concerns that the global recession is deepening.
Casio Computer Co., the maker of G-Shock watches, slumped 6 percent after cutting its earnings forecasts. Qantas Airways Ltd., Australia’s largest airline, and developer Lend Lease Corp. slumped more than 16 percent in Sydney after selling stock at discounts to bolster their balance sheets.
“The global recession continues to weigh on investor sentiment,” Mitsushige Akino, who oversees $615 million at Tokyo-based Ichiyoshi Investment Management Co., said in an interview with Bloomberg Television.
The MSCI Asia Pacific Index dipped 0.3 percent to 82.92 as of 10:35 a.m. in Tokyo, with two stocks declining for each one that fell. Japan’s Nikkei 225 Stock Average dropped 1.2 percent, while Australia’s S&P/ASX 200 Index lost 0.3 percent.
Futures on the Standard & Poor’s 500 Index fell 0.7 as Cisco Systems Inc., the largest maker of networking equipment, forecast sales that missed analyst estimates. The gauge dropped 0.8 percent yesterday after disappointing earnings at Kraft Foods Inc. and Walt Disney Co.
Casio dropped 6 percent to 648 yen. Net income is projected to fall 88 percent to 1.5 billion yen ($17 million) in the year ending March 31, less than the company’s earlier forecast of 13.5 billion yen.
A decline in demand and anticipated “greater setbacks” in the global economy led the company to cut its outlook, Tokyo- based Casio said yesterday after the market closed.
“There has been a massive downward revision to earnings estimates, and that’s a very difficult headwind for the market to have to face,” said Mark Freeman, a portfolio manager at Westwood Management Corp., which oversees $7.5 billion in Dallas.
Qantas plunged 17 to A$1.89 in Sydney. It sold A$500 million ($321 million) new shares at a 19 percent discount.
Lend Lease, the developer involved in building London’s Olympic Village, tumbled 17 percent after raising A$302.5 million selling shares at an 11 percent discount.
Kiwi Stimulus Smarts – II
Here's a novel idea: Why not grow one's way out of recession?
From today's Wall Street Journal Asia.
While the U.S., Australia and Japan spray cash in every direction to "stimulate" their economies, New Zealand has a novel idea: Why not grow one's way out of recession?
Prime Minister John Key declared yesterday that "during this global downturn, we can work to improve the performance of our economy relative to other countries, and we can emerge better off." He then announced a package of regulatory reform and tax initiatives aimed at making it easier for companies to do business -- and keep Kiwis employed. While the total benefit, at NZ$480 million ($246 million) is small, the positive message it sends to business is much greater.
Mr. Key's tax measures include provisions to allow companies to retain their taxable income for longer periods, reduce penalties on underpayments (which helps companies with volatile revenue cycles, such as farming), and ease filing burdens. Wellington also simplified tax-deduction rules for business-related legal expenses and made it harder for small companies to be sued in certain courts. As with his last stimulus package, Mr. Key threw in a few populist sops such as setting up a government hotline for companies that want financial advice.
Still, the bulk of what Mr. Key is doing makes good sense. Since taking office in November he has already enacted a series of income-tax cuts and eased unfair dismissal laws. On Monday, his government announced plans to streamline the Resource Management Act, an environmental protection statue that has blocked or slowed business developments across the country.
Mr. Key said yesterday that he rejects "alarmist suggestions" on the economy and favors "making decisions in a disciplined way" that doesn't burden future generations of taxpayers. He added: "We need to be sure that the decisions we make now really hit the mark." He's off to a good start.
Faith in the Market
The champions of Islamic finance—banking and investing based on the Koran—believe that if Islamic principles had been applied to Wall Street, the global economic crisis never would have happened. The handful of men who decide which mortgages, car loans, and credit cards are spiritually sound are cashing in. But critics smell a con.
Amid the worst economic crisis in nearly a century, Yusuf Talal DeLorenzo sells peace of mind. A Muslim convert who is the product of both a Massachusetts prep school and a Karachi madrasa, DeLorenzo issues pronouncements on the spiritual soundness of modern finance for the world’s Muslims.
Islamic law, or sharia, forbids pious Muslims from paying interest or investing in morally questionable companies. So, DeLorenzo serves as a well-paid counsel to the international hedge-fund managers, bankers, and asset managers who are determined to invest in line with the Koran’s principles. With his rare ability to move easily between medieval Islamic texts and 21st-century financial instruments, DeLorenzo has emerged as one of the world’s chief gatekeepers for the fast-growing market in Islamic finance.
He’s a member of an elite group of fewer than 20 top-tier experts. Sheikh Nizam Yaquby issues fatwas for blue-chip institutions such as Dow Jones and HSBC from the back office of an electronics shop in a Bahraini bazaar. “There is no sin in the Koran—not even drinking, not even fornicating, not even homosexuality—which could be as abhorrent and serious as dealing in riba [interest],” he has said. Pakistan-born Muhammad Taqi Usmani, with the trademark cap of a religious scholar and his beard stained henna red, bears little resemblance to the Wall Street bigwigs who eagerly seek his advice. He is the chair of the powerful sharia board of the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI), a Bahrain-based regulatory institution that sets standards for the global industry. DeLorenzo and Yaquby sit on the board, too, just as they both sit on the sharia board of the Dow Jones Islamic Market Index, which screens companies for Muslim investors to make sure they don’t peddle in the defense or entertainment industries or are in any way connected to forbidden activities such as pornography, gambling, and pork production.
That the same few names appear again and again on sharia boards—Yaquby sits on more than 60, according to the Islamic Finance Information Service—reflects the unlikely name-brand status these Islamic scholars have attained in the world of modern finance. “It’s only natural that if it’s a big bank going out with a big product, they want to make a big splash,” DeLorenzo says. “I would rather have Tiger Woods endorse my product than some no-name golfer.”
Until the credit crunch of 2008, Islamic finance was a fast-growing, if still relatively obscure, new specialty of international finance. But after Wall Street’s implosion, Islamic finance’s champions have begun to promote the sector as a safe haven from the ills of the global economy. At a Doha conference in late 2008, Sheikh Yusuf al-Qaradawi, arguably the world’s most influential Islamic scholar, asserted that “the collapse of capitalism . . . shows that the Islamic economic philosophy is holding up.” DeLorenzo is even more sweeping in his claims. “If you had sukuk [or interest-free bonds based on actual assets], the subprime crisis never would have happened,” he says.
But how truly Islamic is the Islamic finance these men promote? To their critics, many are nothing more than rent-a-sheikhs, willing to give the spiritual nod to just about any financial product for the right price. Within their own ranks, the top sheikhs debate vigorously over which new products and transactions are permissible—and which have been unjustly allowed. One recent study from the AAOIFI concluded that 85 percent of bonds marketed as sharia-compliant were illegitimate. And the fees many of these scholars take in—at times, six figures for a single decision—only add to such critiques.
“There’s a whole industry now—supported by a show of religious authority provided by Islamic scholars—with banks promoting conventional products as Islamic,” says Mahmoud El-Gamal, a professor at Rice University and author of Islamic Finance: Law, Economics, and Practice. “They’re preying on the religiously insecure.” And as the financial crisis continues to unwind, there are a lot of insecure people out there.
THE BUSINESS OF ALLAH
Whether scholars like DeLorenzo and Yaquby offer merely pious packaging or a genuine reconciliation of sharia and modernity, demand is growing enormously for their services. What began several decades ago with a few Middle Eastern banks trying to circumvent the Koran’s ban on interest has become one of the world’s fastest-growing financial sectors. And it has been propelled by record oil revenues in the Gulf, deepening Islamic sentiment in countries from Pakistan and Egypt to Britain and France, and the flight of Arab capital out of the United States after September 11.
Islamic finance accounts for just 1 percent of the global market, but the industry’s yearly value is estimated at about $500 billion, with annual growth of 15 percent. In five years, it could hit $4 trillion, according to a 2008 report from Moody’s Investors Service. And its potential could be even greater.
Islam is the world’s fastest-growing religion, with 1.3 billion adherents, many of whom are young and new to personal finance. Standard & Poor’s estimates that in the Muslim countries of Asia and the Gulf, 1 in 5 banking customers would opt for Islamic financial products over conventional ones if given the opportunity. By 2012, nearly a third of all business deals in the Gulf will be done through Islamic finance, according to the Middle East Economic Digest. Add a booming Muslim middle class and non-Muslims eager to profit, and it is easy to understand why some of the world’s biggest banks are spending millions to enter the market. The 300 dedicated Islamic banks and funds worldwide, operating in 75 countries, are beginning to face stiff competition from top-tier global firms such as Deutsche Bank, HSBC, and Citibank.
This competition is fueling even grander aspirations among scholars such as DeLorenzo. Islamic finance, he says, is not just a way for Muslims to turn an honest profit; it is the vehicle that will make Islamic law relevant for the 21st century, a far cry from debates over “marrying and burying” that dominated his own madrasa education in the 1970s.
“Islamic finance scholars say that what’s happening in the conventional world of finance is at the heart of the difference between Islamic and ordinary finance,” says Davide Barzilai, a partner specializing in Islamic finance at the international law firm Norton Rose. Muslim investors haven’t suffered from falling bank stocks, Islamic scholars point out, because their faith forbids investment in financial institutions. Since the Koran bans gambling, the related practice of risk is forbidden. So too is the short-selling of stocks (on the grounds that you can’t sell what you don’t own) and the sale of debt. Indeed, the practice of repackaging and trading debt, as well as credit-default swaps, both so central to the financial crisis, never could have happened under Islamic law.
MARKET FUNDAMENTALISM
Sharia scholars such as DeLorenzo see Islamic finance as the path to a distinctly spiritual end. Like political Islam, Islamic finance began as a search for authenticity and independence from the West. Its origins lie in the postcolonial Islamic identity that emerged in the 1950s and 1960s, when Muslim economists returned to the Koran to develop what they called Islamic economics.
The central concept is justice. Transactions that could be unjust for either the borrower or the lender are discouraged. For any financial undertaking, risks must be shared. To get around the Koran’s ban on interest, Islamic banking has relied heavily on what is called murabaha: a loan or sale in which a markup is added to the transaction’s cost. So when a Muslim borrower goes to a bank to buy a car or house, he agrees to a contract in which he pays back the cost of the item, plus a certain amount of profit. The bank is technically a partner, rather than just a financier. These methods are believed to meet the spirit of the law because they avoid the exploitation of the borrower.
Using this model, Islamic banks have created scores of financial products for Muslims to avoid Western-style interest or risk. The result is a parallel system of Islamic offerings that mirror those available from conventional banks: Islamic mortgages, Islamic car loans, Islamic credit cards, Islamic insurance. An ijara, or Islamic lease, allows a bank to buy a car or a house for a customer and then earn a profit by renting it to them. An Islamic investor who wants to start a business can go to a bank and embark on a mudharaba, or partnership, in which the bank supplies the money and the customer brings the business skills. Profits are shared in a predetermined ratio; losses are borne by the bank. For insurance, companies offer policies in which a group of subscribers creates a pool of funds that can then be invested and drawn on in cases of legitimate claims. Unclaimed profits are then distributed among policyholders.
To many, including some Islamic scholars, such offerings look a lot like conventional finance in disguise. But for many devout Muslims, the fact that they are technically avoiding interest makes such practices acceptable. Under sharia, money must be exchanged for a real good or service. “Money itself creates no value,” observes Mohamed Elgari, a top sharia scholar. “[Under Islamic law], it is only a medium of exchange.” It’s a nimble balancing act, and for those banks willing to attempt it, there are plenty of willing customers.
In Britain alone, the value of the Islamic mortgage market has topped $900 million, up 50 percent between 2006 and 2007. The global Islamic insurance market is growing 25 percent annually and is slated to reach $14 billion a year by 2010, according to HSBC. And non-Muslims are increasingly keen takers. Half of HSBC’s Islamic mortgages in Malaysia went to non-Muslims the first year the company offered them. Saturna Capital, a Washington-based investment firm, estimates that 60 percent of customers for its sharia-compliant mutual funds aren’t Muslim. All of which raises the ironic possibility that Islamic finance, in its quest to develop a more spiritually pure alternative to modern materialism for the world’s Muslims, may have ended up creating a large and attractive market for Western investors.
PIETY FOR A PRICE
But not everyone is convinced. Take the claim of Islamic finance as a safe haven from the global economic crisis. “Now is a golden opportunity for Islamic finance to provide an alternative model . . . just what the world needs right now,” Islamic finance conference organizer Swati Taneja recently told Emirates Business 24/7. “There has never been a more interesting time for cautious investors burned in the conventional credit crunch to begin looking at what the Islamic markets have to offer.” But even someone as bullish as Taneja concedes that a globalized market means Islamic investments are exposed along with mainstream ones. According to Standard & Poor’s, sharia-compliant stocks lost 23 percent of their value during the first three quarters of 2008, compared with a 25 percent fall for non-sharia-sanctioned stocks. And Islamic finance, just like conventional finance, is vulnerable to sloppy vetting of customers’ creditworthiness.
Potential pitfalls for Islamic finance, then, are the same as those for conventional finance: greed and lax regulation. So, at what point do the scholars’ fatwas only serve to perpetuate the industry that feeds them, thereby consolidating their own power? “They’re not going to kill the goose that lays the golden egg,” El-Gamal says. “[By issuing bans on certain financial products], they want to continue to build up the religious insecurity of people who are afraid to use conventional [finance].” And banks that benefit are happy to see the current system maintained. Very few scholars dominate the field, says Tarek El Diwany, an analyst at Zest Advisory, a London-based Islamic financial consultancy, because “there’s a shortage of scholars who will give the judgments that the banks are looking for.”
The industry’s chief critics see in Islamic finance the same rhetorical spin as Islamist politics. “The whole idea of giving [finance] a religious identity is just a form of identity politics,” says El-Gamal. “The claim that Islam has the perfect solution is questionable in economics, just as in politics.” Still others see outright deception. Mohammad Akram Nadwi, a prominent Britain-based scholar of Islamic jurisprudence, advises his students against taking out Islamic mortgages, because he thinks their structure is merely interest-bearing debt in disguise. “At least conventional mortgages are honest,” he shrugs.
At industry conferences, there have been mutterings about too few sheikhs serving on too many boards, and even advising direct competitors. Malaysia, which arguably has the world’s best-developed legal framework for sharia finance, banned scholars in 2005 from serving on more than one bank board at a time. And in an effort to groom more young sheikhs to enter the field, Malaysia’s central bank and the Saudi-based Islamic Development Bank recently created a $53 million endowment to support sharia scholarship. But, in an industry that respects longevity and seniority, especially among Wall Street investors unfamiliar with the nuances of madrasa education, breaking in can be tough.
A larger issue is whether Islam and the modern economy can be reconciled at all. Is it enough to create banking products that mimic those of traditional finance but also meet the letter of Islamic law? Or must the goals of the financial system itself be reworked fundamentally? The question, in short, is whether a growing Islamic financial sector can really bring about the material and spiritual justice that its advocates claim it will—or whether it will enrich a select few. Such a debate cuts to the heart of whether Koranic admonitions must be strictly applied or can be subject to greater interpretation. That the Islamic financial sector has largely been designed by a small group of men paid handsomely for their services has led some observers to declare that much of what passes for Islamic finance today fails to meet the intentions of sharia.
For every observer who thinks that sharia scholars have become too reckless in their judgments, there are many more who believe that a broad rethink of the financial system should carry the day. “To date, most Islamic financiers have been looking at . . .examples of financing in Islamic history and figuring out how to apply them today,” says El Diwany, the London-based Islamic financial consultant. “That’s a very narrow way of doing things. There’s potentially much more innovation we could be doing—and potentially, much less.” It may not win Islam more converts, but it could provide an entirely new generation of customers.
Delusional in Davos
Everything has to change in order for everything to stay the same," wrote the Italian author Giuseppe Tomasi di Lampedusa in his famous novel The Leopard. The novel is set in 19th-century Sicily, but Lampedusa could just as easily have been describing the 2009 World Economic Forum in Davos.
You notice it more in the corridors and the cafes of this exclusive Swiss hamlet rather than in onstage debates. Publicly, the discourse is all about the dangers of "false market assumptions" and the now-infamous "financial engineering." (I seem to remember it being called "financial innovation" last year.) But offstage, top bankers, private equity bosses, and hedge fund stars keep chitchatting and socializing, just as if banks had not had $1 trillion write-downs, the financial markets had not lost $25 trillion, and up to 30 million jobs were not at risk around the world.
To achieve this state of mind, any human being probably needs to construct a formidable mental shield. A survey I personally conducted at Davos this year of 60 top central bankers, financial market regulators, fund managers, and industry opinion-makers gives an idea of what this shield looks like.
When participants were asked whether they think they have done something in their career which "might have contributed, even in a minor way, to the financial crisis," 63.5 percent opted for a clear "no"; 31.5 percent went for a "yes," often adding in the same breath that nobody in the industry can honestly claim otherwise; and 5 percent said "maybe."
The "yes" people were then asked to explain what triggered their wrong decisions. They had three options: "too much optimism" (68.7 percent), "I felt I had to keep dancing while the music was playing" (31.3 percent), or "greed" (0 percent).
David Rubenstein, cofounder and managing director of the Carlyle Group, expressed surprise at the results. "How strange," he said. "I thought 100 percent of them would say they had nothing to do with it."
For all his wry humor, Rubenstein has a point. Psychological self-defense, a Darwinian instinct, is part of human nature, and "Davos Man" is no exception. Feelings of personal responsibility after a collective catastrophe are a matter for psychologists rather than World Economic Forum conversations, but the answers to the survey should come as no surprise.
For all the talk of the more "somber" mood at this year's event, there were about 100 more private jet movements
at the Zurich airport last week than during last year's event. I'm not sure if the irony was lost on the organizers who handed out pedometers to forum participants, to encourage them to walk and reduce their carbon footprint.
The conflicting attitudes of contrition and denial were evident at a special event on the "36 hours in September," when Lehman Brothers collapsed and the world changed. Nassim Nicholas Taleb, author of the bestselling The Black Swan, a book about hard-to-predict events, gave a presentation. The participants enjoyed his talk, which was brilliant and provocative as usual, but as he spoke, one couldn't help wondering if what they were actually enjoying was the simplistic comfort that Taleb's message could provide.
The audience seemed to enjoy the idea that the current crisis is a "Black Swan," a very unlikely, though possible, event. The alternative view is that of a train driven full speed into a wall. Thinking that way requires one to ask who was in the driver's seat, and just maybe recognizing one's own fingerprints on the wheel.
| The List: The Crisis's Big Winners | |
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Meet five smart players that are not just surviving, but thriving, despite the economic downturn.
John Paulson
The haul: The New York-based hedge fund manager reportedly made a record $3.7 billion in 2007. In 2008, his $7 billion Advantage Plus fund returned an incredible 37.6 percent. Another smaller fund he manages returned nearly 590 percent last year, thought to be the largest one-year hedge fund return in history.
How he did it: In early 2008, Paulson began short-selling shares of financial stocks, including the doomed Fannie Mae and Freddie Mac. He also bet big on Anheuser-Busch's sale to Belgium's InBev at a time when the deal looked to be falling apart. By the time the lucrative transaction was successfully completed, Paulson was Anheuser's largest shareholder. But it was Paulson's restraint rather than his aggressiveness that set him apart from other fund managers during the recent crisis. In the run-up to the crisis, his funds avoided purchasing mortgages and leveraged loans while others swooped in. Unfortunately for the rest of us, the man who saw where the economy was headed in 2007 and 2008 doesn't see much improvement in the coming year. In a letter to investors, he predicted the recession would likely last into 2010.
George Soros
The haul: Despite claims that he is less involved in the management of his funds and seeking only to maintain his fortune, Soros's Quantum funds returned an impressive 10 percent in 2008 while two out of three hedge funds lost money. This growth followed a phenomenal 2007 when Quantum returned 32 percent.
How he did it: The same way that he made his initial fortune: betting against the pound. The man who "broke the Bank of England" (and made a billion dollars in the process) took a short position on sterling for most of 2008. It shouldn't be surprising that Soros has weathered the financial storm well; he had been predicting it for years, warning skeptical investors of a soon-to-burst superbubble. After six years of limited involvement in the running of Quantum, Soros got back in the game in 2007, personally managing one of the company's accounts with great success. Soros again grabbed headlines at the this year's World Economic Forum in Davos, Switzerland, when he announced that he's no longer shorting the pound since it fell below $1.40.
Steve Eisman
The haul: Unknown. Likely in the hundreds of millions.
How he did it: As author Michael Lewis writes, "Upbeat wasn't Steve Eisman's style." This has made him the ideal investor in a decidedly downbeat era. While other investors became enthralled by highly complex, computer-driven financial instruments, the head of hedge fund FrontPoint Partners saw them for what they were, deliberately obscure measures designed to mask extremely risky subprime mortgages. In the fall of 2006, Eisman began to short subprime-backed securities. By the following spring, FrontPoint was short $600 million on subprimes alone. When the market crashed in the wake of Lehman Brothers’ bankruptcy, Eisman and his associates watched their bet pay off as the rest of Wall Street sank into despair. His chief trader Danny Moses recalled to Lewis, "It was an out-of-body experience." Success apparently hasn't changed Eisman's fundamental pessimism. "I wish people would stop saying that this is a crisis of confidence," he recently told the New York Times.
Qatar
The haul: Qatar's economy grew 16 percent in 2008, and the country expects 10 percent growth in the coming year.
How they did it: Like all of the Gulf states, Qatar has been hit hard by the fall in oil prices, but thanks to the country's natural gas sector and well-managed economy, the outlook seems rosy for the little sheikdom that could. Although more-oil-dependent economies such as Saudi Arabia and the United Arab Emirates expect less than 1 percent growth this year, Qatar is expanding. It will boost its natural gas capacity to 77 million tons this year. The country is working to form an OPEC-like natural gas cartel along with fellow exporters Iran and Russia. And Qatar's moves aren't just in the energy sector. The country's sovereign wealth fund is looking to buy stakes in three "blue-chip companies," according to Prime Minister Hamad bin Jassim. Qatar might also expand its stake in Britain's Barclays if the struggling bank seeks more capital.
ExxonMobil
The haul: Despite a rocky fourth quarter, the world's largest company made $45.2 billion in 2008.
How they did it: As most of the oil sector suffered with last year's drop in prices, Exxon managed to break its own record (set in 2007) for the largest yearly profit in U.S. history. Although much of this success is the result of the booming oil prices of early 2008, Exxon has weathered the downturn better than many analysts expected. Exxon's managers are famous for keeping costs low and extracting the maximum value from each barrel. As Big Oil heads into a rough-looking 2009, Exxon's $30 billion in cash reserves will certainly come in handy. And though other oil companies are simply trying to contain the damage, Exxon has plans to boost production and increase spending on new projects by 20 percent in 2009.
The Forgotten Right
“The moment the idea is admitted into society that property is not as sacred as the laws of God, and that there is not a force of law and public justice to protect it, anarchy and tyranny commence. If ‘Thou shalt not covet’ and ‘Thou shalt not steal’ were not commandments of Heaven, they must be made inviolable precepts in every society before it can be civilized or made free.””
– John Adams (1787)[1]
It is starting to become apparent to even the most disinterested observer that something much bigger than even a worldwide recession is happening. The seeds of revolution have taken root. Iceland led the way by taking to the streets to force regime change through peaceful demonstration. The French are currently protesting en masse against their government’s bailout of the banking system. One would be naïve to think that these are isolated incidents. It is apparent that these are just early warning signs of a worldwide cauldron that is about to boil over, catalyzed by the financial and economic cataclysm that will plunge untold millions into poverty and desperation.
While I applaud the peaceful demonstrations going on in France and Iceland, I also recognize that they are premature. As did Americans in the last election cycle, these Europeans are demanding “change.” However, also like Americans in the last election cycle, they have failed to first answer the crucial questions, “From what? To what?” They have not looked within to assess who they are, what their society is, and what they want it to be. Therefore, they run the risk of simply replacing one oppressive tyranny for another.
Likewise, we will never regain our freedom in America until we address the fundamental problem in our society. I say “the problem,” because at the root of all of what we perceive as a myriad of problems, including the police state, the welfare state, the warfare state, the military industrial complex, the Wall Street oligopoly, the high cost of healthcare and education – everything – there is one philosophical problem that ultimately leads to them all: the repudiation of property rights.
It is likely difficult for most 21st century Americans to absorb this statement, based upon the fact that they have been told now for generations that property is about greed, that accumulating property is oppression, or even that “property is theft.” However, let us look back at the philosophers who inspired our founders and see what they have to say about property. Of course, as I have written here, the primary philosophical basis for the American Revolution came from Locke. What did Locke have to say about the purpose of government?
““The great and chief end, therefore, of men's uniting into commonwealths, and putting themselves under government, is the preservation of their property.”[2]
Certainly this statement must be startling to most 21st century Americans, who believe that they are supposed to look to their government to fight unemployment, manage the economy, ensure access to healthcare, promote democracy abroad, and pursue a myriad of other ends outside of protecting property. Surely, Locke has over-emphasized property rights here, has he not? Certainly he is alone in his simplistic assessment of the role of government, is he not?
He is not. In seeking guidance on how to construct our government, the American founders also looked to the ancients, particularly the Roman Republic. There, we find Cicero writing,
“For the chief purpose in the establishment of constitutional state and municipal governments was that individual property rights might be secured. For, although it was by Nature's guidance that men were drawn together into communities, it was in the hope of safeguarding their possessions that they sought the protection of cities.”[3] [emphasis added]
The conditioned response of Americans today is to view these ideas as a defense of one class of people at the expense of another. We have been trained to associate “property” as a concern of the “property class,” or in more common American terms, “the haves,” as opposed to the “have nots.” This is a great deception that has lead directly to our ruin. In fact, it is the poor and those of modest means for whom property rights are most important. It is they who, not possessing significant material wealth, must all the more jealously guard the property that they do have. In the end, however, we are all property owners when one considers the most fundamental, most important property of all: our labor itself.
We learn from Locke that all property has its roots in labor. In order to survive, man must work to produce the means of his survival. This is true for people no matter what their financial circumstances. The doctor, the lawyer, the construction worker, the janitor – yes, even the Wall Street financier – must sell his efforts to his fellow man in order to acquire the means of his survival. Therefore, whoever has control over the individual’s labor has control over the individual’s life, and control over the individual’s future. If I steal all of your possessions, you can acquire more. However, if I appropriate your labor, I own all of the property you can ever or will ever acquire. This is an undeniable reality that we have lost sight of, to our peril.
America was founded upon the idea that each individual had an unqualified right to the fruits of his labor.[4] This more than anything was what the founders meant when they spoke the word “liberty.” It was the extent to which this right was respected that made America different than every other society in history, before or since. This was the great secret that made America the engine of prosperity and innovation that it was. This is what made America the land of opportunity to change one’s lot in life. It was this right that gave birth to the American dream.
However, we no longer hold this right up above all others. Instead, we have become a society that is based upon competing groups seeking to plunder each other via the force of government. The rich plunder their neighbors with corporate bailouts, subsidies, and regulatory fascism. The middle class plunder their neighbors with Social Security, Medicare, and criminal unions. The poor are forced to accept legal plunder that they do not want and which provides them with the most miserable quality of life, when the stolen capital that underwrites it could employ them all if it weren’t seized from its rightful owners. Of course, these examples are only the tip of the iceberg; there is much, much more. Virtually every political movement in America is based upon a promise to provide its followers with other people’s property.
This scenario is neither unprecedented nor has it been unrecognized by the great lights of liberty. Bastiat wrote,
“Men naturally rebel against the injustice of which they are victims. Thus, when plunder is organized by law for the profit of those who make the law, all the plundered classes try somehow to enter — by peaceful or revolutionary means — into the making of laws. According to their degree of enlightenment, these plundered classes may propose one of two entirely different purposes when they attempt to attain political power: Either they may wish to stop lawful plunder, or they may wish to share in it.”[5]
This vision of Bastiat’s has become reality in America. However, it cannot go on forever. Fortunately for humanity, a society based upon legal plunder is ultimately unsustainable. Just as respect for property rights provides the means to prosperity, violation of them leads to poverty and want. As force replaces voluntary exchange, productivity decreases, and subsequently more force is required to plunder even more. This cycle repeats until society is reduced to an authoritarian nightmare, the first signs of which are becoming apparent in the former “land of the free.” If the people wake up, the nightmare can end. If they continue to slumber, the nightmare can get much, much worse.
This is the great truth that we must rediscover before any revolution can be successful. Before we commit to “change,” we must answer the questions, “From what? To What?” The answers to those questions must be “from a nation of looters to a nation of free individuals who acquire property in the only civilized manner: via voluntary exchange." We must reject the use of force as the means to pursue our happiness, and renew our faith in freedom. Once this great work has been accomplished, let the revolution begin.
By Doug Bandow
The American empire is in shambles. U.S. soldiers and Marines who expected flowers and candies in Iraq were cut down by bombs and bullets instead. Afghanistan is spinning ever further out of Washington's control. Russia, China, and even Europe increasingly resist U.S. demands.
At the same time, America stands on an economic precipice. The national debt is currently $10.6 trillion, almost $35,000 per person. The deficit for 2009 will exceed $1 trillion. Congress is preparing to spend almost another trillion dollars to "stimulate" the economy. And America's long-term unfunded liabilities for Social Security and Medicare exceed $100 trillion.
In other words, the U.S. is effectively broke at home and increasingly unable to control events abroad.
Yet the new administration looks almost identical to the old one when it comes to foreign policy. Secretary of State Hillary Clinton promised to use "smart power" to achieve the administration's ends, but her objectives looked little different from those of her predecessor. The U.S. must micro-manage affairs around the world, only more competently and sensitively. Wars must still be waged in Afghanistan and Iraq, NATO must still be expanded into Georgia and Ukraine, countries like Iran and North Korea must still be threatened, and allies must still be protected around the globe.
It doesn't take a rocket scientist to recognize that promiscuously intervening in countries and initiating conflicts is dangerous. After fighting bloody insurgencies in Vietnam, Iraq, and Afghanistan, it should be obvious to all that there are few easy victories in such Third World battles. After confronting Russia over Georgia and threatening to challenge China over Taiwan, it should be obvious that small wars risk turning into big wars. After suffering terrorist attacks on America's homeland, it should be apparent even to the most enthusiastic international meddlers that there is a price to be paid for making endless enemies overseas.
Attempting to play global policeman, protecting prosperous and populous allies as well as remaking failed states, also is extraordinarily expensive. As then Chairman of the Joint Chiefs of Staff Colin Powell observed after the collapse of the Soviet Union, he was running out of enemies – down to just Fidel Castro and Kim Il-Sung. Even adding Osama bin Laden, America's opponents are a pitiful few. Toss in China and Russia, and America still outspends all its potential adversaries on defense by three or four times.
Indeed, the U.S., which is allied with most every other advanced industrial state, accounts for roughly half of the world's military spending. No other nation compares. Some hawks worry about China's military build-up. Yet this year Washington will spend upwards of six times as much on "defense." And America starts with a far larger base force: for instance, Washington deploys 11 carrier groups, while China has none.
In short, Beijing doesn't threaten the U.S. Rather, the U.S. threatens China. What China is doing now is attempting to create a military sufficient to deter American intervention. But even Beijing's modest increases in defense outlays lead to calls from hawks in America for yet higher military expenditures here.
What do Americans receive in return for their government's constant meddling abroad? The satisfaction of having taken sides in conflicts in which no participant has clean hands. The pleasure of having created grievances which cause terrorists to target Americans at home and abroad. The joy of subsidizing well-heeled trading partners, which then can invest their resources in economic development rather than bigger and more weapons.
Advocates of promiscuous intervention abroad talk as if Washington has no choice but to police the globe. That's nonsense, of course. America's very power and influence allow it to react with benign detachment to most events overseas. That doesn't mean Americans need be indifferent to tragedy overseas – ordinary people have been organizing and contributing to help the hungry, sick, and victims of war for decades. But the U.S. government's duty is far narrower: providing for the common defense, as authorized by the Constitution.
This isn't "isolationism," the usual swear word tossed by those who demand that Washington routinely visit death and destruction upon one country or another. Rather, it is non-intervention, a policy that limits the U.S. government's political demands and military assaults on other nations while encouraging Americans to interact peacefully with the rest of the world. It is a policy that rests on the belief that war is always a last resort and never a matter of choice.
Such a strategy would not be a radical jump into the unknown. After all, this was the Founders' foreign policy, continued by the early Americans. At the Constitutional Convention delegates rejected proposals to replicate the British king, who could unilaterally take the country into war. When leaving office George Washington warned of foreign entanglements and permanent attachments in his famous Farewell Address. Secretary of State John Quincy Adams later rejected proposals to aid Greek freedom fighters against the Ottoman Empire. The mere fact that the U.S. is more powerful today does not mean that it should be more warlike.
It has long been obvious that America's pretense to empire costs far more than any benefits which result. Now it should also be obvious that the U.S. can no longer afford to play global policeman.
Only a change in foreign policy can match America's capabilities with its objectives. Washington should adopt a policy of nonintervention, dedicated to keeping America free, prosperous, and at peace. This is, in fact, the only approach consistent with remaining a republic dedicated to limited government and individual liberty.
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