Category Archives: Foreign Policy

Simple Economic Solutions to Big Problems

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“My business, Miss Taggart?” said Midas Mulligan. “My business is blood transfusion—and I’m still doing it. My job is to feed a life-fuel into the plants that are capable of growing. But ask Dr. Hendricks whether any amount of blood will save a body that refuses to function, a rotten hulk that expects to exist without effort. My blood bank is gold. Gold is a fuel that will perform wonders, but no fuel can work where there is no motor. . . . No, I haven’t given up. I merely got fed up with the job of running a slaughter house, where one drains blood out of healthy living beings and pumps it into gutless half-corpses.” – Ayn Rand, Atlas Shrugged

In my last post, I discussed what I thought were some of the fundamental problems with America today, giving an egregiously oversimplified explanation of why we are heading toward oligarchy. For an actual explanation of why we are heading toward oligarchy, read this review of Thomas Piketty’s Capitalism in the 21st Century, titled “Why We’re in a New Gilded Age” by Paul Krugman, or, better yet, read the actual book itself.

Given that a financial magazine for investors released it’s annual “Rich List” of the top 25 highest-paid hedge-fund managers (whom, combined, earned more last year than all of the kindergarten teachers in the U.S. combined – two times over), today felt like a good day for the second post in my series about how to get the U.S. back on track. In this post, I cover a few basic financial and economy policy proposals that are steps in the right direction.

Raise the capital gains tax

There are two primary sources of income: earned income (wages) and capital gains (returns on investments). Earned income is based on your salary. If you earn more than $100k per year, you are taxed at a higher rate than if you earn $30k. This is called a progressive tax system, because higher earners pay a disproportionate amount in taxes. People debate the nuances of this tax system, and, though it is among the lowest of any high-income countries, it is not so low as to be egregious.

In contrast, capital gains are taxed at a lower rate. There are two types: short-term capital gains and long-term capital gains. Short-term capital gains are investments that are held for less than one year, and are taxed at 35%. Buying and selling a stock or flipping a house in 6 months are examples of short-term capital gains. Long-term capital gains are investments held for longer than one year, and taxed at 15%, regardless of income level. This is effectively an implicit government subsidy for those wealthy enough to invest, and is, in effect, a regressive tax.

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During Mitt Romney’s presidential race in 2011, the subject of his taxes were a hot topic on the campaign trail. The founder of Bain Capital, a private equity firm (perhaps the most excessive beneficiaries of capital gains largesse), Romney tried hard to connect with the common people, yet refused to release his tax statements. When he finally did, it showed that he had an effective tax rate of 15% on incomes of $50 million. That is because of capital gains. Capital gains are the reason that Warren Buffett has a lower tax rate than his secretary.

This is how investors make money. Financial services has experienced the most rapid growth of any sector in the modern post-industrial economy. There is no reason that individuals who earn a living trading financial products – stocks, bonds, etc. – should be taxed at a lower rate than everyone else. Ignoring the fact that, for the most part, bankers and traders are effectively rent-seekers that add no value to society and siphon money from the system, functioning more as a parasite than anything else, these individuals need to be taxed at a higher rate.

Defenders will say that lower taxes on capital gains create incentives for people to invest for the future, hold stocks for longer, and encourage long-term thinking at companies where pressure from quarterly earnings statements engender poor decision-making. Raising the capital gains tax will hardly negatively affect any of those things. People will still invest, because, what else are they going to do? Companies that think long-term will outlast their competitors.

The only people who will be hurt bby this are career investors – the bankers, the short-sellers, the hedge funds – that have a disproportionate amount of influence in government. Raising the capital gains tax will not only generate big revenue for the federal government, it will reduce the oligarchic power that that financiers currently hold in America.

Simplify the tax code

Michael Bloomberg said that when you want people to do less of something, you tax it. The opposite is also true. The U.S. tax code is a leviathan, bloated from years of deductions and exceptions designed to incentivize specific behaviors deemed good for the economy or society as a whole. The most obvious example is the tax deduction on charitable contributions. The reason your donation to the United Way is tax-deductible is because the government wants to incentivize you to give money to charity. The tax code is filled to the brim with similar deductions, which, with the help of a savvy accountant, can turn a progressive tax system into one that rewards those who can pay for a guide to navigate the murky waters for them.

Ideally, we could start over. Get rid of the entire tax code and start over from the beginning. Make it simpler, easier to understand, and, above all else, more transparent.

For years, politicians have talked about simplifying the tax code. For an issue that receives as much bipartisan support as it does, the tax code is arguably the most difficult thing to reform, short of the prison system. There are simply too many powerful stakeholders who have a lot to lose when their deductions go away.

End farm subsidies

Farm subsidies are another egregious boon for the rich. Originally designed to make American agriculture more competitive on a global scale, the oft-debated Farm Bill contains huge subsidies for largely corporate farmers – Archer Daniels Midland, Cargill, and other conglomerates – which was hardly the intention when the legislation was originally passed.

Aside from the fact that it undermines the agriculture sectors in developing countries through a combination of cheap crops and tied aid, farm subsidies take money out of the pockets of the American people and put them in the hands of corporate farmers, without providing any real benefit to the country. The reason they still exist is because the agriculture lobby controls enough politicians in the House of Representatives and Senate that dislodging them would require a degree of political gamesmanship and backbone that this or any other congress lacks.

Tax carbon

This one is not directly related to the current issue of the hollowing out of the middle class and America’s march toward oligarchy, but I thought I would put it in here because it is both essential to our survival as a species and a fantastic source of revenue for the government. In economics, carbon emissions are what is known as a “negative externality” – a byproduct of something else that is not factored into the cost. Car emissions are a good example. A hybrid car costs more than regular gas-powered one. That is partly because the technology is newer, and partly because it is paid off over time through lower gasoline expenditures. But it also has lower emissions than gas-powered cars. Emissions from normal cars pollute the environment – a reality that isn’t factored into the cost.

That Bloomberg quote was actually a reference to his advocacy for a carbon tax. If you want people to do less of something, tax it. By taxing carbon, we could both reduce emissions and replace other taxes. Elizabeth Kolbert describes the options in The New Yorker:

In the United States, a carbon tax could replace other levies – for example, the payroll tax – or, alternatively, the money could be used to reduce the deficit. Within a decade, according to a recent study by the Congressional Budget Office, a relatively modest tax of $25 per metric ton of carbon would reduce affected emissions by about 10%, while increasing federal revenues by a trillion dollars. If other countries failed to follow suit, the U.S. could, in effect, extend its own tax by levying it on goods imported from those countries.

Normally, I wouldn’t advocate for protectionist trade policies, because, as I will explain in the next section, they are generally counterproductive and damaging to an economy. But, unfortunately, climate change, man-made or not, is a real threat. And this is an externality that is currently untaxed.

What’s next

In my next post, I’ll present a hodgepodge of other policy recommendations.

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How to Get America Back on Track

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Introduction

In my last post, I discussed the unfortunate state of affairs in the United States today. From a pre-industrial agrarian economy controlled by wealthy landowners, to an era of industrialization marked by the creation of a middle class and a period of prosperity, and ultimately a post-industrial phase where the middle is systematically being hollowed out and the extremes once again dominate the landscape, the United States finds itself at a crossroads. The country can ignore the state of affairs or rationalize it as a byproduct of modernization, continue along its current path, where increasing income stratification creates an oligarchy controlled by wealthy elites from a few key sectors – financial services and petrochemicals, to name a few. Or, it can collectively come to terms with the fact that the country has fundamentally changed over the last four decades in ways that demand significant political and culture reform.

Identifying the problems is not sufficient. With that in mind, I want to propose solutions that address what I consider to be the root causes. The criteria is that they be practical, yet attainable. They are ambitious reforms that include a mix of proposals embraced by Democrats, Republicans, or both (or neither). While they are achievable legislatively, I am ignoring the political horsetrading and gamesmanship that would be required to have them pass.

What’s Next

The thirty years leading up to 2008 are generally considered to be a period of prosperity in the U.S. A few cyclical recessions aside, the 80’s, 90’s, and 00’s were marked by solid GDP growth and a strong increase in the overall wealth of the country. Yet, with the outsourcing of labor-intensive jobs (and the weakening of labor unions in the manufacturing sectors that remained) and the overall movement toward a service-based economy, dominated by a fast-growing financial sector, income gains largely went to the top 10% of earners, with a disproportionate share going to the top 1%. Simultaneously, short-sighted economic policies designed to control government spending steadily dismantled much of the social welfare system – a trend that continues today at an accelerating pace, with family planning and food stamps as the most recent victims of the guillotine.

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Some of this was inevitable. The depletion of the middle class is a byproduct of globalization. On a global scale, it is actually a good thing, as developing countries reap the benefits of burgeoning manufacturing sectors. The result will be the greatest migration out of poverty the world has ever seen. But there is no denying that the U.S. itself will be worse off. More specifically, the low-wage workers, the urban minorities, the recent immigrants, the rural whites, the high school-educated, and all of the other would-be chasers of the elusive American dream will find fewer opportunities in this new world, and their struggles will only get worse.

So the question remains: what can we do about it? If we are undergoing a systemic change at a global level, is the situation hopeless? The answer to the second question is no. The answer to the first question is the subject of this post.

Why Tax Reform Makes Sense

On the most basic level, an economy – whether a nation or a household – is a self-contained entity in which goods and services are exchanged. In a modern economy, the medium of exchange is money – a fiat currency issued by a central bank that regulates its volume and the cost of borrowing it. When economies trade with one another, money either comes in or goes out. Rather than trying to do everything, economies specialize in whatever they are best at doing, relative to their peers. On the most basic level, you pay a plumber to fix your pipes or a carpenter to build your cabinets because it doesn’t make sense for you to do those things yourself. Instead, you earn money by specializing in what you do, and use the money generated from your expertise to pay others who specialize in something else. On a much higher level, nations specialize in broad industries. Manufacturing in Germany, financial services in Switzerland, carmaking in Japan, and electronics in South Korea are all examples of what is known as competitive advantage – where countries excel in particular sectors and trade with one another.

Within larger economies, there are smaller economies – the household, the community, the city, the state, etc. – that also trade with one another. The doctor provides care for patients and decides to re-do his kitchen. He hires a general contractor, who subcontracts to an electrician, a painter, a plumber, and a carpenter, all of whom purchase materials at Home Depot, which employes hourly workers and buys products wholesale from equipment manufacturers, which hire truck drivers and warehouse workers to move pallets. All of these people buy food from the grocery store and clothing from retailers. They buy cars and houses and school supplies. And all of those products – known as “durable goods” – that used to be manufactured here in the U.S., are now made overseas. And the people who used to make them have find new jobs, which are now in shorter supply.

So why does any of this matter? Because money moves around an economy is when people spend it. After the financial crisis, the Bush administration send every American a check for $600 so that they would get out and spend it. The much-maligned stimulus package and the tactic called “quantitative easing” – otherwise known as printing money – are both massive efforts to get people to spend money. There is a term in economics called velocity, which is the number of times a dollar changes hands during a year. The velocity of money describes the speed with which people are spending money, and, in general, faster is better.

Chart showing the log of US M2 money velocity (green), calculated by dividing nominal GDP by M2 stock, M1 plus time deposits 1959–2010. Employment-to-population ratio is displayed in blue, and periods of recession are represented with gray bars).

Chart showing the log of US M2 money velocity (green), calculated by dividing nominal GDP by M2 stock, M1 plus time deposits 1959–2010. Employment-to-population ratio is displayed in blue, and periods of recession are represented with gray bars).

So when the economy is moribund and fewer people are reaping the benefits of broader economic prosperity, the solution is to spend money. And the people who spend the most money, as a percentage of their income, are the ones who have very little. As I mentioned in my last post, the bottom 20% of earners spend more than 60% of their income on clothing and housing. After food, schooling, car payments, and other incidental expenses, they have very little left to save, much less invest in the future. To make ends meet, these individuals take on debt, which traps them in an escalating spiral of interest payments that culminate in eviction and bankruptcy. Not many people are aware of debt agreement plans, the awareness of which might have solved the issues with bankruptcy.

In short, the best way to increase the velocity of money in an economy is to put it in the hands of people who have very little, because they will spend every last penny. And the people they buy goods and services from will, in turn, spend that money at the same pace. In contrast, the best way to slow the velocity of money is to give it to people with nothing to spend it on.

It is this insight that leads liberal economists to the conclusion that taxing the rich is the solution to the problem. I don’t fully agree with this point. There is a legitimate case to be made that excessive taxes on the rich create a perverse incentive toward investment. I am not advocating raising taxes on ordinary income for the top quintile of earners. But there is another road.

In my next post, I will explain what that I believe that road looks like, from a financial and economic policy perspective.

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The Convergence: America’s Long Arc of Development

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The following is a four-part post about the phases of the economic development of nations – pre-industrial, industrial, post-industrial – and a discussion of the current state of affairs in the United States and the world.

Part I: How Countries Develop

For all of their differences, countries, and even civilizations, follow a similar path in their development. The timeline and specifics vary from nation to nation, but the general formula remains constant. On a high level, poor countries become rich through industrialization. The Renaissance in Europe, the Industrial Revolution in the United States, and the era of outsourcing – services in India, manufactured goods in China, and raw materials in Brazil – are all examples of the broad arc of economic development in once-poor nations. Mechanization produces efficiencies that make a country’s exports more competitive. When the value of exports exceed that of imports, it creates a trade surplus, also called a “favorable balance of trade”, as it brings more foreign currency into the country and generally makes the country richer.

As countries become richer and more industrialized, the economy shifts toward producing value-added goods. The wealth increase strengthens the currency of the country, and skilled – and unskilled – workers demand higher wages. As a result, labor-intensive industries become less competitive, leading rich countries to outsource these jobs to poorer countries. In the 1600’s, Colonial America traded cash crops and raw materials for finished goods from England – one of the factors leading up to the American Revolution. As the U.S. became richer post-WWII, it began outsourcing its labor-intensive industries to China and India. And today, these two countries are vying for influence and access to raw materials and cheap labor in a modern scramble for Africa.

Clark's Sector model for US economy 1850 -2009.

Clark’s Sector model for US economy 1850 -2009.

When a country develops in this way, the spoils are more equitably shared, as millions of jobs are created in new industries. From the textile mills in Lowell, to the garment factories in Bangladesh, to the manufacturing facilities springing up in Ethiopia and South Africa, a generation of previously unemployed people starts to work, fueled by demand from wealthier countries for more finished goods. And those new additions to the workforce are introduced to one of the perks of earning a decent wage: paying your taxes.

In pre-industrial nations, income is highly stratified, with an ultra-wealthy elite wielding a disproportionate amount of both political and economic power. On the other extreme, a huge percentage of the population is impoverished, rarely sharing in the spoils of the natural resource contracts that enrich the elites. The only voices that matter are those with access to money and influence, and the poor are marginalized, resigned to the realities of corrupt politicians and unscrupulous businessmen stifling growth and progress in the country.

As a country industrializes, however, the inexpensive labor provided by the massive percentage of the population living below the poverty line enables those disenfranchised segments by creating a middle class. With greater disposable income, poorer families can invest in education, ensuring that their children will reap the benefits of development by ushering in the inevitable move toward value-added goods that immediately follows industrialization. And that middle class – which pays a percentage of its hard-earned money in taxes – starts to demand accountability from its political leaders. As the concentration of wealth shrinks, the broader population begins demanding greater freedoms. A free press develops to satisfy the new-found demand for information, and politicians are brought out of the shadows and into the light.

A more responsive government and an expanded treasury lead to investments in infrastructure, education, healthcare, and other institutions, laying the groundwork for the shift to post-industrialization. With the foundation in place, the country steadily moves up the ladder. The call center that once offered only customer service now offers accounting, IT, and financial services. The t-shirt manufacturer becomes a fashion house. And with each step, the country becomes richer.

A snapshot of a post-industrial economy. Sectors of the US Economy as percent of GDP 1947-2009.

A snapshot of a post-industrial economy. Sectors of the US Economy as percent of GDP 1947-2009.

And what happens to this newly-created middle class? As their income increases, the percentage spent on food, clothing, and housing decline. Their buying power increases, their lifespan becomes longer, and the shocks that once destroyed their lives – an illness left untreated, a drought that destroyed their crops, a civil war erupting out of desperation – decrease, enabling them to not only invest more money in themselves – in the form of better healthcare, better schools, better houses – but also free them from the debilitating stress generated by uncertainty. Not knowing where your next meal is coming from, or whether your daughter will be able to survive a bout of typhoid, or malaria, or tuberculosis, weighs on the poor, deeply affecting their decision-making. Short-term thinking becomes long-term planning, and the whole country is better off as a result.

At some point – when a country has reached this transcendental state of development – it begins a steady decline. Some thinkers for whom I have a tremendous amount of respect, like Fareed Zakaria, describe a “post-American world” marked not by the decline of the west, but the “rise of the rest”. For a time, I agreed with his conclusions. But lately I’m beginning to think that view is a shade too optimistic.

Part II: The Great Divergence

The Great Divergence: share of income by the top 10% of the population in the U.S.

The Great Divergence: share of income by the top 10% of the population in the U.S.

It is hard to pinpoint the moment at which America turned the corner and began its march to peak decadence and subsequent decline. If you ascribe to what some economist call “The Great Divergence,” the trend began in the late 1970’s, as a number of convergent forces changed the economy of the United States. This is right around the time the U.S. began outsourcing its manufacturing sector in response to the increase in standard of living that I described above. James Surowiecki of the New Yorker explains the trend:

In 1960, the country’s biggest employer, General Motors, was also its most profitable company and one of its best-paying. It had high profit margins and real pricing power, even as it was paying its workers union wages. And it was not alone: firms like Ford, Standard Oil, and Bethlehem Steelemployed huge numbers of well-paid workers while earning big profits. Today, the country’s biggest employers are retailers and fast-food chains, almost all of which have built their businesses on low pay—they’ve striven to keep wages down and unions out—and low prices.

Incarcerated Americans as a percentage of the population, 1920-2008

Incarcerated Americans as a % of population, 1920-2008

Simultaneously, just as the middle class was starting to see its job prospects shipped overseas, the most influential conservative president of the last hundred years arrived to reshape the political system to systematically dismantle the welfare state, declare a war on drugs that crippled the socioeconomic development of a generation of African-Americans, and establish an approach to domestic economic policy – colloquially referred to as “Reaganomics” – that sought to restrain the power of the federal government and empower the free market through de-regulation, lower taxes, a tighter money supply and relentless opposition to anything might cause inflation.

President Clinton largely maintained the laissez-faire approach to the economy, presiding over a period of growth and prosperity that continued deep into the Bush years. Then, of course, the inevitable happened: the economy collapsed, having been fueled by a mythical belief that housing prices would never go down. The resulting collapse plunged the global economy into its greatest recession since 1929 – one which it is steadily climbing out of now.

I have purposefully glossed over the last 20 years because the actual events leading up to the collapse – liberal lending policies by the Federal Reserve, de-regulation of the financial sector, the repeal of Glass-Steagall, and other causes – are irrelevant. The financial collapse was a correction back to economy’s original state. It is simply the mechanism by which the truth was exposed. What is more interesting to me now is the current state of affairs. In a nutshell, the economic development trend is not only slowing, or even plateauing. Rather, it is actually happening in reverse.

Part III: The Current State of the Union

The share of income by the top 10% and 1%, respectively

The share of income by the top 10% and 1%, respectively

Income inequality – which decreased during the era of industrialization – is on the rise again. As money and power become more concentrated, fewer individuals enjoy the spoils of prosperity. Wealth concentration in isolated communities exacerbate already appalling disparities in our education system. In a 2012 study, the OECD (Organization for Economic Co-Operation and Development) quantified the relative performance of students in the 33 high- and middle-income countries. Among 16-24 year olds, the United States ranks dead last in proficiency in numeracy. In other words, rather than investing in creating a highly-skilled workforce that will enable the country to thrive in that post-industrial economy, it allows any advantage it once had to slip away, damaging the prospects of future generations.

And what about on a microeconomic level? Remember how the poor in pre-industrial nations spend a disproportionate amount of their income on food, clothing, and housing, leaving them vulnerable to financial shocks? Well, that is happening again too. Derek Thomson of The Atlantic provides a sobering analysis of the realities from the Bureau of Labor Statistics:

For the poor, food, clothes, and housing account for more than 60 percent of all spending. The rich have more left over for leisure, insurance, and savings.

The term consumption takes on a more literal meaning when you see the difference between rich and poor spending. Cash-hungry families consume more of their income immediately, spending two in three dollars on absolute essentials like food and shirts. The rich are more predisposed to spend toward the future, with eight-times more of their income going toward insurance and even more going toward savings (although the bottom 20 percent includes lots of retirees on Social Security, the next quintile doesn’t see much in the way of savings either).

There has been a good amount of research recently about how being poor changes your thinking about everything. “If you have very little, you often behave in such a way so that you’ll have little in the future,” Sendhil Mullainathan recently told Harold Pollack in Wonkblog. The poor don’t plan as much for the coming years, because they can’t afford to.

Thinking about the future is a form of luxury.

The percentage of income spent by category for the rich and poor

The percentage of income spent by category.

Why is this important? Aren’t we living in an era of unprecedented prosperity? Yes and no. If you are one of the 2.4 billion people living on less than $2 a day, life is hopefully going to get better for you. You will benefit from the broader trend of globalization and general connectedness of the modern world, by which information and goods flow more freely, regardless of borders. But if you are lower middle class, or, even worse, already poor in America, life is about to get a lot worse.

That is because this trend will continue. The concentration of wealth will only become more pronounced. The Citizens United decision, coupled with the recent Supreme Court decision to strike down the overall political donation cap, will only reinforce the increasingly disproportionate power the wealthy have over the American political system. This sad turn of events brings us one step closer to that pre-industrial political landscape, where the ultra-elite control the government.

Each of these developments bring us closer and closer to our origins as a pre-industrial country.

Part IV: The Future

This long arc of our historical development lead us to one inevitable truth, articulated nicely by the Nobel prize-winning economist, Joseph Stiglitz:

Nowadays, these numbers show that the American dream is a myth. There is less equality of opportunity in the United States today than there is in Europe – or, indeed, in any advanced industrial country for which there are data.

This is one of the reasons that America has the highest level of inequality of any of the advanced countries – and its gap with the rest has been widening. In the “recovery” of 2009-2010, the top 1% of US income earners captured 93% of the income growth. Other inequality indicators – like wealth, health, and life expectancy – are as bad or even worse. The clear trend is one of concentration of income and wealth at the top, the hollowing out of the middle, and increasing poverty at the bottom.

At the end of his article, Stiglitz says that it is not too late for the American dream to be restored. To that point, I believe it is important that we collectively remember our roots – not as individuals, but as a country, and even a civilization. Remember that we all started from humble beginnings and invested in ourselves to ensure that we provided future generations the resources and skills to thrive in a changing world. Because not only will that ensure that we as a country are caring for one another the way that a country should, but also, from a more realpolitik standpoint, income inequality leads to greater economic instability, and a higher risk that we tumble down the chasm yet again.

There is another alternative: that we do nothing, and the trend continues, expanding the gap between what the creator of the show, The Wire, David Simon calls the “Two Americas.” In a speech given at the Festival of Dangerous Ideas in 2013, Simon explains ones manifestation of these two options:

So how does it get better? In 1932, it got better because they dealt the cards again and there was a communal logic that said nobody’s going to get left behind. We’re going to figure this out. We’re going to get the banks open. From the depths of that depression a social compact was made between worker, between labour and capital that actually allowed people to have some hope.

We’re either going to do that in some practical way when things get bad enough or we’re going to keep going the way we’re going, at which point there’s going to be enough people standing on the outside of this mess that somebody’s going to pick up a brick, because you know when people get to the end there’s always the brick. I hope we go for the first option but I’m losing faith.

Like David Simon, I’m losing faith. I hope that we as a society can stand up and recognize this broader trend. In the opening song of the seminal Dead Prez album Let’s Get Free, “Wolves”, the narrator uses an interesting parable to explain how African-Americans in inner cities have been systematically disenfranchised and sabotaged by crack cocaine, the police state, and the prison-industrial complex:

I’m not a hunter but I am told, that, uh, in places like in the arctic, where indigenous people sometimes might, might, hunt a wolf, they’ll take a double edged blade, and they’ll put blood on the blade, and they’ll melt the ice and stick the handle in the ice, so that only the blade is protruding, and that a wolf will smell the blood and wants to eat, and it will come and lick the blade trying to eat, and what happens is when the wolf licks the blade, of course, he cuts his tongue, and he bleeds, and he thinks he’s really having a good thing, and he drinks and he licks and he licks, and of course he is drinking his own blood and he kills himself.

Paul Ryan, a disciple of Ayn Rand, who believed that faith is detrimental to human life, speaking at the Value Voters summit.

Paul Ryan, a disciple of Ayn Rand, who believed that faith is detrimental to human life, speaking at the Value Voters summit.

I would argue that that is what is happening to everyone. People are tricked to vote against their own self-interest after being whipped up into a frenzy about gay marriage, abortion, and other inconsequential issues.  “Look over over there,” while I reach into your pocket and steal your wallet. The party of Christianity and family values is the same party that votes against expanding healthcare, that votes against supporting the poor, that votes for the corporation that pollutes its rivers and destroys its communities. In the Dead Prez analogy, “social issues” are the blood, and economics are the blade.

Can we reverse this trend? I don’t know. I would like to hope that this is not the new world order. But, unfortunately, very little as of late has given me reason to think otherwise.

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The Ethical Obligations of Writing About Poverty and Conflict

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The district Kailahun, where the crisis in Sierra Leone began. (Credit: Caroline Thomas)

The district Kailahun, where the crisis in Sierra Leone began. (Credit: Caroline Thomas)

I. A Long Way Gone

The other day I finished reading “A Long Way Gone”, the autobiography of Ishmael Beah, a child soldier during the country’s civil in the 1990’s. After his village was attacked by the rebel army known as the RUF (Revolutionary United Front), Beah remained in a small town called Mattru Jong, before fleeing another attack. Eventually, he made his way across the country to a village controlled by the national army, where he becomes a drug-addicted soldier who murders and tortures people who are unfortunate enough to find themselves in his path. After two years as a soldier, he was rescued by UNICEF, brought to the capitol city of Freetown, and rehabilitated. But the rebels soon invaded the capital, and Beah fled to the U.S., where he was taken in by a woman he’d met while speaking at the UN a year earlier.

The story is raw and violent. The book became a hit, selling well over a million copies and launching a career for Ishmael Beah as an advocate for child soldiers around the world. He has spoken before the UN and other international bodies, started an charity group called Children Affected by War (CAW), and become the most famous advocate for child soldiers in the world.

Yet, as it turns out, his story may not actually be true. In 2008 – a year after the book was published – an Australian newspaper published a 4,000 word expose claiming that the attack on Mattru Jong, which kicked off a chain of events leading to him becoming a soldier, occurred in 1995, not 1993 as he had claimed. This would mean that he was only a soldier for a few months, rather than the two years he discusses in the book. Beah and his publisher denied the accusations, and the two groups have been trading barbs back and forth ever since.

The specifics of the chronology are not that important. There are plenty of explanations, not least of which is that a 13 year-old addicted to drugs and brainwashed to kill might be granted a little leeway in ability to recall specific memories. But it did get me thinking about the role of narrative in shining a light on things that might otherwise go unseen.

II. Nicholas Kristof and the “Bridge Character”

This is a topic I have written about extensively in the past. At the time, I watched international development experts criticize Nicholas Kristof for writing stories that oversimplified complex conflicts and using “bridge characters” to widen the story’s appeal. Kristof would distill the war in the DRC to a fight over natural resources, leaving out the messier parts about the oppression by the Belgians during the colonial era, or the assassination of Patrice Lumumba and the installation of pro-Western dictator, Mobutu Sese Seko, who drove the country into ruin, or, most recently, the fact that much of current conflict might be traced back to the Rwandans, who, up until a few months ago, were the darling of the international development community. If he took the time to explain the Byzantine web of cause and effect, people would simply tune out and go back to not being able to point out the DRC on a map, much less empathize for its people.

For writers like Kristof, good intentions justify the means. If you have 750 words every week through which you need to convince an audience of millions to care about something they don’t have the patience to really understand, then you do everything you can to pull at the heartstrings of your readers and draw them in not with discussions about the roots of the conflict, but about the young, usually white, recent college graduate who started a clinic serving victims of the war. Through their story, people begin to pay attention.

In an interview with Outside magazine, he explains how he decided to frame his stories the way he does:

So I turned to the field of social psychology, trying to understand how I could craft my writing so that it would generate a response rather than a turned page. Over the past 20 years, there have been many studies that shed light on this question, and, increasingly, I’ve come to believe that those of us who care about human rights and global poverty can do a far better job in our messaging. Like Pepsi, humanitarian causes need savvy marketing. Indeed, they need it far more than a soft-drink company.

Good people engaging in good causes sometimes feel too pure and sanctified to sink to something as manipulative as marketing, but the result has been that women have been raped when it could have been avoided and children have died of pneumonia unnecessarily—because those stories haven’t resonated with the public. So for God’s sake, let’s learn how we can connect people to important causes and galvanize a robust public reaction.

I think he has a good point. The cause du jour is often not always the one the demands the most immediate attention.

People demonstrate violently in the street in Bangui, demanding that President Djotodia steps down following the murder of a magistrate shot dead the night before. 30 minutes later, the Séléka arrived and fired into the crowd, killing two men and wounded one. (Credit: William Daniels)

People demonstrate violently in the street in Bangui, demanding that President Djotodia steps down following the murder of a magistrate shot dead the night before. 30 minutes later, the Séléka arrived and fired into the crowd, killing two men and wounded one. (Credit: William Daniels)

Everyone, for example, knows about the civil war in Syria, which does not even have significant advocates. But very few people, I would guess, know that the Central African Republic, a small country in a conflict-ridden region of Africa, is about to explode into civil war, prompting fears of genocide and mass murder. This report is from the Guardian newspaper last week:

A massacre of the innocents is taking place in the heart of Africa as the world looks the other way.

One man describes how his four-year-old son’s throat was slit, and how he saw a snake swallowing a baby. A woman explains that she is caring for a young girl because her mother went searching for medicine and was bludgeoned to death with Kalashnikov rifles. A young man tells how he was bound and thrown to the crocodiles, but managed to swim to safety.

This is the world of horrors that the Central African Republic (CAR) has become. Thousands of people are dying at the hands of soldiers and militia gangs or from untreated diseases such as malaria. Boys and girls as young as eight are pressganged into fighting between Christians and Muslims. There are reports of beheadings and public execution-style killings. Villages are razed to the ground.

Never much more than a phantom state, the CAR has sucked in thousands of mercenaries from neighbouring countries and, France warned on Thursday, now stands “on the verge of genocide“. Yet many would struggle to find the country on a map, despite the clue in its afterthought name.

If you count yourself among the few people who knew this story, consider yourself among the most informed in the world. But, as I will explain in the next section, graphic descriptions of conflicts can sometimes become controversial as well.

III. The Fog of War in the DRC

A friend of mine, Laura Heaton, wrote an article for Foreign Policy magazine a year ago called “What Happened in Luvingi?” It is about her trip to a rural village in the DRC that had been attacked by a rebel group, which allegedly raped 387 women over the course of the four-day attack. The conflict in the Kivu region of the Eastern DRC was notable for its violence, yet even by these standards, this was exceptinally brutal. Even worse, there was a group of UN Peacekeepers stationed nearby that failed to protect the village.

The village of Luvungi in the Democratic Republic of Congo

The village of Luvungi in the Democratic Republic of Congo

The event galvanized a massive response from the interational community. In many ways, it was a bellwether moment in the conflict, drawing the spotlight to rape as a devastating tool of war. It highlighted the ineffectiveness of the UN and its Peacekeeper program, and brought huge attention to the conflict as a whole.

When my friend went to the village three years later to investigate, she spoke to the village elders, who told her much of what she already knew, but refused to let her speak to any of the women. That night, her translator spoke to one of the women who had allegedly been raped and discovered something startling. It turns out, much of what was claimed never actually happened.

In reality, there were probably a few instances of rape, though it was probably closer to 10 than the 400 that was claimed. But by inflating the numbers, the notoriety generated by the event generated a tremendous amount of support for the community, in the form of money, healthcare, and supplies. If the true story came out, it would mean an end to all that.

This is an example of the slippery slope of hyperbole. Undoubtedly, the horrific nature of these crimes drew the world’s attention toward a problem that, up until that point, it had been able to ignore. The sheer scope of these mass rapes meant that people had to start watching and caring. But, at the same time, this particular village drew resources away from other affected areas that may have needed them more. The same ethical question remains: is exaggeration in the name of raising awareness justified?

IV. The Current State of the Debate

These three anecdotes highlight the complexities of the awareness debate. Does Ishmael Beah risk doing more harm than good to a cause if he exaggerates his experience? Does hyperbolizing an event risk diverting attention away from other, more pressing issues, or does it provoke outrage from people who would never have tuned in in the first place? Does the disproportionate attention given to particularly egregious events, like rape and crimes against children, create perverse incentives from groups in desperate need of support from the international community? These are complex and difficult questions to answer.

In the era of social media – of Twitter, Facebook, and the fast, fleeting, viral stories that circulate – you see general feel-good awareness-raising more and more. The website Upworthy shows feel-good videos of people doing the right thing in the face of adversity, allowing people to feel better and perhaps more informed about certain social issues. The story of Batkid in San Francisco, where 20,000 people helped turn San Francisco into Gotham City to make a five year-old’s wish come true, is another example. These are human issue stories that draw attention to a larger cause, but also, by their very nature, provide a narrow lens through which to view it. Childhood leukemia is something terrible that we should work hard to solve. But perhaps there are other more treatable ailments that are overshadowed by the story.

The marketing of causes by Upworthy.

The marketing of causes by Upworthy.

I think that, on-balance, simplifying issues to give them a wider appeal and increase the likelihood that action will be taken is a good thing. I don’t think that technocrats will base their policy recommendations on the writings of Nicholas Kristof, Bono, and other cause advocates. Instead, I think these advocates provide cover to policy-makers who face an electorate that needs a reason to care about these issues. Similarly, feel-good stories shared on Facebook and Twitter help to make people generally more compassionate. They expose them to real stories that allow them to experience empathy when thinking about controversial issues like gay marriage and immigration reform, where the basic rights of historically-marginalized groups are debated. The threat of being labeled a bigot carries more weight when the threat of your bigotry going viral on Facebook is real.

So, in conclusion, while I would love for the journalism of Jeffrey Gettleman and the research of Esther Duflo to have mainstream appeal, I know that will never be the case. In the meantime, if sharing Upworthy videos on Facebook makes people more compassionate, and Nicholas Kristof and Ishmael Beah inform people about injustices they would never have known otherwise, that is just fine with me.

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The Sad Aftermath of the Nairobi Attack

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APphoto_Kenya Mall Fact Check

Last month, terrorists from the group al Shabaab attacked the Westgate Mall in Nairobi, killing 67 people. In the wake of the devastating event, Kenyans rallied together in a showing of national unity often missing in this deeply divided country. Outside Kenya, the world expressed its sympathy and offered support to the country. And over the last month, under the bright spotlight of media, the government has manage to squander that good will so spectacularly that it calls into question the integrity of the most respected state institutions.

The attack occurred on a Saturday morning. The police were the first to respond, and, according to reports, managed to contain the terrorists in a corner of the Nakumatt grocery store. On Saturday evening, the KDF (Kenya Defence Forces) took over the operation from the police. A breakdown in communications between the groups led to confusion about the whereabouts of the remaining terrorists, and possibly allowing some to escape. At one point, the Kenyan military fired at the police inside the mall, killing one policeman who was responding to the attack. The siege on the mall lasted for four days, ending only after the Kenyan military fired anti-tank missiles into the store and destroyed three floors of the mall, possibly killing additional hostages.

During the siege, few details emerged about the attack and its immediate aftermath. Initial reports said that between 10 and 15 attackers stormed the mall. A month after the attack, a CCTV camera from the Nakumatt released to the press showed four men armed with AK-47s seeking refuge in the loading area of the supermarket, often putting down their weapons to pray. In addition to killing 70 innocent people, Al Shabaab could now say that four of its members held off one of the strongest militaries in Africa for four days.

A week after the attack began, shop owners were allowed to return to the mall to survey the destruction, and were surprised by what they saw. The entire mall had been looted. Everything – watches, jewelry, lingerie, electronics, and alcohol – was gone. The banks had been robbed. Six ATM machines were shot open and cash registers were emptied of their contents. Stunningly, the military claimed that it had not stolen the money, but rather “recovered and repatriated” it for the tenants at Westgate.

Within a week, 21 of the 85 businesses had filed reports with the police saying their stores were looted. Some business owners even questioned whether the military deliberately prolonged the attack to enable it more time to steal. Jeffrey Gettleman describes the aftermath:

Four days after that, the first shopkeepers were allowed back in to survey the wreckage. Millions of dollars of property had been destroyed, and businesses said that at least hundreds of thousands of dollars in cash and merchandise were missing.

On Thursday, the talk among a group of forlorn shopkeepers was of “terrorism insurance.” Nobody there had it. But Mr. Manji hoped that would not matter.

“This was not terrorism; this was looting,” he said. “It’s sad that the people who were supposed to protect us have robbed us.”

At first the Kenyan military denied the accusations. A spokesman for the KDF, Major Emmanuel Chirchir, claimed that the military was being falsely accused, citing that one store – a shoe store – had not been looted. Chirchir stated: “It would also be good to list shops that were vandalised out of the over 80 stores. So far, Bata shop has talked of its shop being intact. KDF did a fantastic job, we know our enemies who have decided to use propaganda to undermine our public good will.” That was on October 5th.

On October 3rd, A Kenyan TV station claimed to have viewed surveillance footage that showed soldiers emptying cash registers into bags and walking out of the mall with white plastic bags. Last week, television stations in Kenya aired that footage, and it was damning. Soldiers walk into the supermarket, guns raised, and later are shown walking out carrying goods with one hand and rifles with another. One soldier is shown trying to break into a jewelry case, but is unsuccessful. The military claimed that the men were only taking bottled water from the supermarket to “quench their thirst” during the assault.

The Kenyan news media, led by the Daily Nation and the Standard, are generally hard-hitting journalistic institutions, particularly by African standards. They were highly critical of the military in the aftermath of the attack, as more information came to light. And they spared no institution in their excoriation of the government and its handling of the attack.

Instead of admitting they had indeed looted the mall, the military instead began looking for the source of the leak. They interviewed the founder of Nakumatt at a police station, and, when that did not turn up anything, trained their guns on the media. On October 24th, they announced that they would be arresting and prosecuting two journalists from the Standard for their coverage of the scandal. “You cannot provoke propaganda and incite Kenyans against the authorities. The two journalists will be apprehended,” explained the Inspector-General of the police, David Kimaiyo. So much for freedom of the press.

In perhaps the strangest twist of all, the Standard published an article on October 26th titled “Kenya Defence Forces considered among strongest, most disciplined army in the world.” The timing is certainly suggestive.

The drama continues to unfold in plain sight of the rest of the world. Coverage of the looting and the internal squabbles and blame-throwing can be found in every major newspaper in the world. Kenya’s reputation as lion of East Africa – a fast-growing economy with tremendous potential in the midst of region wracked by instability – is slowly being chipped away.

No where is this feeling more palpable than in Kenya itself. In a letter to the editor, a Nation reader shared his thoughts about the crisis:

Much has been said about Kenya Defence Forces’ conduct during the Westgate siege. I feel betrayed by our forces should the allegations against them be proved true. It is disheartening watching the last bastion of integrity falling to the beast of looting and corruption.

His opinion reflects the broader feelings of many in the country. Kenya is one of the most corrupt countries in the world. It ranks 139th out of 176 on the 2012 Corruption Perceptions Index, the standard for assessing the level of graft in a country. The average urban Kenyan pays 16 bribes every single month. By some estimates, one-third of Kenya’s GDP is lost to corruption every year.

The national security apparatus was thought to be the last bastion of integrity in a sea of corrupt state institutions. This is why the realization that the KDF exploited one of the most vulnerable collective moments for the country in recent memory for its own deeply selfish gains is so troubling. If the core of the military is rotten, the thinking goes, what else is left?

The role of a free press is to expose corruption and graft and hold the guilty accountable for their misdeeds. Yet now the institutions that were supposed to protect the country are threatening that freedom by arresting and prosecuting journalists who are doing their jobs. It is a sad turn of events for a country that, just a few months ago, seemed to be on the verge of a renaissance.

John Githongo, a former journalist and anti-corruption official in the Kenyan government and subject of the book It’s Our Turn To Eat, lamented the Westgate scandal as unfortunate, not only with respect to the looting itself, but because of its predictability. In his conclusion, he explains the current state of affairs:

In truth, we celebrate thieves instead of imprisoning them; we elect those who pilfer public funds instead of throwing the book at them; we virulently abuse each other on the basis of tribe and yet employ grand pretentions to modernity.

This modernity is skin deep. Since the middle of the Kibaki regime, deepening and spreading graft has been excused away by throwing GDP numbers at those who complain about graft.

But then our entrenched corruption is merely a symptom of a deeper malaise that has de facto legalised graft. With the discovery of oil and other minerals, even Western countries that once placed graft near the top of their agenda in their interactions with us have gone silent.

The scandal is in the process of unfolding now. Where it will go remains to be seen. But what is certain is that the Al Shabaab did more than just murder 70 innocent people and terrorize a country. It revealed that even Kenya’s most venerable institutions are mired by corruption. And it is not surprising. Corruption is a cancer. Once it metastasizes, it spreads through the organism, infecting every piece of it. And Kenya, it appears, is even more infected than once thought.

Thoughts on the Nairobi Terrorist Attack, Pt. 2

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Another photo from Jonathan Kalan (Copyright AP/Jonathan Kalan)

In the last post, I gave a brief history of the events leading up to this horrible terrorist attack. Now, I want to talk about why this is happening now.

If you were to Google “Somalia” anytime in the last six months, you might be surprised to see mostly positive press about the country. The Kenyan-led invasion brought a period of stability to the country. For the first time in many years, the central government controlled most of Mogadishu. The Somali diaspora began to return to the country, looking to invest in rebuilding the institutions that had crumbled over the previous 20 years. In a move filled with symbolic significance, Turkish Airlines launched its first direct flight to Mogadishu on March 12th, 2012. For the first time in many years, optimism returned to Somalia.

In the background, Al Shabab appeared to be on the ropes. They had been beaten back to more remote areas of the country, and continued to lose what little popular support they still had. And the return of the Somali diaspora was perhaps the best indication that things were possibly taking a turn for the worst.

There are a lot of theories about why this happened now. Some people are saying that this attack was an inevitable backlash against the Kenyan invasion of Somalia. Others are saying that it is only the beginning of an Al Shabab resurgence, as it tries to push back and regain control of the country’s destiny. And some believe this is Al Shabab’s way of re-asserting its loyalty to Al Qaeda. Within Al-Shabab, there have always been power struggles between two factions – one which is focused on gaining control of Somalia, and another with jihadist ambitions of restoring the Islamic caliphate. By attacking a symbol Western influence, like an upscale mall in Nairobi, it is following through on its jihadist goals.

I don’t know what the answer is, but I suspect it is more complex than any of the reasons above. Ken Menkhaus, a scholar on Somalia at Davidson College, believes that this is an act of desperation by a fundamentalist Islamic terrorist organization that has been all but defeated in its own country. I urge anyone who wants to understand the underlying roots of this conflict to read Menkhaus’ post in ThinkProgress. In it, he explains the logic behind this brazen attack:

The Westgate attack is the latest sign of the group’s weakness. It was a desperate, high-risk gamble by Shabaab to reverse its prospects. If the deadly attack succeeds in prompting vigilante violence by Kenyan citizens or heavy-handed government reactions against Somali residents, Shabaab stands a chance of recasting itself as the vanguard militia protecting Somalis against external enemies. It desperately needs to reframe the conflict in Somalia as Somalis versus the foreigners, not as Somalis who seek peace and a return to normalcy versus a toxic jihadi movement.

I think he is largely right in the sense that this is the action of an organization whose back is against the wall and is flailing wildly. But I disagree that this is was a calculated strategic bid to gain support from a population that has turned against them. They already lost that support, and it is never coming back. A few weeks ago, Somalia’s future was bright. If Al Shabab were to have its way, the country would regress to chaos and destruction. And without a common enemy like Ethiopia – which is how Al Shabab rose to power in 2008 – there is no reason to support an organization that claims to fight for the people while callously leaving so many of them to starve to death.

Rather, I think this attack is the action of a few psychopathic, manipulative mass murderers who justify their actions under a banner of religion, and a dozen deeply misguided and sociopathic followers who have no real understanding of why they are doing what they are doing.

(In the original version of this post, I used information that wasn’t verified.  The names and nationalities of the attackers have not been released)

The Al Shabab Twitter account, which keeps getting shut down by Twitter and resurfacing again, released the names and countries of the attackers. Of the 17 names listed, six are from the United States, two from Sweden, two from Syria, and one each from Russia, Canada, and the UK. Only three are even from East Africa – two from Somalia and one from Kenya. When 15 of the 17 attackers are foreigners, it is hard for me to believe that the goal of this attack is to re-assert the power of a weakened regional Islamist organization.

Back in 2008 and 2009, Somali kids from Minneapolis began disappearing and resurfacing as fighters in Al Shabab. A detailed article in the New York Times magazine explains what happened:

For many of the men, the path to Somalia offered something personal as well — a sense of adventure, purpose and even renewal. In the first wave of Somalis who left were men whose uprooted lives resembled those of immigrants in Europe who have joined the jihad. They faced barriers of race and class, religion and language. Mr. Ahmed, the 26-year-old suicide bomber, struggled at community colleges before dropping out. His friend Zakaria Maruf, 30, fell in with a violent street gang and later stocked shelves at a Wal-Mart.

If failure had shadowed this first group of men, the young Minnesotans who followed them to Somalia were succeeding in America. Mr. Hassan, the engineering student, was a rising star in his college community. Another of the men was a pre-med student who had once set his sights on an internship at the Mayo Clinic. They did not leave the United States for a lack of opportunity, their friends said; if anything, they seemed driven by unfulfilled ambition.

“Now they feel important,” said one friend, who remains in contact with the men and, like others, would only speak anonymously because of the investigation.

These are not native Somalis committed to the restoration of a Sharia-controlled government in Somalia. They are radicalized, deeply insecure, and easily manipulable kids believe they are fighting for a cause that they have been convinced is noble.

I think this is the action of nihilistic psychopaths who pervert religion as an end to justify their evil means. They understand nothing about Kenya, other than what they have been told, and callously murdered nearly 100 people this weekend. They fight under the banner of an organization with the blood of 260,000 Somalis – including 120,000 children – on its hands. What they have done is inexcusable and they deserve to die, which they know too well is their inevitable fate at the end of this standoff.

While I don’t agree entirely with Ken Menkhaus’ analysis of the situation, I do agree with his conclusions about what to do next:

The Kenyan people and government now control the next move. If they respond to this terrible tragedy with restraint and respect for due process and rule of law, they will do more to undermine Shabaab than all of the counter-terrorism operations conducted inside Somalia.

Kenya and Kenyans are not the only players who have the next move. Somalis – in Kenya, in Somalia, and in the diaspora – also face an unavoidable and immediate choice. Either they can mobilize against Shabaab and take the movement out once and for all – by drying up its financial sources, exposing its operatives, and denying the movement any safe space from which to operate – or they can sit on their hands and make vague calls for a negotiated settlement, as they have done for years. Somalia desperately needs a “Sunni uprising” against the hard-core extremists who now make up what is left of Shabaab. If Somalis refuse to act decisively against Shabaab, then it will be up to foreign governments to crush the group. But this will entail crackdowns that will almost certainly impact innocent Somalis and legitimate Somali businesses in Kenya and around the world, and that is not in anyone’s interest except Shabaab’s.

This is ultimately a Somali problem, and requires a Somali solution that is swift and unequivocal. If that happens, the terrible attack of September 21 will go down as the day Shabaab dug its own grave.

I know it will be hard to forgo retribution against Somalis living in Kenya. But Kenya is a beacon of optimism in East Africa, and its people are rallying in support. They will be shaken, but unnerved. They are resilient, and will respond in a measured and thoughtful way. And, with any hope, the Al Shabab and all of its leaders will die a quick death.

Thoughts on the Nairobi Terrorist Attack, Pt. 1

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A photo taken by my old roommate, the incomparable Jonathan Kalan (http://www.kalan.me/)

This weekend a dozen gunmen stormed the Westgate Mall in the Westlands neighborhood of Nairobi. Armed with AK-47s and grenades, they killed 70 people and injured 150 more. As I write this, a former colleague at Bridge is in the hospital and my friend Ravi is still missing. Waiting to hear any news has been painstakingly difficult as we all pray for him. I am not a particularly spiritual man, but, for the last 36 hours, I’ve been praying for some good news.

There is so much I want to write about here that I don’t even know where to begin. This will be a long series of posts.  I’m going to start by giving the context for while all of this is happening.

A Brief History of Terrorism in Kenya

When I moved to Kenya in May of 2011, Somalia was characteristically a mess. The country barely had a functional central government, and the majority of the country was (and still is) lawless. The country is technically split into three semi-autonomous regions: Somaliland, Puntland, and Somalia. Somaliland is a functional region within Somalia that is far more stable than the others. Puntland is second in terms of stability, but it is best known for being the epicenter of piracy off the Horn of Africa. Somalia, which covers the southern half of the country, is a fragmented, war-torn region controlled by warlords from different clans. Despite being one of the most homogenous country in Africa – everyone speaks the same language (Somali) and follows the same religion (Sunni Islam) – the country has an extensive clan structure that dominates what little political landscape exists.

A bit dated, but an accurate depiction of the situation in 2011

In May 2011, Al Shabaab (literally translated as “The Youth”) controlled huge swaths of Somalia. They had been firmly in control for several years, and wreaked havoc on the population. During the worst famine in decades, Al Shabaab refused to allow foreign aid organizations into the country to deliver food to starving populations. As a result, the food crisis escalated into a famine, and tens of thousands of people starved to death. Later, they bombed a public square in Mogadishu where young students were applying for scholarships to study at university. It was despicable to watch then, and many times I wrote on this blog about the nihilistic and wanton brutality employed by the group towards its own people.

The turning point came in late 2011, when pirates on two occasions crossed the Kenyan border and abducted tourists from the pristine island of Lamu off the northwestern coast of Kenya. After a French tourist died during the ordeal, Kenya decided to invade Somalia and neutralize the threat to its border. Over the course of a few months, working in tandem with UN peacekeepers from Uganda and other nations, the Kenyan military drove the Shabab from its strongholds in Mogadishu and Kismayo, where it controlled the port and extracted a large amount of the revenue that kept it in operation.

In effect, two complementary forces led to Al Shabab’s weakening. Most directly, military intervention by Kenya and the Uganda-led peacekeepers killed much of the group’s leadership and rank-and-file. Military force, however, would not have been sufficient had Al Shabab not lost the support of the people. The group claimed to fight for the Somali people against foreign powers that sought to control the country, rising to prominence in the wake of a failed US-backed invasion by Ethiopia. But the Al Shabab’s cruel indifference to the suffering of the people during the famine, its brutal enforcement of Sharia law, and its callous efforts to violently prevent any semblance of Western influence to permeate the country, led Somalis to turn against them and support their neutralization. All of these events – the kidnapping, the bombing in Mogadishu – occurred in October 2011, which is when the tide turned.

After the invasion, Al Shabab vowed retribution against Kenya. My friends and I became warier of our surroundings. We would frequently hear from a friend of a friend at the U.S. embassy that the Al Shabab was planning an attack and that we should stay away from certain places. During the summer of 2011, my friends and I would often go to the Westgate mall and get brunch at ArtCaffe, the restaurant that became the epicenter of the attack yesterday. After Kenya declared war on Somalia, we stayed away for a while.

Over the next few months, there were random attacks here and there, though none appeared to be coordinated terrorist plots. I remember sitting in London Heathrow Airport in January 2012, waiting for my connection to Nairobi, and watching a report on the BBC warning people not to go to Kenya because of an imminent terrorist attack. But the alert came and went, and no attack was staged.  It remained like this for months, as broad warnings thankfully never came to fruition.

We were all surprised that there were no attacks from Al Shabab that year. Nairobi has so many soft targets that creating havoc would be easy. But, at the time, people surmised that the reason for the apparent peace was not because of the tactical difficult of staging an attack, but rather the extensive Somali diaspora in Nairobi whose business interests were so intertwined with the Kenyan economy. If the Al Shabab were to commit terrorism in Nairobi, there would inevitably be a backlash against the Somalis, which would compromise Somali business interests and further alienate the group from its population. So, as a result, they staged more attacks closer to home – in Mogadishu and in Kenyan border towns like Garissa.

I left Nairobi for good in May 2012 having avoided any violence. There continued to be a lull until this weekend, when the Shabab committed the worst terrorist attack the country has seen since 1980.

In my next post I will give my thoughts on why this happened.

The Intangible Wealth of Nations

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Lady Justice: 57% of a country’s intangible wealth

A few months ago, the White House released its “New Strategy Toward Sub-Saharan Africa,” which contains four key bullets summarizing its approach.  The first, and most important, goal is one that has been a pillar of American foreign policy for decades: “Strengthening democratic institutions.”  The State Department has tried to use a variety of carrots and sticks to make this a reality, including providing incentives for implementing democratic reforms in the form of of financial and in-kind aid.  In the most recent Economist, one of the lead articles calls for Western nations (specifically, the United States and Great Britain) to withhold aid from Rwanda, in protest of the Kagame government’s alleged human rights abuses in his own country and in the neighboring Democratic Republic of the Congo.

But, in this post, I’m less interested in discussing how to achieve democratic reforms than explaining why they are important.  With China’s model of “state-run capitalism” running circles around paralyzed developing-world democracies like India – a country whose legislative gridlock and inept bureaucracy produced a two-day blackout – and a largely-autocratic government in Rwanda producing remarkable reforms (I saw them firsthand in the beautifully-run capital of Kigali), some people have challenged the notion that democracy is the answer.  But, if democracy is executed well, as it is in Ghana, the rewards are increased wealth, though not in the form you might expect.

There is a concept called “intangible wealth,” which refers to the wealth created by functioning institutions.  And, according to a study by the World Bank, intangible wealth accounts for a huge part of a country’s overall wealth.  In an article titled “The Secrets of Intangible Wealth,” Reason magazine explains the concept in greater detail:

Two years ago the World Bank’s environmental economics department set out to assess the relative contributions of various kinds of capital to economic development. Its study, “Where is the Wealth of Nations?: Measuring Capital for the 21st Century,” began by defining natural capital as the sum of nonrenewable resources (including oil, natural gas, coal and mineral resources), cropland, pasture land, forested areas and protected areas. Produced, or built, capital is what many of us think of when we think of capital: the sum of machinery, equipment, and structures (including infrastructure) and urban land.

But once the value of all these are added up, the economists found something big was still missing: the vast majority of world’s wealth! If one simply adds up the current value of a country’s natural resources and produced, or built, capital, there’s no way that can account for that country’s level of income.

The rest is the result of “intangible” factors—such as the trust among people in a society, an efficient judicial system, clear property rights and effective government. All this intangible capital also boosts the productivity of labor and results in higher total wealth. In fact, the World Bank finds, “Human capital and the value of institutions (as measured by rule of law) constitute the largest share of wealth in virtually all countries.”

Once one takes into account all of the world’s natural resources and produced capital, 80% of the wealth of rich countries and 60% of the wealth of poor countries is of this intangible type. The bottom line: “Rich countries are largely rich because of the skills of their populations and the quality of the institutions supporting economic activity.”

Intangible wealth helps explain why some countries are rich and others are poor.  At some level, natural resources, climate, strategic geography, and proximity to water and coastline are important.  But it is not hard to see why well-designed and functioning institutions are critical to growth.  Let’s dissect the components.

According to the report, the rule of law accounts for 57% of a country’s intangible wealth – by far the largest percentage.  So how does the rule of law facilitate economic growth?  One big reason is the enforcement of contracts.  Businesses and individuals need to have confidence that, when they enter into an agreement, the terms of the agreement will be respected by the other party.  Contracts enable investment, which provides capital to allow business to expand.  In the United States, the legal resources for lenders and negative repercussions for borrowers have led to a financial system that offers the cheapest credit in the world (perhaps too cheap).  In contrast, in Africa, interest rates on a business loan might be 10-20% or more, since the legal channel for dealing with default is obscure or corrupt or non-existent.  As a result, investment capital is difficult to source and businesses find it more difficult to grow.

Container volume by port

Another example is corruption.  In Kenya, the port in Mombasa, a coastal city, competes with Dar es Salaam, the capital of Tanzania, for ocean cargo throughout East Africa.  Both ports operate at a fraction of their capacity because of the corruption that has prevented their modernization and the streamlining of the process.  Here are a few illuminating statistics:

  • It takes 19 days to move a container from Singapore to Kenya, and another 20 days to move it by road from Mombasa to Nairobi.   It takes 71 days to get a container from Burundi to anywhere in East Africa.
  • The cost of shipping in East Africa is 70% higher than in the United States and Europe.
  • The port in Singapore processes more cargo in one week than the Mombasa port does in a year.

If the government of Kenya invested money in modernizing the port, rather than embezzling the money intended for improvements, and ran the port at the same level of efficiency as Dubai, Singapore, or Hong Kong, it would add several points to the country’s GDP.  Better yet, if it privatized the port, which is what most shippers would prefer, and enforce anti-corruption laws, the amount of wealth generated would be massive.

The second largest component is education, which accounts for 37% of intangible wealth.  It is not difficult to see why investment in human capital pays dividends for an economy in the long-run.  Providing a strong primary and secondary education to all students, and establishing a robust post-secondary education system prepares people to compete in an increasingly global marketplace.  This, in turn, generates greater income and accrues more wealth for a country.

The American Enterprise Institute – a thinktank that I don’t typically agree with – provides a list of some other reforms that facilitate the generation of intangible wealth and alleviate poverty:

  1. Establish and maintain the rule of law.
  2. Focus the jurisdiction of government primarily on maintaining the rule of law, and limit its jurisdiction over the economy and the institutions of civil society.
  3. Implement a formal property system with consistent and accessible means for securing a clear title to property one owns.
  4. Encourage economic freedom.
  5. Encourage stable families and other important private institutions which mediate between the individual and the state.

I do not think that democracy has a monopoly on producing a strong legal system and a good education system.  I do, however, think that the United States has one of, if not the best, legal systems in the world, and a good education system, despite the glaring inequities I discussed the other day.  Despite its shortcomings, of which there are many, the American democratic system has produced an immense amount of intangible wealth for the country.  It is a good model for other countries to emulate.  And, if executed well, the potential dividends are huge.

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Dambisa Moyo: Right and Wrong About China in Africa

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Dambisa Moyo recently wrote an op-ed in the New York Times asserting that the surge in investment by China in Africa has been a positive development for the continent.  A lot of people take issue with Moyo’s oversimplification of highly complex problems, sweeping generalizations, and lack of analytical rigor.  I tend to agree with many of her points, as I have discussed in this blog, with the exception of a few critical assertions.

First, Moyo, the development economics pugilist who believes that foreign aid undermines democracy and growth in the third world, discusses China’s motivations for investing in Africa, explaining why, unlike other exchanges between governments, it is a mutually-beneficial relationship between two countries:

Despite all the scaremongering, China’s motives for investing in Africa are actually quite pure. To satisfy China’s population and prevent a crisis of legitimacy for their rule, leaders in Beijing need to keep economic growth rates high and continue to bring hundreds of millions of people out of poverty. And to do so, China needs arable land, oil and minerals. Pursuing imperial or colonial ambitions with masses of impoverished people at home would be wholly irrational and out of sync with China’s current strategic thinking.

Moreover, the evidence does not support a claim that Africans themselves feel exploited. To the contrary, China’s role is broadly welcomed across the continent. A 2007 Pew Research Center survey of 10 sub-Saharan African countries found that Africans overwhelmingly viewed Chinese economic growth as beneficial. In virtually all countries surveyed, China’s involvement was viewed in a much more positive light than America’s; in Senegal, 86 percent said China’s role in their country helped make things better, compared with 56 percent who felt that way about America’s role. In Kenya, 91 percent of respondents said they believed China’s influence was positive, versus only 74 percent for the United States.

Moyo is correct about China’s motivations.  As the world’s manufacturer and home to one of the fastest-growing consumer classes in the world, they have an insatiable demand for raw materials to ensure their factories are running.  Oil, natural gas, timber, and other materials are abundant in Africa and available to the highest bidder.  In the colonial era, European countries divided up Africa along arbitrary lines at the Berlin Conference, and used the newly-created countries as repositories raw materials without regard for the native populations.  As a result of severe mismanagement on the part of the colonial powers and poor governance after independence, populations not only saw none of the rewards of the natural resources taken from their countries, they were penalized in the form of inflation as one country after another succumbed to what is known as Dutch Disease, or the natural resource curse.

China, in contrast, frequently trades in-kind with African governments, building roads and hospitals in exchange for exclusive resource contracts.  By improving infrastructure and delivering results, the Chinese largely circumvent the traditional channels of corruption – no-bid contracts with firms started by politicians, for example – and ensure that the people benefit.  I saw this firsthand when driving along Thika Road, one of the largest Chinese infrastructure projects in Sub-Saharan Africa, which cut a two-hour commute down to 30 minutes for a huge number of people working in Nairobi.  I have written in the past about the impression these developments have left on Africans.  There is little doubt in my mind that, despite bouts of shady activity, the Chinese are a positive force in Africa.

Had Moyo stopped there, we would have been entirely in agreement.  But, I think she has a tendency in her essays and her books to view the world in binary, drawing clear lines of causality amid complex systems.  In the op-ed, she assigns blame for Africa’s governance problems on the influx of aid, which supposedly undermines the ability of the people to hold their leaders accountable for failures of government.

China’s critics ignore the root cause of why many African leaders are corrupt and unaccountable to their populations. For decades, many African governments have abdicated their responsibilities at home in return for the vast sums of money they receive from courting international donors and catering to them. Even well-intentioned aid undermines accountability. Aid severs the link between Africans and their governments, because citizens generally have no say in how the aid dollars are spent and governments too often respond to the needs of donors, rather than those of their citizens.

In a functioning democracy, a government receives revenues (largely in the form of taxes) from its citizens, and in return promises to provide public goods and services, like education, national security and infrastructure. If the government fails to deliver on its promises, it runs the risk of being voted out.

The fact that so many African governments can stay in power by relying on foreign aid that has few strings attached, instead of revenues from their own populations, allows corrupt politicians to remain in charge. Thankfully, the decrease in the flow of Western aid since the 2008 financial crisis offers a chance to remedy this structural failure so that, like others in the world, Africans can finally hold their governments accountable.

This is a relatively common theory of why Africa’s leaders are so unbelievably corrupt.  But I disagree for several reasons.  First, it shifts the blame from corrupt politicians to the supposedly enabling factors that entice them to steal.  This is ridiculous.  Corrupt leaders – African or other – steal because they are bad leaders and, I would say, bad people.

Results from the Corruption Perceptions Index

The fact that foreign governments provide the money for the education system does not mean that politicians are obligated to steal it.  They could, for example, use to it to build schools and pay teachers.  But, unfortunately, they often don’t, opting to steal the money instead.  This isn’t always the case, as Ellen Johnson Sirleaf in Liberia, John Atta Mills and Ghana, and other good democratic leaders have shown.  But, when it does happen, the donors are not to blame.  The blame rests solely with officials – elected and unelected – who chose to steal the money.

Second, Moyo believes that if countries stop giving foreign aid to corrupt governments, those governments will cease to be able to provide basic services to their people.  The people, in turn, will then rise up to overthrow the government, replacing it with a better, more honest government.  In theory, this is how democracy works.

In practice, the reason African leaders are not held accountable has less to do with foreign aid and more to do with their unwillingness to relinquish power after their term has ended.  In the days of the cold war, when the U.S. and Soviet Union purchased influence from corrupt autocrats like Mobutu Sese Seko in Zaire (now the DRC), you could possibly make this point.  But, today, I think that is hardly the case.  Take Zimbabwe.  Robert Mugabe violently represses all dissent, and has remained in power for 30 years.  His longevity has nothing to do with his ability to deliver services to his people (he doesn’t).  Laurent Gbagbo in Cote D’Ivoire killed hundreds of people to stay in power (he didn’t).  In the last year alone, the president of Mali, Ahmadou Toumani Toure, was overthrown in a coup, and the president of Uganda, Yoweri Museveni, brutally repressed protesters and political opponents.  Today, the leading candidate for president in Kenya, Uhuru Kenyatta, is currently on trial at the Hague for war crimes.  He was sent to the ICC for his role in the post-election violence of 2007.  If he is elected, it will have nothing to do with foreign aid.

In contrast, one leader who cites Dambisa Moyo as a offering a model path for Africa is known for systematic repression of dissent.  Paul Kagame, the president of Rwanda, has undoubtedly done great things for the country, in terms of economic development, healthcare, and other public services.  But his record on human rights has been questioned, at best, making his actions difficult for some stomach.  (As a caveat, the reasons underlying Kagame’s approach to governance are complex and can be discussed in another post.  My intent is not to take a stand – only to show that it is not cut-and-dry.)

The fact is that Chinese investment in Africa is a good thing.  But to draw a straight line of causality connecting foreign aid with prevalence of corruption and malfeasance in government is ludicrous.

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Why Jim Kim is Right for the World Bank

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As faithful readers of this blog know, I am a big fan of the Barack Obama’s foreign policy positions and decisions.  Specifically, I like his deference to nuanced conditions and his emphasis on achieving the objective over claiming credit.  In my neck of the woods – specifically, Libya, Somalia, and Uganda – he understands and appreciates the nuances that made previous incursions into the region unsuccessful.  I think he understands that multilateralism and mutual respect can achieve more than the cavalier dependence on American exceptionalism.

That is why when I read that he endorsed Jim Kim, co-founder of Partners in Health with Paul Farmer and a giant in the field of public health, for the World Bank presidency, I tipped my hat.  Since its establishment, the executive positions of the World Bank and the International Monetary Fund (IMF) have been held by an American and a European, respectively.  Former French finance minister Christine LaGarde recently replaced Frenchman Dominique Strauss-Kahn after – in one of the great ironies in the history of the institution – he was arrested for allegedly assaulting a Guinean woman.  So when Robert Zoellick announced he would not re-run for the top spot at the World Bank, people debated whether Obama would be the first to break the streak and allow a non-American to run the Bank.

There is good reason for the Americans to run the bank.  For one thing, it was created by the U.S. and the Allies in 1944 at the tail end of World War II.  Though it started as a lender to post-war European economies, by 1968, the World Bank had shifted its focus to developing countries, funding infrastructure projects and enacting various poverty alleviation strategies. With some policy shifts here and there – most notably during the Reagan years, where neoliberalism was the approach du jour and the Bank’s sister institution, the IMF, created controversial structural adjustment programs that saddled many developing countries with tremendous amounts of debt in exchange for opening their economies – the Bank has focus on eradicating poverty and improving the lot of the four billion people living below the poverty line.

Kim, the MD/PhD

Unlike many previous World Bank presidents, Jim Kim is not a bureaucrat, politician, or World Bank insider.  He is a proven innovator and a man whose commitment to the cause cannot be questioned.  He has an MD/PhD from Harvard and has worked with some of the pre-eminent public health institutions in the world.  In founding Partners in Health, he built an organization that now employs 13,000 people in 12 countries, serving the poorest populations in the world.  Most recently, he served as the first Asian-American president of Dartmouth College.  In a letter to The Guardian, Professor Martin McKee explains why Kim is a smart choice:

Some commentators will no doubt be offended by the idea that someone who is neither a banker nor an economist could occupy this post. Others may think that, in these difficult times, we need someone like Jim Kim, who combines academic rigour with practical first-hand experience of the reality facing the world’s poor.

Jim Kim is a perfect candidate for the World Bank presidency.  He is a first-generation Korean immigrant with a proven record of success.  He is clearly innovative and committed to the work that the Bank is mandated to carry out.  Having spent his life outside of government, he is apolitical and carries no baggage.  Unlike one of his top competitors, Jeffrey Sachs, his positions on development are much more nuanced and his views less explicit.   Recently, Sachs withdrew from the race and endorsed Kim himself.  I find myself in agreement with his assessment:

Obama has shown real leadership with this appointment. He has put development at the forefront, saying explicitly, “It’s time for a development professional to lead the world’s largest development agency.”

Kim’s appointment is a breakthrough for the World Bank, which I hope will extend to other global institutions as well. Until now, the United States had been given a kind of carte blanche to nominate anyone it wanted to the World Bank presidency. That is how the Bank ended up with several inappropriate leaders, including several bankers and political insiders who lacked the knowledge and interest to lead the fight against poverty.

The Bank can be where the world convenes to address the dire, yet solvable, problems of sustainable development, bringing together governments, scientists, scholars, civil-society organizations, and the public to advance that great cause. This is a global imperative, and we can all contribute to fulfilling it by ensuring that the World Bank is an institution truly for the world, led with expertise and integrity. Kim’s nomination is a tremendous step toward that goal.

Over the past few years, I have talked about Jim Kim a lot after my father – a physician and Dartmouth graduate – recommended the book Mountains Beyond Mountains about the work of Kim and Paul Farmer.  My dad often compared people to either Farmer or Kim.  The former loved working in the field directly with patients, while the latter preferred tackling the problem at a high level, prioritizing policy over practice as a way of maximizing his impact.  Clearly, Barack Obama’s endorsement is both recognition of Kim’s record and another example of the strategic underpinning of Obama’s approach to foreign policy.  After all, if Obama plans to pivot away from the Middle East toward Asia, endorsing Kim, an Asian-American born in Korea, sends the right signal.  Plus, Kim’s impeccable record exists in spite of his American citizenship, yet the presidency of the World Bank would still remain in the hands of an American.

As someone who works in the field and appreciates the nuances of foreign policy, I applaud the decision to elect Kim.  I look forward to seeing what innovations he will bring to the institution.

The founders of Partners in Health - Kim, Ophelia Dahl, and Paul Farmer

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