Lessons of the Cuban Missile Crisis Elude GOP Ticket

The third and final presidential debate – covering foreign policy—falls on the fiftieth anniversary of President John F. Kennedy’s address to the nation announcing the presence of bases in Cuba for Soviet offensive nuclear weapons.

Historic coincidence or irony?

The 13 days in October 1962 we call the Cuban Missile Crisis is considered one of modern history’s most dangerous episodes, the time we were closer to nuclear war than we have ever been.

With Iran’s nuclear ambitions certain to be front and center in Monday’s debate and high on the list of foreign policy issues the next president will face, Obama and Romney should be asked to discuss what  lessons they glean from the missile crisis and how they would apply them to the Iranian situation.

The responses of Romney and his running mate Congressman Paul Ryan in previous debates to foreign policy questions indicate they are either ill-informed about the missile crisis or have learned the wrong lessons.

It took many decades after October 1962 before government documents were declassified, Kennedy’s own secret White House recordings were released, and his brother Robert’s private notes were made public, all making crystal clear that back-channel diplomacy and compromise led to peaceful resolution of the Crisis.

Much of the long-held conventional wisdom about the missile crisis—including the belief that Kennedy’s vow to bomb Cuban missile sites forced the Soviets to back down – have been thoroughly debunked.

Under the compromise that ended the crisis, President Kennedy agreed not to invade Cuba and to remove nuclear weapons from Turkey if the Soviets would remove nuclear weapons from Cuba.

Kennedy resisted pressure from his hawkish cabinet and national security advisors that he cede nothing to Moscow and consider a pre-emptive strike, which very likely would have triggered a nuclear war.

Yet, hard-liners, foremost among them GOP presidential candidate Mitt Romney and his neo-con foreign policy advisors, cling to the belief that taking a tough inflexible stand or military intervention are the only ways to resolve Cuban Missile Crisis-like confrontations.

President George W. Bush, advised by many of the same neo-con foreign policy experts, cited the missile crisis as a historic lesson in fortitude to justify a preemptive invasion of Iraq.

The myth of the Cuban Missile Crisis, that being tough is the only way to resolve crises, colors our current debate about Iran’s apparent drive to acquire nuclear weapons. In September, Israeli Prime Minister Benjamin Netanyahu called on President Obama to place a “clear red line” before Iran just as “President Kennedy set a red line during the Cuban Missile Crisis.”

Harvard professor Graham Allison, author of the groundbreaking study of governmental decision-making “Essence of Decision: Explaining the Cuban Missile Crisis,” describes Iran as a Cuban Missile Crisis in slow motion.

He says that the main lesson of the missile crisis is that we have to avert crises that lead to confrontations in which an adversary has to choose between humiliating retreat and war.

If we follow the lead of under-no-circumstances-allow-the-Iranians-to-cross-my-red-line Netanyahu, as Mitt Romney would as president, the Iranians would have no way to save face leaving the president, whoever he might be, with the option of either attacking Iran to prevent it acquiring nuclear weapons or acquiescing in Iran acquiring a nuclear weapon.

The consequences of either are pretty ugly; a likely war in the Middle East and all of its unintended consequences, or a nuclear Iran, which will likely trigger other states in the region like Saudi Arabia to acquire nuclear weapons.

Clearly, a President Obama or President Romney would better serve the global community by searching for a third option.

A good first step would be to understand that countries feeling threatened act to defend themselves.

Just as Castro rightfully feared a U.S. invasion (ergo Bay of Pigs) and encouraged the Soviets to install nuclear weapons, it could be argued that the Iranians desire to acquire nuclear weapons—or at least the capability to build them quickly – stems in part from their fear of the U.S.; a not irrational fear given our history of meddling in the country’s internal affairs, including support for the 1953 military coup that overthrew a parliamentary regime and installed the Shah.

Just as the Soviet Union was a closed society making it almost impossible for us to know with certainty what motivated their actions and how far they might go, so too is Iran.

A resolution of the current stalemate with Iran would have to involve negotiations at the highest levels and a willingness on the part of the U.S. and Israel to accept a less than perfect solution.

With the Iranian economy in a freefall thanks in large part to sanctions pushed by Obama, next year might be the time to secure a compromise that allows the Iranians to save face. That compromise would probably allow the Iranians to continue to enrich uranium to the levels needed for civilian purposes, such as energy production.

If Romney is elected would he have the guts to stand up to Netanyahu who would oppose any compromise with Iran?  Even more critical would Romney have the guts to stand up Netanyahu’s obsessive desire to bomb Iran even against the U.S. interests?

The Cuban Missile Crisis is widely thought to be Kennedy’s finest hour.  Will some future event diffusing America’s and Israel’s confrontation with Iran be hailed as Obama’s or (less likely) Romney’s finest hour?

Let’s hope so.

Posted in International Affairs, Politics | Tagged , | Leave a comment

Gambling: The Economic Cure for What Ails America?

Americans are addicted to gambling.

Every year nearly 300 million of us play the lottery, bet on the Super Bowl, March Madness or other sporting events, visit one of country’s approximately thousand casinos, or play online poker.

All told, Americans bet nearly $500 billion and lost nearly $100 billion in 2011.

In their frantic search for money to plug budget shortfalls, governors and state legislators have been more than happy to make it easier and legal for us to lighten our wallets or pocketbooks. They also see casinos as easy way to create jobs, not something to be sneezed at with unemployment hovering around 8 percent, even if many of the jobs barely pay minimum wage.    

Gambling is now legal in some form in every state except Hawaii and Utah. Casino gambling, once limited to Las Vegas and Atlantic City, can be found in 36 states including culturally conservative Iowa and Alabama. 

The sharp rise in the number of bricks-and- mortar gambling venues has been fed in large part by competition between the states. The more states that legalize gambling of this sort, the more the politicians in nearby states that haven’t done so feel compelled to regain what they consider rightfully theirs; the gambling losses of their residents.

The gambling industry has been one of the few sectors of the economy that has expanded since the Great Recession’s onset in late 2008. Several states, including Massachusetts and Maryland, legalized casino gambling and a couple more, including Arkansas, launched lotteries.

Many more states, including New York, Florida and Ohio, now permit race tracks to have slot machines and in some cases table games such as blackjack and roulette as well.   

Politicians say they’ve aggressively pushed to expand gambling to fund activities that help the elderly and their middle- and lower-income constituents such as health care and education.  Yet, it is a bit like robbing Peter to pay Paul since the vast majority of money raised comes from the pockets of the very people gambling is supposed to help.

Three prime examples: Democratic governors in New York, Massachusetts and Maryland have been pushing casino gambling in their states even though they are fully aware that it is likely to hurt the constituents they were elected to protect.  

The casino industry has been able to sink its teeth into the necks of residents in the three heavily Democratic states thanks to lobbying that has exceeded $60 million the last five years.

Massachusetts politicians alone took in more than $11 million.  Just down the road, The New York Times reported this summer that a group closely aligned with Governor Andrew Cuomo received $2 million from gambling interests as he was developing plans to expand casino gambling in the state. All told, racetrack casinos and other gambling interests have spent nearly $50 million on lobbying and campaign contributions in New York since 2005.

It’s easier for governors and state legislators, even Democrats, to raise revenue by legalizing or expanding what they depict as “harmless” – namely gambling – than to resist large campaign donations from lobbyists or raise taxes on the wealthy, the other group politicians depend on for campaign cash.

Making gambling more accessible does more than drive up revenue, create low paying jobs, and placate casino lobbyists. It’s also driving a rise in gambling addiction among people who can least afford to lose money.

According to a recent study by the Research Institute on Addictions at the University of Buffalo, the closer a casino is, the greater the risk a person will become addicted to gambling.  

Approximately two million Americans are pathological gamblers, according to the National Council on Problem Gambling. An additional four to six million people say they experience problems related to their gambling.

Complusive gambling is associated with bankruptcy, foreclosure, spousal abuse, child neglect and crime.

Addicted gamblers cost the U.S. between $32 billion and $54 billion a year, according to Baylor University professor Earl Grinols. 

Revenue from state run lotteries – now more than $20 billion annually – that is earmarked for things like education largely goes towards sustaining the lotteries themselves, including employee salaries, vendor commissions, prizes, overhead and most perniciously marketing.

Lotteries in the largest states spend hundreds-of-millions of dollars on advertising most of which is aimed at keeping “core” players buying tickets. Though they make up only 10 to 15 percent of lottery ticket buyers; compulsive players account 80 percent of sales.

Numerous studies have shown that poorer Americans are the biggest buyers of lottery tickets. Almost 40 percent of once-a-week players have an annual income of less than $25,000.

This fact is not lost on lottery officials who target their advertising at low income Americans with messages like “Change Your Life, Play the Lottery”.

Gambling may no longer be an easy source of cash for states and politicians or a sure fire way to spark economic growth.

Revenue declined in both Atlantic City and Las Vegas the last couple of years and the country’s largest casino, Foxwoods Resort in Connecticut, has been forced to renegotiate $2.3 billion of debt. Gambling revenue in Atlantic City alone dropped from a record $5.2 billion in 2006 to $3.3 billion last year, and a number of Indian casinos have been forced to close.

Let’s hope that the systematic government-sponsored exploitation of the poor and middle class has reached its limit.

Posted in cities, Economics, Finance, Social Commentary | Tagged , , , | Leave a comment

Romney Can’t Help the Gaffes, He’s Rich

Has it become easier for a camel to go through the eye of a needle than for a rich man to win the White House?

For most of U.S. history it wasn’t unusual for wealthy individuals or individuals from wealthy families to win the presidency.  JFK, FDR, Teddy Roosevelt and George Washington were far richer than their contemporaries.

Today, Americans want presidents to look, talk and share the same life experiences as them. Would-be president have to agonize, empathize, and socialize with the common man and woman.

Does that doom Mitt Romney?

Even though he has tried mightily to downplay his wealth and to play up his ordinariness, the former governor of Massachusetts can’t help but let slip out, usually in unscripted moments, his upper class world view.    

It’s during those moments the truth comes out. When it comes to identifying with the concerns of the average American Romney is clueless.

The presumptive GOP presidential nominee’s stated earlier this month at a campaign event in South Carolina that the media’s interest in his personal tax returns was small minded, but he was willing nonetheless to disclose that he paid 13 percent in federal taxes each year over the last decade. Not surprisingly, that didn’t put the issue behind him, as had hoped, by rather added fuel to the fire since most American pay far more in taxes percentage-wise.

Romney is no different than other wealthy individuals believing that he plays by different rules than the rest of us, including recent past presidential aspirants who have made public several years of their tax returns.

Nor is he different thinking that he got rich through his efforts alone and therefore owes nothing to the rest of us.

Nor is he different in his lack of understanding and empathy toward the less fortunate.

Various studies have shown that the more wealth a person accumulates the less likely they are to identify with other people’s needs.

Wall Street-types and financiers like Romney exhibit an even more pronounced lack of empathy for others; and are more likely to cheat, lie and break the law in pursuit of money.

Of course, none of these studies implicate Mitt Romney directly. But the former head of the private equity firm Bain Capital has shown throughout his business and political careers a greater understanding of his fellow plutocrats than middle- and lower-income Americans.   

Romney’s tin ear when it comes to understanding the perspective of the 99 percent has reared its ugly head every month or so during the campaign.

In February, he told an audience in Detroit his wife drives two Cadillacs, including one at the couple’s $20 million ocean side house in La Jolla, CA—one of several mansions they own.      

During a Republican debate earlier this year, trying to appeal to white working class voters, Romney succeeded only in putting his foot in his mouth by declaring he was friends with “NASCAR owners.”

Romney has based his campaign on his experience as a businessman. Being a businessman – particularly one that buys, streamlines, and sells companies – involves firing people. A task he apparently enjoys. Not the most sensitive statement given that nearly one in eight Americans are unemployed or underemployed.

The GOP presidential candidate has socked away much of his $250 million fortune in offshore accounts in places like Switzerland and Bermuda to avoid paying U.S. taxes, and has refused to make public more than one year of his tax returns.

Romney has repeated insisted that how he has made his money, where he keeps it, and what’s he’s paid in taxes are “private matters.”

Statements like these are beginning to take a toll on his standings in public opinion polls.  In a Wall Street Journal/NBC News poll taken Aug. 16-20, barely a third gave him better marks than the president on caring about average people or dealing the concerns of women or seniors. More than half said Romney was “out of step” with most Americans’ thinking.

None of this makes Romney any different than his fellow fat cats. Nearly all take full advantage of tax loopholes and leave the bulk of their wealth, most of it created in the U.S., in offshore accounts.

Living higher on the socioeconomic ladder tends to dehumanize people and make them much more self centered, according to a paper published in the Proceedings of the National Academy of Sciences by University of California, Berkley, social researcher Paul Piff.  Wealth also tends to make people less ethical and less compassionate.  

Romney isn’t the only presidential candidate of late of substantial wealth. John Kerry (estimated net worth $230 million) was as equally incapable of connecting with average Joes and Janes during his run for the White House in 2004

We know what happened that year.

Posted in Politics, Social Commentary | Tagged , , , | Leave a comment

If You Can’t Stand the Heat Get Out of the Country

It’s likely to be the hottest year and summer on record what with July already in the books as the hottest month in the lower 48 states since the government began recording temperatures in 1895.

It’s also the summer before a presidential election. Yet hardly a word has been uttered by Obama or Romney about global climate change.

The economy and social issues have dominated the campaign thus far with both candidates viewing the issue of global warming as too hot to handle.

That despite recent polls that show Americans across the political spectrum, including some former climate change skeptics, have come to the conclusion that the planet is heating up, will continue to do so, and that it will have serious consequences for all of humanity.

What gives?

Political pundits would argue that when the economy is floundering voters don’t want to hear about global warming because any steps taken to slow it down would also slow the economy down.

In other words, a person’s pocketbook concerns trump any discomfort they may be literally and figuratively feeling about global warming.

Droughts in the Midwest and Southeast, forest fires in the West, and record energy consumption in the East, have got the attention of the public, but these events haven’t created any momentum towards a more forthright and energenic dicussion in the political sphere of global climate change.  

Why worry about what for most people are some relatively minor current inconveniences or some future catastrophe, including rising ocean levels, when your house is (at least for now only figuratively) underwater, you can’t find a job, and you can’t afford to send your kids to college?

During the last presidential election, both Barack Obama and John McCain supported legislation to curb green house gases through a carbon tax or a cap-and-trade program that would require licenses for emission.  

After he was elected, President Obama said he would usher in a “new chapter in America’s leadership on climate change.  His attention shifted to other issues when it became clear that broad climate change legislation was highly unlikely to get through Congress when the Republicans took over in 2010.

The right wing of the Republican Party, egged on by the Tea Party, turned cynicism about global warming into a requirement for running for president on the GOP ticket.

Mitt Romney, the party’s presumptive presidential nominee, who accepted the scientific consensus about global warming when he was governor of Massachusetts, steadily moved to a “not sure if it has proven definitively that man is causing temperatures to rise” stance.

Romney did half a flip-flop to fend off his primary rivals all of whom characterized global warming as a liberal tree-huger hoax or underplayed its importance.

Romney’s campaign is now fully in the thrall of climate change deniers/skeptics.

Before joining his campaign staff, Andrea Saul, Romney’s press secretary and chief spokesperson worked for a D.C.-based public affairs and lobbying firm that worked to undermine climate science on behalf of large oil and gas firms like ExxonMobile, according to Greenpeace.

Romney’s vice presidential running mate, Congressman Paul Ryan of Wisconsin, has steadfastly opposed climate change legislation and clean energy programs.  The Chairman of the House Budget Committee received nearly $250,000 in campaign donations in the last year from the oil and gas industry, including the Koch Brothers who have been one of the biggest funders of anti-climate-science organizations.     

While most scientists aren’t saying we’re facing imminent catastrophe as a result of global warming, they argue that we are running a serious risk – a risk that can’t be quantified until it is too late to do something to head off what could be very serious consequences.

It is difficult to ask people to sacrifice something – relatively cheap energy and possibly some economic growth – for future generations, especially when there so much anxiety about the country’s economy and finances.

This may or may not be the last opportunity during a presidential election to have a serious debate about global warming and what, if anything, we should do about it.  Four years down the road we may already be staring down the global warming cliff. Who knows?

It takes extraordinary leadership on the part of a president or a wannabe president to talk about an issue that doesn’t provide easy, painless and quick solutions.  Neither Obama nor Romney has demonstrated that kind of leadership of late.   

It not just the U.S. and the always recalcitrant developing countries like Brazil, India and China where the issue of global warming has been put on the back burner

All across Europe, including some countries which have moved aggressively to cut greenhouse gases, climate change has all but fallen off the political agenda. The re-surging economic and ongoing fiscal crises have forced politicians to focus on saving the euro, cutting their budgets and where possible pumping up employment. 

None of this bodes well in the short run for governments around the world taking definitive steps to slow global warming.

You think this summer was hot, wait until next year’s.

 

 

Posted in Politics, Social Commentary | Tagged , , | Leave a comment

For the Love of God and Money; How to Get Elected President

Summer’s beginning in a Presidential election year brings a bit of a campaigning lull.

This year is no different with Obama and Romney spending much of their time raising the hundreds-of-millions of dollars they’ll need to win in November.  They are also out burnishing their cultural credentials attending holiday barbeques, county fairs and small town parades.

The two candidates are also shoring up support among allies and voters in the religious world.

For Romney that means the Conservative Christians, many of whom are still skeptical of the lifelong Mormon.

For Obama that means liberal Christian denominations including progressive Catholics and Latinos, Muslims, and Jews, who provided him with ample money and votes in 2008.

Once the campaign swings into full gear following Labor Day the references to God and the appeal to the religious will be ratcheted up even more.

No American today could get elected to higher office without flaunting their religiosity.

Politicians, who never pass up the opportunity to praise our Founding Fathers and the Constitution, don’t seem to be able to follow their example when it comes to keeping religion out of politics.

Today, aspiring to higher office requires expressions of devotion to God that the Founding Fathers would find strange if not outright improper.

Religious freedom was the reason many people came to the U.S. during its founding days. They were looking to escape countries whose established churches made it difficult for non-believers or other denominations to thrive.

Because they or their relatives experienced religious suppression, the Founding Father were determined that the U.S. government should have no role in determining the beliefs of its citizens.  The only mention of religion in the 1787 Constitution is the clause “no religious Test shall ever be required as Qualification to any Office or public Trust under the United States.”

The first Amendment to the Constitution, written in 1791, declares “Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof.”

God forbid a candidate today didn’t believe in a higher power at all, however. An out gay person, certainly a woman and possibly even an alien stand a better chance of getting elected president than an atheist.

A Gallup poll last year showed that, while 9 percent of Americans would not vote a Jewish presidential candidate, 22 percent wouldn’t support a Mormon (that’s down to 18 percent according to a more recent poll) and 32 would not vote for a gay or lesbian candidate, 49 percent would refuse to vote for an atheist.

What is about atheists that make Americans so uncomfortable?     

Anglo-American author and journalist, the late Christopher Hitchens, author of the book “God Is Not Great: How Religion Poisons Everything,” attributed Americans unease with non-believers to the dominate role religions, particular Conservative Christians, play in our political system.

“Being an atheist is about the worst thing you can be in terms of having a public life in the U.S.,” says a leading American atheist and neuroscientist Sam Harris.

A University of Minnesota study concluded that atheists are the most distrusted and reviled minority group in the country and ranked even lower than Muslims and recent immigrants in sharing survey respondents’ vision of American society.  Nearly half said they “would disapprove if my child would want to marry a member of this [atheist] group.”

The U.S. is the well-know exception to the rule that the wealthier and better-educated a country is the less religious its citizens.  In Western Europe, once the center of Christianity, the percentage of people attending church regularly is down to less than 10 percent.  Is it any wonder that Conservative Christians have such distain for Europe?

The same pattern holds true for the handful of countries in Latin American that have experienced strong economic growth the last decade, including Brazil, Chile, and Mexico, although all three are still far more religious than Europe.

The irony is that while political life in the U.S. is drenched in religion more than ever, Americans are becoming less religious. The 2008 Religious Identification Survey found 12 percent of Americans were atheist or agnostic, nearly double the number from a poll in the late 1990s.

Don’t count either the candidate making appeals to non-believers, however. God, guns and country are sure to be the main themes this year as they have in the recent past.

Posted in Politics, Social Commentary, Uncategorized | Tagged , , | Leave a comment

The Price of Everything

Did you know that Air New Zealand hired thirty people to shave their heads and wear temporary tattoos with the slogan “Need a change? Head down to New Zealand?”

That prisoners in Santa Ana, Calif., can upgrade to a cleaner, quieter cell away from other prisoners for $82 a night?

That a North Carolina-based charity offers drug-addicted women $300 cash if they will undergo sterilization and more than three thousand women took the organization up on the offer?

Or that Western couples seeking surrogate mothers increasingly outsource the job to India, where the practice is legal and the going price of $6,250 is less than one-third the rate in the United States?

These four examples are among numerous cited by Michael Mandel in his book “What Money Can’t Buy” of how markets have come to govern our lives. The Harvard political theorist argues that we are almost unconsciously allowing markets to shape our values and decisions in ways that undermine society’s fairness.   

Markets are generally efficient at setting prices on goods and services and allocating resources.

But how much power do we want to give markets over our lives?

When money becomes the price of everything, it corrupts motivations, degrades pleasures, and exacerbates inequality.

A world where money buys everything including is even harder on the poor than one in which the rich are simply rich, according to Sandel.

Why?

Because a society that maintains accessible, affordable and high-quality public services and goods provides more opportunity for the poor than one in which a decent education, the ability to get around and medical care are only available for a price. 

In the Citizen United era, money has come to dominate our politics as never before, those with it have the power to shape what government does; those without it don’t.

The relentless attack on public goods by the Republicans and their moneyed elite allies, begun in earnest during the Reagan Administration, is exacerbating inequality and destroying millions of lives. 

Why worry about flying out of a deteriorating, overcrowded, second-rate airport like LaGuardia when you can fly to the Cape or the Hamptons in your private plane out of Teterburo.

Or sending your kids to a barely functioning public school when a plethora of first-rate Ivy league prep schools await them with open arms for a mere $40,000 a year?  

The marketization of everything also means that people of affluence and people of modest means lead separate lives, what Sandel calls the “skyboxification of everyday life.”

Places and activities which used to bring people of all means together like sporting events no longer do; not in an era of $20,000 personal seat licenses, corporate suites, and $5,000 courtside seats.

In the face of hostility towards government and taxation, public goods have been starved of investment and the market has stepped in to provide services that the public revenue can no longer support; for a price that is increasingly making them inaccessible to citizens of modest means. 

Public spaces, including parks, arenas and stadiums, libraries and schools are being festooned with advertising and bear the names of corporate donors or the wealthy.  

At their core, markets are not concerned with the common good.

They worship only money and power; they exploit, pollute, impoverish and repress to enrich the powerful.

Markets let the uninsured die, throw poor families out of houses, poison the environment and shortchange public infrastructure

A society dominated by markets ends up revolving around the empty pursuits of mass culture, consumption and status.

The moral corruption of society by our overemphasis on markets is matched by a cultural contamination in which our civic discourse is dominated by celebrity gossip, political scandal and consumerism.   

Do we want a society where everything is for sale or one in which we value certain moral and civic goods and don’t allow them to be sold to the highest bidder?

Or in the words of Oscar Wilde one in which we know the price of everything and the value of nothing?

Posted in Economics, Politics, Social Commentary | Tagged , , , , | Leave a comment

Facebook IPO: Friend or Foe?

One of the most hyped and eagerly anticipated Internet initial public offering (IPO) is scheduled for Friday.

The investment community – with the media’s not insignificant helping hand – has sent a clear message:  Facebook (FB) with its anticipated record-breaking $100 billion-plus valuation is hot.

Whether the company can stay hot, keep growing, and satisfy its new shareholders while not offending users is another thing.

Media and Wall Street frenzy aside, savvy investors are contemplating the following: Is Facebook destined to be the next Google dominating an important part of the Internet and generating billions-of-dollars in profit yearly or the next Yahoo struggling to make money and stay independent or worse yet the next one-time-$183-billion-valued-now-fading-to-irrelevance AOL?

Time will tell.

But before getting into Facebook’s long-term financial prospects in another column, let’s be frank what the social media juggernaut’s IPO really represents  (other than making money for the Web site’s executives and employees, original investors and investment bankers);  the latest and possibly most pernicious step in the commercialization of every nook and cranny of our lives.

In their fawning and uncritical coverage of Facebook and its founder Mark Zuckerberg, the mainstream media has failed to address the more important moral and philosophical issue surrounding social media; the commodification of personal and sometime intimate relationships, feelings and experiences.

Facebook’s high minded (but in retrospect hypocritical and cynical) rhetoric about “making the world more open and connected and building tools to help people build and maintain relationships” has been replaced by “product experiences centered on social relationships powered by Facebook.”   

Facebook has amassed more information about more people than any one company in history.  The site’s 900 million users post 3.2 billion comments and 300 million photos daily.

It doesn’t take a genius to figure out how Facebook hopes to generate the tens-of-billions of dollars in revenue and billions in profits yearly it must to justify its anticipated $100 billion-plus stock market valuation; by leveraging the desires, photos, tastes and relationships of the site’s users to sell advertising.   

Would users have willingly gone along with what has been clearly a con by Facebook executives to amass their personal information if they knew what was going to happen with it? Are they aware that the price to participate free-of-charge in Facebook’s social media world is giving up the rights to all the stuff they post on the site so Mark Zuckergberg and his colleagues can make billions?

Most users are blissfully aware about what is going happen to their beloved Facebook now that is has to produce ever-increasing revenue and profits.   

If Facebook has it way going online will be less about finding out what’s your friends are up to and more about what products and services they’ve bought or would recommend buying.

In a shot across the bow just before its IPO, General Motors, the third largest advertiser in the U.S., decided to discontinue its advertising on Facebook, worth about $10 million annually.  Some analysts believe that G.M.’s decision will cause other marketers to put their Internet advertising elsewhere.

What G.M. and the other advertisers are looking for more of—and what Facebook will have to provide them to justify its unprecedented (and to date unsupported by financial results) stock market valuation – is more detailed information about its users and what they are doing on the site, and more opportunities for targeted advertising.

In other words, Facebook is about to become much less a social media platform and much more advertising, marketing and sales platform.

Facebook has made a number of acquisitions of small companies and start-ups – including Instagram –that provide the social media giant with access to new markets and more user information.  Facebook clearly aims to be the warehouse of all of humanity’s personal social interactions on the Internet, and to leverage that monopoly position to generate ever more revenue.

In addition to selling advertising on its own site, Facebook may buy media companies to use as outlets for the targeted ads its vast database of user information will allow it to create.  It can also accomplish the same thing through joint ventures with media outlets.  

Perhaps younger generations, who have grown up on Facebook posting their every thought, desire, mood, physical movement have a very limited understanding of – or need for – privacy. Their whole lives will be on Facebook servers ready to be sliced and diced and leveraged to sell products and services to the benefit of Facebook and its corporate partners.

Investors in Facebook are ultimately counting on younger generations of users to continue to use the site as a virtual storage locker of all their personal information with their every thought, picture they’ve taken, product they’ve purchased, trip they’ve taken, restaurant they’ve eaten at  to be exploited by Facebook to sell advertising and other companies to flack their products.  

Did Facebook founders ever consider keeping the site as non-commercial as possible simply charging users a yearly subscription fee and perhaps taking on a few corporate sponsors if user fees didn’t generate enough revenue to support the site’s social mission?  In other words, did they ever consider an alternative course of action that would have allowed the site to continue to focus on its social mission?

Or were the riches of Wall Street, the desire to dominate an industry, and the power that derives from running a huge company too much to resist?

 

 

Posted in Economics, Finance, Social Commentary | Tagged , , , | 11 Comments

Brazil not China Most Likely to the Ranks of Developed Economies

UPDATE 5/11

The New York Times reports today that the Chinese economy is running into trouble with exports and growth in other sectors slowing considerably during the year’s first quarter.

In another article, The Times says the country’s political model is beginning to hold back China’s economy with many of country’s economic problems actually political problems in disguise.     

 —————————————————————————————

Of the world’s fastest growing emerging economies, China has been touted as the likeliest to join the ranks of the developed world. 

Some economists are even projecting the Asian powerhouse to become the world’s most important economy, taking over from the U.S sometime before 2025.   

That said, recent political events, including the scandal involving deposed Politburo member Bo Xilai , may be precursors to China hitting an economic wall, according to the theory of economic development expounded in the book “Why Nations Fail,” by Daron Acemoglu and James Robinson.     

Up to now, China’s authoritarian growth machine has run smoothly after nearly being toppled in 1989. Since the Tiananmen Square protests that year were crushed by the ruling Communist Party fearing they might usher in at least a limited form of democratic governance, yearly double-digit economic growth has been the norm.

But unless China experiences a political revolution similar to South Korea’s in the 1980s, the country’s closed political system will prevent it from joining the ranks of first world economies and may even cause it to stagnate.  

Brazil with its open political system, smaller population and abundant natural resources is better positioned than China to join the ranks of developed economies.  

According to Acemoglu and Robinson, long-term prosperity occurs in countries that have inclusive economic and political institutions.  China, which started transitioning to a market economy in 1978, still has political institutions dominated by the Communist Party and a mix of extractive and inclusive economic institutions.

Over the same time, Brazil has developed inclusive political institutions and an economic system that is far more inclusive than extractive.

Inclusive economic institutions, such as those in the U.S. and Europe, are those that allow and encourage participation of by vast majority in economic activities that make the best use of their skills and give them the freedom to make economic decisions.

To be inclusive, economic institutions must feature secure private property rights, an unbiased system of law, and public services that provide a level playing field in which people can exchange goods and create enforceable contracts; they also must permit the entry of new businesses and allow people to choose their careers, according to the authors.

Inclusive economic institutions also pave the way for two other engines of prosperity; technology and education.     

In addition to lacking the attributes of inclusive economic systems, extractive systems are designed to wring incomes and wealth from the majority to benefit the ruling elite.

Even today, more than 30 years after the economic revolution led by Deng Xiaoping, while scores of private companies operate in China, the state still decides which sectors and companies get the necessary capital to survive or expand and most large enterprises are controlled by the party.

Chinese growth has been largely based on the adoption of existing production technologies and rapid investment, with little emphasis on innovation, technology and creative destruction – all three key attributes of highly developed economies.

Property rights are not entirely secure in China—businesses supported by the party can expropriate ordinary people’s land. Labor mobility is still tightly regulated.  And few individuals would start a business venture without the support of the local party cadre or Beijing.    

China is still growing rapidly and will continue to do so while the country can import foreign technologies and export low-end manufacturing.

But given no sign of a transition to more inclusive economic institutions or an open political system, Chinese growth is likely to slow considerably towards decade’s end once it reaches the standards of living of a middle income country.  (Today income per capita is a fraction of that in the U.S. and Western Europe.)

That is unless the increasingly powerful Chinese economic elite and Communist Party lessen their grip on power.  With few historic examples of elites willing to endanger their ability to accumulate wealth by doing so, this is an improbable outcome in China.   

A more likely outcome is one in which Chinese economic and political elites maintain their tight grip on power and growth slows considerably as true innovation and creative destruction are prevented from being introduced into the economy.

On the other hand – while not growing as fast as China – Brazil with its abundant nature resources, including recently discovered multi-billion barrel offshore oil fields, educated work force and open political and economic  systems may be in a better position than China to join the ranks of the world’s richest countries.

Brazil’s rapid economic growth and the decline in poverty since the 1990s was a consequence of diverse groups of people and organizations, including labor, business, and political leaders, community based organizations building inclusive economic and political institutions.  A bottom up approach to economic development grounded in political pluralism as opposed to China’s top down approach grounded in a one-party political system.

Brazil’s approach to economic development is similar to that which occurred in the U.S. and England, according to Acemoglu and Robinson.  

An approach the authors conclude is more sustainable, dynamic, and likely to lead to higher living standards for the entire population.

Posted in Uncategorized | Tagged , , , | Leave a comment

Cities of Hope

China may not be destined to replace the U.S. as the world’s biggest and most dynamic economy (at least not as quickly as some economists have predicted) according to one (my) interpretation of a recently released report by the McKinsey Global Institute.

That is if the U.S. doesn’t lose one of its important competitive advantages vis-a’-vis China (and other countries for that matter).

I’ll explain.

Dynamic, dominate urban areas will be key to economic growth in what has been coined the century of the city.

According to McKinsey, large U.S. cities (150,000 or more inhabitants) play a bigger role in the U.S. economy (85 percent) than large cities in other major countries and regions, including China (78 percent), Latin America (76 percent) and Europe (68 percent).  And the U.S. has more large cities, 259, than any other region or country.

Between now and 2025, those 259 will contribute more to global economic growth than the 355 largest cities of other developed countries combined. In addition, 70 of the 600 cities that McKinsey expects to generate 60 percent of global are American.   

That said McKinsey doesn’t address what may hold back the most dynamic U.S. cities from reaching their full potential; inadequate infrastructure investment, poor K-12 education, and immigration restrictions.

While China has been spending trillions of dollars on new infrastructure including high speed trains, ports, roads, and bridges the share of U.S. spending has fallen from 3.1 percent of G.D.P in 1959 to 2.4 percent in 2010 even as the country’s needs have grown.

Congested roads, antiquated air traffic systems and clogged ports are just a few of the manifestations of an infrastructure deficit that is undermining large cities’ economic efficiency.  The American Society of Civil Engineers calculates that deteriorating roads alone will cost U.S. cities $240 billion over the next ten years in lost economic growth. 

The shortcomings of K-12 education have been well chronicled by the press, studied ad nauseam by academics, and used by politicians to advance their careers. While very few reform ideas have not been at least attempted (The Bush Administration’s No Child Left Behind being a prime example), very little progress has been made.  Among peers from 34 countries, fifteen-year-olds in the U.S. ranked 25th in math, 14th in reading, and 17th in science.       

As the U.S. falls increasing behind its main competitors in K-12 science and math, policymakers must make high-skill immigration a priority.  A growing body of evidence shows that skilled immigrants fuel technological innovation and job growth.  

 A study by the National Foundation for American Policy found that immigrants were on the founding leadership teams of 24 of the top 50 privately held venture capital-backed companies.   The American Enterprise Institute and Partnership for a New American Economy echoed those findings in a similar study of Silicon Valley start-ups and recommended that the U.S. give visa priority to foreign-born workers who earned advanced degrees in engineering, science and math graduates from U.S. universities and increase the number of green cards for highly educated workers.

If the U.S. can get its act together and take serious steps to address these problems which cities are likely to succeed in an increasingly globally connected economy?

The nation’s largest megacities of New York and Los Angeles will continue to prosper, according to McKinsey. New York is on course to remain the second largest city by GDP in the world (after Tokyo) in 2025, and Los Angeles to rise from sixth place today to the fourth-largest city.

A broad base of what McKinsey calls middleweights with their relatively high per capita GDPs or fast growing populations will also continue to play outsized rolls in the U.S. economy.

They include rapidly growing “gazelles” such as Austin and Raleigh, which have outperformed the U.S. average in both per capita GDP and population growth by building on their high-tech presence and strong collaboration with local universities.

Others such as Dallas, Atlanta, Phoenix and Salt Lake City – which McKinsey calls “affordable metros” – have outperform their counterparts because their populations have expanded so rapidly.

Yet another set of cities such as Boston, San Francisco, Seattle and Washington, D.C. – “alpha middleweights”—outperform others with significantly above-average per capita GDP and sustain growth by leveraging the strength of their existing economic base.       

Both Beijing and Shanghai are expected to overtake Chicago, the third-largest U.S. city, in GDP over the next 15 years, and other large developing world urban areas including Sao Paulo, Mexico City and Mumbai will climb the GDP ranks as well.

U.S. cities that can take advantage of the urbanization in emerging economies are likely to flourish economically.

The rising power of emerging cities in Asia and Latin America is expected to favor Southern and Western cities. Companies from technology to infrastructure suppliers to consumer goods suppliers are increasingly looking to emerging economies not just for lower production costs but as alternative to slower-growing U.S. consumer markets.

U.S. cities that have good connections or build good connection to global growth hubs – whether business connections, personal connections (e.g., cities with universities that attract foreign students), or physical connections such as airport hubs and ports, will be in a better position to take advantage of rapid growth in the emerging economies including China, Brazil and India.

Posted in cities, Economics, higher education, International Affairs | Tagged , , , , , | 1 Comment

Billionaires without Morals

A million dollars really isn’t much anymore (just ask the nearest crying-in-his-beer-seven-figure-bonus-deprived Wall Street trader) not to Forbes – the magazine that compiles lists of the richest people in the U.S., Europe, Asia and now without irony dirt-poor Africa.

It seems that to get on Forbes’ radar screen now-a-days you’ve got to worth at least $1 billion.

Well the world’s got plenty of those types, 1,226 to be exact, according to the biweekly business magazine.

Forbes, which began “the authoritative pursuit of the world’s billionaires” 25 years ago when there were only 125, says those 1,226 billionaires are worth a collective $4.6 trillion.

That’s more than the annual economic output of every country in the world except the U.S. ($15.1 trillion), China ($7 trillion) and Japan ($5.9 trillion).

It’s also more than the 1.4 billion people who subsist on $1.25 a day earn in ten years.  Put another way, the world’s richest 1,226 people could support the world’s 1.4 billion poorest for ten years.

Also noteworthy, three of the countries with the world’s most billionaires, China, India and Brazil, are among the countries with the highest income inequality.

No mention is made by Forbes of how some of the world’s billionaires – not to put too fine a point on it – got so rich in the first place; namely corruption, exploiting the masses, expropriating (with the consent of politicians) public goods (i.e. television and wireless airwaves and natural resources) for private gain, manipulation of financial markets and outright skullduggery.

Granted Forbes isn’t Mother Jones or The Nation, its motto after all is “The Capitalist Tool,” but not even a nod to the billions of people living in poverty some of whose labor in the factories and mines of the world’s billionaires helps them stay that way? Or an acknowledgement of the politicians and financiers around the world who enabled many of the billionaires to accumulate their wealth?

There are 55 billionaire Indians including the country’s wealthiest individual, Mukesh Ambani. Ambani lives with his family in a $ 1 billon 27-story home (if that’s what you’d call it) in Mumbai, not far from millions of dirt poor people living in shanty-town squalor ‘ala Slumdog Millionaire.

Russia has the second most billionaires (after the U.S. naturally) with 96 despite the fact that it is only the world’s 9th largest economy.  By comparison Italy, which is slightly bigger, has only 16 and much larger China has 77.    

According to Forbes, the sources of most Russian billionaires’ wealth are – no surprise – oil, minerals, natural gas, other natural resources, steel and finance.

Russia’s standing is a great example of the amorality of the Forbes list. No mention is made of how many of the Russian billionaires got their hands on the companies or resources that made so rich in the first place: the rigging of the country’s privatization program in the 1990s to their benefit, shady financing, and indiscriminate violence, to name a few.

Nor is any mention made of how they keep their billions: political payola, bribery, murder and other mafia-like behavior, and the stashing of their wealth in tax havens.

Russians are hardly the only ones who amassed (and hold on to) their wealth illegitimately.  A quick tour of the world, for example Kazakhstan, will uncover any number of billionaires who would give the Russians a run for their money in getting and keeping ill gotten gains.   

Of course, not all billionaires amassed their wealth the same way the Russians and Kazaks did.

The world’s two riches men, Mexican mogul, Carlos Slim, and Bill Gate, took two different roads. Gates founded Microsoft and helped launch the global personal computing revolution creating wealth and jobs for countless other people in the process.

Slim, on the other hand, whose grip on Mexico’s telecom industry is so vast that it’s said that every Mexican puts a peso in his pocket every day, made his fortune by manipulating a privatization scheme with the help of politicians. Slim benefits – as do other emerging market billionaires – from being rich in a place where his wealth and power allow him to permanently rig the economy in his favor.

Of course, that’s not to say extreme wealth and power aren’t self-perpetuating in the U.S.  There will always be Rockefellers, Waltons, and Hunts among us.  It’s just that they aren’t able to dominate the economy the same way they once could or the Slims and the Russian oligarchs do in their own countries today.         

Not all billionaires relish flaunting their wealth the same way Russian oligarchs, Chinese manufacturing titans and Oracle’s Larry Ellison do buying multi-billion dollar yachts, owning multiple estates (some of which they barely inhabit), paying outrageous sums for contemporary art and traveling in their personal 747s.

Some like Bill Gates and Warren Buffet live relatively modest lifestyles and are giving the bulk of their wealth away.

Clearly the world doesn’t need more billionaires; it needs more billionaires like Gates and Buffet.

Posted in Economics, Finance, Social Commentary | Tagged , , | 3 Comments