Herbert London

     Herbert London is John M. Olin Professor of Humanities at N.Y.U., President of the Hudson Institute, and author of Decade of Denial, published recently by Lexington Books. He can be reached at: www.herblondon.org.

 Money for Oil Discounts: A Deal the President Overlooks

      Knives are being sharpened on both sides of the political aisle. President Bush's $87 billion request for rebuilding Iraq and Afghanistan has produced bipartisan sticker shock.

      Leave aside for the moment that the president has not made the case for this request effectively. The money is unquestionably needed for rebuilding nations that were in disrepair long before the war began. Moreover, if the goal is to create a democracy in the midst of tyranny, the money might have a salutary effect on the entire region.

      The U.S. cannot afford to fail in Iraq. The money in question will go a long way to making sure that doesn't happen. However, the administration hasn't been particularly imaginative in submitting its proposal to the Congress.

      It seems to me both the public and elected officials would be more receptive to the president's request if it were couched as a loan to be repaid with discounted oil prices. If the price of oil is $29 a barrel, for example, Iraq could charge the U.S. $20 until $87 billion is reached. Presumably this discount to oil companies would be passed along to the consumer in the form of lower gas prices.

      Considering the fact that the U.S. spent treasure and spilled blood for the redemption of Iraq, it is only reasonable that Iraqis offer something in return. Since oil is the only commodity Iraq has and that is a commodity the U.S. wants, a deal of the kind I propose would seem to make sense.

      Yet remarkably it was not in the administration's calculus. It may be that Bush analysts did not expect so much carping over his request. But with political invective in the air, how could that response be ignored? As I see it, the administration's policy is correct and, despite media accounts, is working, but the president and his staff haven't been effective in selling it. Instead, media spokesmen have been unchallenged in comparing Iraq to Vietnam, a comparison that exists solely in the mind of press panjandrums in U.S. television studios.

      Notwithstanding the by now customary buzz from detractors, Iraq is not a “quagmire.” But it is also far from a law abiding, constitutional democracy. That's why the money is imperative. It will take years of rebuilding (read: building) before Iraq can create a stable government.

      Recognizing the commitment that is necessary to achieve this goal, the president should note that the money is a multi-year investment that will offer accruals for a model that could be emlated throughout the region. Perhaps even more significant, it is a prospective quid pro quo. The U.S. gives the money now and the public derives the reduced oil price benefits later. This approach is in both nations' interest and, notably, would make the investment somewhat more palatable for the public.

      Progress in Iraq will not come with a discount. The U.S. has lost 308 service members to date. Yes, the number is low when compared to other wars, but that argument doesn't fly with Americans whose tolerance for bloodshed decreases as incomes rise and birthrates lower. Neither is it appropriate to argue that $87 billion is a relatively low sum compared to other wars. At a time with budget deficits increasing, $87 billion is a daunting challenge, which a number of Democratic presidential candidates can easily exploit.

      The president should note that the American investment today will have a profound effect on the war on terrorism tomorrow. There is also a pragmatic dimension to the investment. President Bush can legitimately maintain that America's largess should be reciprocated with Iraqi gestures. If we give, then we should receive as well.

      Money for oil discounts is the contract Americans will approve. It's time for the president to appreciate that we will fight for survival and give generously for stability, but at some point, the nations receiving our beneficence should be prepared to do something for us in return.

Japan's Missile Defense

      Chosun Ilbo, one of South Korea's leading newspapers, recently reported that North Korea has developed missiles capable of targeting every city in Japan. The report came amid speculation that North Korea would carry out a nuclear test to coincide with the 55th anniversary of the nation. Of course, this didn't happen even though the rumor created great fear in Japan.

      Whether North Korea will engage in this form of saber rattling with negotiations still possible is unlikely. Nonetheless, the concern continues to have an unsettling effect on Japan .

      The Chosun Ilbo report also indicates that a missile with a range of 3000 to 4000 kilometers was developed in 2002, but has not yet been deployed. Nonetheless, the Taepodong 1 missiles already on platforms can reach every population center in Japan. This is the same missile that was test fired in 1998 over Japan's main islands.  North Korea also has an arsenal of up to 700 Rodong missiles that can hit targets as far as 1300 kilometers away.

      Last year North Korea admitted having a secret nuclear weapons program that produced at least two nuclear bombs. During last month's multilateral meeting in Beijing to discuss North Korean nuclear activity, Kim Jung Il warned that his country could test a nuclear weapon in order to prove it has nuclear bombs and the means to deliver them.

      As a consequence, the Japanese Defense Agency has moved rapidly to plan a missile defense system. This is a decision riddled with controversy. Some critics contend the defense cannot work unless the missile is hit upon launch, a somewhat unlikely possibility. Others argue it is an enormously expensive defensive arrangement that can be avoided through negotiation. Still others maintain that a missile defense violates the Japanese constitution since it challenges the principle of “exclusive” self-defense. Presumably an anti-missile system could protect third parties such as the United States since the destination of a missile upon launch is unknown.

      Moreover, missile defense will entail a review of defense mobilization procedures because a missile could reach Japan in minutes certainly under ten minutes in the case of Taepodong 1. According to current protocols the prime minister can issue a mobilization order only after Security Council and Cabinet deliberations. Obviously a surprise attack would make such deliberations impossible.

      While Japanese journalists invariably cite these arguments in their almost uniform opposition to anti-missile deployment, it strikes me these contentions are weak, perhaps even indefensible.

      First, there isn't a perfect defense. No such shield exists or can exist. Governments, however, have an obligation to protect their citizens as well as humanly possible. A ballistic missile fired against Japan could be detected by sensors and then destroyed in space by a missile launched from an Aegis equipped destroyer. If that first stage fails, a ground-to-air Patriot guided missile would be launched to shoot down the incoming missile. The system isn't perfect, but it is redundant and robust.

      Second, the request of 140 billion yen from the Defense Agency with similar sums for at another seven or eight years, is a large burden given the tight fiscal condition in the nation. However, it is a relatively small sum if it provides security for the Japanese people or deters the aggression of North Korea.

      Third, it is ludicrous to argue that if a North Korean attack is intended for the U.S. , it is none of Japan's business. After all, Japan is presently protected by the U.S. nuclear umbrella and in addition, it would be impossible to determine the likely target of a North Korean missile flying over Japan. Is it destined for Tokyo, Okinawa or Hawaii? How would anyone possibly know?

      Last, if protocols inhibit defense, then it is time to change the protocols. As important as rules may be, they should not impede active protection of the Japanese people.

      One should unquestionably hope for the best, but in an imperfect world with irrational leaders, it is wise to prepare for the worst. Japan is a nation with a 60-year pacifist tradition. Many Japanese people view missile defense as an incitement at odds with this tradition. I can certainly appreciate that position; yet at a time of threats and tocsin in the air, this tradition may have to be modified.

        Prime Minister Koizumi realizes that missile defense will be a strain on an already tight fiscal regimen, but he also realizes that it is his sworn duty to do everything possible to provide security for his people.

The Chinese Vacuum Cleaner Sucking Global Investments

      Looming over Asia like a giant colossus is the emerging China with growth rates in the double digits and an extraordinary appetite for FDI (Foreign Direct Investments). Surely the billion people in this market causes the multinational corporate world to salivate. But the real story is that low wage levels what some would call slave wage levels have attracted corporations fighting for survival in an increasingly competitive globe.

      At a recent meeting of the Third Asian International Forum held in Fukuoka, Japan, and sponsored by the Asian Pacific Center, scholars from various think tanks in the continent spoke about the economic conditions in their respective nations. While prospects for the future vary, the one common theme is the penumbra of China in every calculation.

      Since almost all ASEAN nations are labor intensive with wage rates higher than China, it is increasingly difficult for them to compete for corporate investments. China is rapidly becoming the world's factory for manufacturing, driving down wages in nearby nations and sucking FDI like a huge vacuum cleaner.

      With corporate returns on investment in China averaging about 30 percent, it is virtually impossible for other nations to compete for foreign capital. They are left with three alternatives: drive down wages so that competition for contracts is possible; reduce profit levels so that pricing is competitive; and increase productivity through innovations.

      Clearly the first option has political consequences that make it untenable. Workers do not voluntarily accept lower wages after securing higher wages. Second, multinational corporations are obviously reluctant to reduce prices and thereby accept less profit when they can get a higher rate of return in China. That leaves only the last option.

      Clearly the way to encourage productivity is with education. In a relatively prosperous nation like Japan, education is being geared to innovation. The Japanese realize that the comparative advantage the nation has is in the value added it can incorporate into its products. Engineering, computer science, biotechnology and chemical applications are subjects emphasized in every Japanese university.

      However, suppose you are a poor country, such as Thailand, without the resources to develop a workforce with the capacity to innovate. This is where the scenario gets cloudy. Obviously such nations rely on UN development subsidies and World Bank handouts with their future at the mercy of benefactors.

      There is yet another concern. Suppose products are developed for which there is a demand. Nations must still consider the relative position of their products in the global marketplace. Are products emerging in an area where demand is growing? Does a nation's economic sector take advantage of market opportunities so that development is timed to coincide with market take-off? Does tradition or conventional business practice mean that nations will do what they've always done and in the process have a niche in a declining market? Are nations prepared to restructure in order to avail themselves of investment opportunity?

      Facile answers aren't available. In fact, all one can say is that market position, flexibility and the ability to innovate have become more important than ever before due to China's manufacturing dominance.

      It is true that economic growth does not move in a straight line. With China dependent on FDI, there aren't homegrown Chinese industries. In fact, I'd be hard pressed to identify any indigenous Chinese company with a major international market position.

        China is a land of joint ventures because of low wages; it is an economy that lives off the backs of its hardworking and exploited people. This condition cannot go on indefinitely. Moreover, if world economic growth should slow down and the U.S., Europe and Japan falter, China would have a big problem with exports and investments and a domestic market incapable of picking up the slack.

      Yet this is mere speculation. At the moment, China's average wages are 50 times lower than those in the U.S.; 40 times lower than most European nations, 15 times lower than ASEAN nations and even lower than India. As a consequence, China must be reckoned with.

      Her neighbors are eagerly looking at this issue. Well meaning economists from ASEAN nations gather at international conferences to theorize. So far, all they have are theories. There is a wind blowing across the globe and it seems to be carrying currencies in one major direction. That movement has stirred apprehension and concern. Perhaps it has also engendered opportunity. But it certainly hasn't elicited the answers Asian nations are seeking.

The Wizard of Oz in Albany

      Succumbing to political pressure, the New York Board of Regents has decided to become the Wizard of Oz. It is now suggesting that since it has the power to determine the standard for graduation; it will dilute the standard, offer more diplomas and then contend that it has an educated populace. The Wizard resides in Albany.

      The initial passing grade on the Regents exams was 65; but when many students couldn't meet this standard, it was reduced to 55. That step wasn't sufficient to satisfy the radical egalitarians. Now the Board wants to hand out sheepskins to students who fail one of the tests.

      Surely two failures, perhaps three will be the next step if the high failure rate persists. After all, poor performance cannot be attributed to kids who don't know very much. It must be those awful tests. The anti-standards faithful are persuaded that diplomas are all that count, not knowledge or achievement.

      In fact, this is little more than calculated deception. Employers are supposed to believe these graduates know something when they don't. And the kids are supposed to believe they are educated when they aren't.                                

      Robert Schaeffer of Fair Test, an anti-testing organization, asks, “How is society better off if kids can't get a job because they don't have a diploma?” There you have it, the logic of the Wizard of Oz. It doesn't make any difference if you know something as long as you have a diploma. It doesn't seem to occur to Mr. Schaeffer that a devalued diploma may not lead to a job.

      Another of these misguided egalitarians, Regent Saul Cohen, asks, “What would you say to a student who got a passing score of 80 on four exams and a failing grade of 54 on the other?” I would say learn enough to pass all five Regents exams.

      For people like Schaeffer and Cohen the reputation of the school system is more important then the education of the kids. This is an attitude similar to the position of erstwhile A.F.T. (American Federation of Teachers) union head, Al Shenker, who once said “when kids start paying union dues, I'll be as interested in them as I am in teachers.”

      For at least two decades educational leaders have discussed high standards for graduation, a position driven by New York City business leaders. Yet it seems that all the discussion was a sciolistic exercise in obfuscation. Cohort promotion is the real standard in City schools.

      When the Regents originally proposed a passing grade of 65 and passing five tests for an academic degree, many editorial writers and serious educators were encouraged. Those expectations were quickly dashed. New Yorkers were duped by the educrats.

      In the end, the real casualty of degraded standards is the student population. Many don't know what they don't know. After all, they can put a laminated diploma on the wall.

      The second casualty is a business community that has only a marginal student population from which to recruit for available jobs. Employers are generally smart enough to realize that a diploma itself is not a substitute for skills and knowledge.                                  

      Last is a city undermined by uneducated students and social promotion policies. Cities compete for jobs and talent. Even if New York is a commercial capital, it cannot rely on its public school graduates to assume leadership positions. Homegrown products who emerge as national figures, such as Colin Powell and Henry Kissinger, are increasingly rare.

     What New York now hears is the proclamation from the Regents' that from the power vested in us, we confer a diploma so that our students will appear educated. This is the sham with which New Yorkers now live. Of course, this is not merely a sham, it is a shame. Ω