A LITTLE RED GUIDE TO MODERN CHINA - nationalinterest.org Digital Edition.pdf · Number 128 ....

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Number 128 • Nov / Dec 2013 • $8.95

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Keith B. Alexander The NSA in CyberspaceAmity Shlaes Dismantles Woodrow WilsonJacob Heilbrunn Debunks Isolationism Christian Caryl Revises George W. BushMilton Ezrati Flailing in France

A LITTLE RED GUIDE TO MODERN CHINA

by Ian Bremmer

Number 128 . November/December 2013

The Realist

5 The Myth of the New Isolationism by Jacob HeilbrunnA chorus of media and foreign-policy elites is decrying the return of isolationism. But it is prudence about employing military force in Syria and elsewhere that will sustain, not undermine, American leadership abroad.

Articles

9 Superpower or Superbust? by Ian BremmerChina’s leaders have promoted far-reaching reforms and impressive growth, but new challenges loom. Skeptics of Beijing’s ability to master them, however, are wrong. But cooperation, not confrontation, between Washington and Beijing will be critical for both countries.

18 Defending America in Cyberspace by Keith B. Alexander, Emily Goldman and Michael Warner

Cybersecurity threats represent a defining test for the United States. The National Security Agency is pursuing a focused strategy to protect the nation in a domain where its adversaries’ capabilities are growing rapidly.

25 Les Misérables by Milton EzratiOppressive taxes and stultifying regulations are sapping France’s economic vitality. If Paris does not reform, its influence in the European Union will be increasingly supplanted by Germany’s.

38 Give Corruption a Chance by Vivek S. SharmaTwo cheers for corruption. While Westerners are accustomed to viewing corruption as a pathology or plague, it has been the long-standing practice of many societies throughout human history and often produces beneficial outcomes.

46 The Next American Majority by William W. Chip Many talk about America’s “demographic revolution” as if it were a law of nature. In fact, it’s a result of conscious policy choices—ones that could end up having profound economic and social effects.

55 Money Never Sleeps by Christopher WhalenThree years after its passage, the Dodd-Frank financial-reform bill seems to resemble a new Washington Monument—to folly and hubris. The law lacks powerful provisions that might help prevent another financial crisis and might even trigger a fresh one.

Reviews & Essays

64 Misunderestimating Bush and Cheney by Christian CarylIt’s common to think of George W. Bush as Dick Cheney’s puppet. In truth, it was Bush, more than anyone else, who created the world we continue to live in. Peter Baker’s Days of Fire dispels many of the myths that continue to enshroud his presidency.

72 A Frenzied Pedagogue by Amity ShlaesWhether he was running Princeton University or the United States, Woodrow Wilson never doubted he was right. He should have. His record of intervention—both overseas and in the economy—was much more damaging than his biographers and historians have acknowledged.

86 Breach of Logic by James Joyner Andrew Bacevich, the distinguished critic of U.S. foreign policy, now asserts that the chasm between civilians and the military is undermining American democracy and driving us toward perpetual war. Yet his argument is unpersuasive and his proposed solution unworkable.

Images AP Images: page 66; Corbis: pages 7, 10, 15, 17, 24, 26, 28, 31, 57, 58, 60, 71, 74, 77, 81, 84; Getty: pages 40, 43; iStockPhoto: pages 20, 23, 48, 51, 87, 90, 95

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Graham Allison

Conrad Black

Patrick J. Buchanan

Ahmed Charai

Leslie H. Gelb

Evan G. Greenberg

Gary Hart

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Kishore Mahbubani

John J. Mearsheimer

Richard Plepler

Alexey Pushkov

Brent Scowcroft

Ruth Wedgwood

J. Robinson West

Dov Zakheim

Contributing EditorsAram Bakshian Jr.

Ian BremmerTed Galen Carpenter

Christian CarylAriel Cohen

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Bruce HoffmanMichael Lind

Lewis E. McCraryPaul R. Pillar

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5The Realist November/December 2013

The Realist

The Myth of the New IsolationismBy Jacob Heilbrunn

S ince September 11, 2001, the United States has damaged its reputation and national security by lurching from

one war to the next. Afghanistan, which began triumphantly for the Bush adminis-tration, has devolved into a protracted and inconclusive war in which the Taliban is making fresh inroads as American and al-lied forces hand over security to the Afghan army. Then there is Iraq. It was purveyed by the Bush administration to the American public as a mission that could be accom-plished swiftly and smoothly. Neither oc-curred. Since then, President Obama’s self-styled humanitarian intervention in Libya has led to instability, allowing local militias, among other things, to pretty much bring the oil industry to a standstill by disrupt-ing major export terminals. Most recently, it looked as though Syria might be Libya all over again—an American president em-barks on an uncertain crusade, and Britain and France join to provide the necessary diplomatic persiflage for justifying a bomb-ing campaign.

But this time a funny thing happened on the familiar path to war. The British parliament, scarred by memories of Tony Blair’s bogus campaign for war in Iraq, just

said no. A similar development occurred on Capitol Hill. Though Secretary of State John Kerry declared that this was a “Munich moment,” no conversion on the road to Damascus took place in the House and Senate. Instead, antiwar Democrats and conservative Republicans made common cause. Faced with a congressional vote in the House and Senate that likely would have been the most humiliating presidential rebuff since Woodrow Wilson lost the League of Nations vote in 1919, Obama pivoted. He acceded to a Russian proposal for a diplomatic solution that may have preserved not only the peace, but also his presidency.

So habituated have America’s media and foreign-affairs elites become to intervening abroad, however, that a chorus of liberal hawks and neoconservatives is decrying what it sees as a resurgence of nasty isolationist sentiments. The New York Times’ Bill Keller, who previously championed the Iraq War, wrote, “America is again in a deep isolationist mood.” After Obama signed off on the agreement with Russia, Richard Cohen fumed in the Washington Post, “Because of Obama’s fecklessness—abetted by a Congress that has turned darkly isolationist—the world is now a less safe place.” And in the Wall Street Journal, the neoconservative columnist Bret Stephens wrote: “The Syria debate is also exposing the isolationist worm eating its way through the gop apple.”

Ac tua l l y, i t i s n’t . Que s t i on ing intervention in Syria is not tantamount to a reversion to the most blinkered isolationist sentiments that percolated on both the Jacob Heilbrunn is editor of The National Interest.

The National Interest6 The Realist

right and left before Pearl Harbor. Rather, it represents something else—a healthy and sensible and overdue embrace of prudent foreign-policy principles that have, more often than not, been scanted in recent decades.

A glance back at the history of isola-tionism helps to clarify what is not at

stake today. For likening the contempo-rary controversy over Syria to the one over World War II obscures more than it reveals. Though there were undoubtedly anti-Se-mitic conservatives on the isolationist side, its adherents, as both Lynne Olson and Susan Dunn show in recent books, ranged across the political spectrum, with such fu-ture liberal stalwarts as Kingman Brewster and Sargent Shriver joining the movement. The debate over intervention was not al-ways as irrational as it might seem in retro-spect. The burden of proof, given America’s long-standing detachment, was on those who wanted to make the case for interven-tion. Nor is this all. Though it often tends to be forgotten, the ferocious debate over entering World War II did serve a valuable purpose. Absent that debate Franklin Roos-evelt would not have had a unified country behind him as he battled the Germans and Japanese.

The antipathy toward intervention was largely rooted in bitter disappointment with the outcome of World War I, when the punitive Treaty of Versailles flouted the idealistic principles that Woodrow Wilson had enunciated in his Fourteen Points. Instead of ending conflict, the Great War, as it was known, only seemed to prepare

the ground for the next one. There was thus vigorous opposition to entry on both the left and right. Many worried that U.S. participation in yet another war would transform the country itself into a dictatorship. As Sidney Hook observed in his memoir Out of Step, Wilson’s own draconian restrictions on civil liberties during World War I, which included the imprisonment of socialist leader Norman Thomas and the passage of the Espionage Act of 1917 that the Obama administration is currently exploiting to silence government whistle-blowers, left a lasting mark:

The recollection of the reign of terror against political dissenters and radical aliens . . . swept the country in the wake of World War I. Mem-bers of the Socialist Party, which had heroically resisted giving support to that war, had very vivid memories of the mob action and official lawlessness of those years. Thoroughly exposed and denounced in the twenties and thirties, the terror was fresh in everyone’s memory.

Perhaps the most powerful current running through the isolationist movement was the conviction that World War II simply amounted to another Old World balance-of-power struggle. This was wrong. The realists—whose ranks included Herbert Hoover and the Wall Street Journal editorial page—were unrealistic. They failed to grasp that Hitler was not simply a new version of Kaiser Wilhelm. He was something far more fearsome—a mad tyrant intent on a global war for racial supremacy. After World War II, the isolationist impulse

Questioning intervention in Syria is not tantamount to a reversion to the most blinkered isolationist sentiments that

percolated on both the right and left before Pearl Harbor.

The Realist 7November/December 2013

briefly resurfaced in the gop as Ohio senator Robert Taft—known as “Mr. Republican”—opposed the Marshall Plan, the establishment of nato and the Korean War. But it became impotent and obsolete once Dwight Eisenhower crushed Taft in the 1952 Republican primaries and won the presidency. Since then isolationism has been a phenomenon confined to figures such as former representative Ron Paul and columnist Patrick J. Buchanan.

Which, in fact, is what it remains. Yes, the Syria debate has created new blocs on both the right and left that are warning about the perils of attacking Syria. But the concerns that they are raising—about the extent of American commitments, about possibly aiding jihadist factions, about a slippery slope—are commonsense ones that should be enunciated before the United States enters any conflict abroad. To call this a retreat from the world amounts to defining isolationism down.

No doubt this territory appears more virgin to the Republicans than to the

Democrats. The Democrats were faster off the mark in reconstituting their antiwar fac-tion during the Iraq War. By contrast, the gop, goaded on by neoconservative think-

ers and writers who defected to it en masse during Ronald Reagan’s first run for the Oval Office, successfully depicted many Democrats, from Jimmy Carter onward, as ninety-eight-pound foreign-policy weak-lings. In his 1982 novel The Dean’s De-cember, Saul Bellow acutely captured neo-conservative disquiet with liberals: “We are used to peace and plenty, we are for every-thing nice and against cruelty, wickedness, craftiness, monstrousness. . . . Our outlook requires the assumption that each of us is at heart trustworthy, each of us is naturally decent and wills the good.” After 9/11, the neocons achieved suzerainty over Republi-can foreign-policy debate during the George W. Bush administration, and it has not been successfully dislodged since then. But as the Republican Party reinvents itself, the neocons may be the ones who find them-selves in the minority. The Syria debate, along with the brouhaha between leading Republicans such as New Jersey governor Chris Christie and Senator Rand Paul over the National Security Agency’s spying ef-forts, indicates that the old consensus in the gop isn’t just fraying. It’s cracking.

A new generation of leaders is emerging in the Senate. Gone is neoconservative stalwart former senator Joseph Lieberman,

The National Interest8 The Realist

who is now huddled together with former senator Jon Kyl at the American Enterprise Institute, where the two issue regular pronunciamentos lamenting America’s purported retreat from the international stage. Senators John McCain and Lindsey Graham have been upstaged by the likes of Senators Rand Paul and Ted Cruz, both of whom opposed the Syria venture (though the latter has adopted a very hard line on Iran). Paul has distanced himself from his father’s views—“there are definite differences,” in his words—and hailed the containment strategy and realist wisdom of George F. Kennan in a February speech at the Heritage Foundation. Among the Democrats, liberal hawks such as Kerry, Ambassador to the United Nations Samantha Power and National Security Adviser Susan Rice seem to have believed that a second Obama term would permit them to embark upon a new crusade for international norms abroad.

They were mistaken. Public opinion does not back such norms, and Americans will not support going to war for the Kennedy School. The proponents of war often act as though military force is the only tool that America can employ. “The inescapable truth is that only the United States can play cop,” says Richard Cohen. “We have the wherewithal. A further inescapable truth is that evil exists and needs to be fought.” This is dangerously solipsistic, the kind

of thinking that imputes a unique moral virtue to the United States. It rests on the easy assumption that good intentions are enough to effect even better results. Yet a right to protect does not always mean that the United States is protecting righteously.

Diplomacy, a thriving economy, a vibrant culture—these, too, are powerful (and neglected) tools for spreading the American credo. The framework agreement struck by Kerry and Russian foreign minister Sergei Lavrov on verifying and dismantling Syrian stockpiles of chemical weapons could serve as the basis for a broader rapprochement between Moscow and Washington. Obama’s support for talks with Iran also represents engagement, not isolation. Republicans would do well to recall that past presidents such as George H. W. Bush and advisers like Henry Kissinger united diplomacy and force to exercise American leadership abroad. By contrast, if the United States were to apply the unilateralist prescription of the hawks for remedying the world’s ills consistently, then their fear of isolation would become a self-fulfilling prophecy. Which is another way of saying that it isn’t those counseling restraint that are imperiling America’s engagement with the rest of the world, but, rather, those with a proclivity for recommending a militarized form of confrontation, whenever and wherever possible. n

9Superpower or Superbust? November/December 2013

As if a global financial-market melt- down, the deepest U.S. recession in

seventy years, an existential crisis in the euro zone and upheaval in the Mid-dle East hadn’t already created enough trou-ble for one decade, now the unrest and anx-iety have extended to some of the world’s most attractive emerging markets. Just in the past few months, we’ve seen a rough ride for India’s currency, furious nationwide protests in Turkey and Brazil, antigovern-ment demonstrations in Russia, strikes and violence in South Africa, and an ominous economic slowdown in all these countries.

Adding to the uncertainty, as the carnage and confusion in Syria remind us, is the fact that there is no longer a single country or durable alliance of countries both willing and able to exercise consistent global leadership. The Obama administration and congressional Republicans don’t want to alienate a war-weary U.S. public by spending blood in the Middle East or treasure in Europe. Europe’s leaders have their hands full with the euro zone. And though the governments of emerging markets want a more prominent international voice, they face far too many tests at home to welcome new responsibilities abroad. Because no one is providing predictable leadership,

international problems are more likely to become crises in the years to come, and the world’s wildfires will burn longer and hotter.

W ith this in mind, it is all the more remarkable that there’s been so little

noise from China, especially since the rising giant has experienced a once-in-a-decade leadership transition, slowing growth and a show trial involving one of the coun-try’s best-known political personalities—all in just the past few months. Given that Europe and America, China’s largest trade partners, are still struggling to recover their footing, growth is slowing across much of the once-dynamic developing world, and the pace of economic and social change within China itself is gathering speed, it’s easy to wonder if this moment is merely the calm before China’s storm.

Don’t bet on it. For the moment, China is more stable and resilient than many realize, and its political leaders have the tools and resources they need to manage a cooling economy and contain the unrest it might provoke. This is a country that has come a long way in a remarkably short time. It is now home to the world’s second-largest economy, one bigger than those of its fellow brics countries (India, Russia, Brazil and South Africa) combined. In 1977, China accounted for just 0.6 percent of global trade; in 2012, it became the world’s largest trading nation. Today, 124 countries count China as their largest trade partner, compared to just seventy-six

Ian Bremmer is the president of the Eurasia Group, global research professor at New York University and a contributing editor at The National Interest.

Superpower or Superbust?

By Ian Bremmer

The National Interest10 Superpower or Superbust?

for the United States. China is expected to become the world’s largest energy importer later this year, and it’s already the leading carbon emitter, automobile market and smartphone market. Roughly six hundred million of its citizens are now online. All this success has earned the leadership considerable credit with China’s people.

The fact that China has so far avoided the unrest and uncertainty plaguing so many other countries these days is good news for those who depend on China’s strength for the stability of their own economies, but it is bad news for those who hope that China’s leaders will soon begin to adopt new attitudes toward global politics and market-driven capitalism. Outsiders, particularly Americans, have called on China to become a “responsible stakeholder” in the international system and have wished aloud that as its economy depends more heavily on investment in countries and companies in every region of the world, it would begin to behave as a global partner, one that

privileges peace and predictability above all else. There is little evidence that this is happening. Beijing continues to limit its involvement in most international disputes to calculated moves to protect its various commercial interests and to diplomatic efforts to blunt U.S. influence and extend its own.

Some have also expressed the hope that a new generation of Chinese leaders will launch a Gorbachev-style drive for political opening at home. But that, too, is unlikely. Though some elite-level Chinese officials are too young to remember the violent chaos of China’s Cultural Revolution of the 1960s and 1970s, they remember well what Gorbachev’s reforms meant for the Soviet Union in the 1980s and early 1990s—and for Gorbachev himself.

Nor should we expect a near-term push to fully dismantle China’s system of state capitalism, though there are plans to try to make it work more efficiently. China’s leaders know they must gradually

reduce the role of the state in the economy as they seek to transition away from an economic model that is too dependent on corporate and government investment. The country must also shift from a twentieth-century manufacturing-based economy to a digital-age model that relies on the power of Chinese innovation.

Both these transitions will require a significant transfer of wealth and decision-making power from public to private hands, and although China’s leaders recognize that these changes must come, they have adopted a gradualist approach. The leadership has demonstrated considerable urgency in making changes to China’s banking system and in opening new areas of the economy to foreign investment, but for now, it is working mainly to improve the country’s state-led growth

Superpower or Superbust? 11November/December 2013

model, not to bury it. State capitalism—a system in which political officials use state-run companies, privately owned national champion firms, state-owned banks and sovereign wealth funds to ensure that China can generate growth, jobs and wealth without empowering potential domestic political rivals or losing control of the pace of development—has been at the heart of China’s success for many years, and it will be central to China’s development for some time to come. State-owned enterprises and the companies affiliated with them now account for more than half of China’s output and more than half of its jobs. Their dominance is easy to document: in 2012, there were seventy mainland Chinese companies on the Fortune Global 500 list, and China’s government owned sixty-five of them.

Nor are we likely to see a pause in China’s military buildup—even if its political leaders have lately adopted a less confrontational approach with the country’s neighbors. In 2012, territorial conflicts with Japan in the East China Sea and with Vietnam, the Philippines and others in the South China Sea sharply intensified. Then, with the elevation of President Xi Jinping and Premier Li Keqiang earlier this year, the new leadership has made a concerted effort to ease tensions in the region and with the United States.

But the military and other security voices are likely to push back against this shift over time. The People’s Liberation Army (pla) is home to more hawks than any other area of China’s government, and beyond ideological or strategic differences with civilian leaders, future funding levels for the pla will depend on the military’s ability to maintain the public perception that it is of central importance for China’s security.

Even when its economy has surpassed that of the United States to become the world’s largest, China will still be a relatively

poor country with many unanswered fundamental questions about its future. Its single-party politics and its relative social stability have defied apocalyptic predictions for more than two decades, yet its ability to power forward over the near term should not lead us to underestimate the longer-term questions to come.

Not all of its tests will come at home. As China’s growth depends increasingly on expanding and deepening trade and investment ties in every region of the world, the country’s leaders will find themselves involved in many forms of international conflict with which they have little direct experience, particularly in the Middle East, and they are likely to discover that its global economic presence does not imply global power.

Though the restoration of America’s economic dynamism, the redesign of the euro zone, Middle East turmoil and the diverging fortunes of other emerging markets are vitally important stories, China, its challenges and their implications for everyone else will be the world’s most important wild card over the next generation. Given the growing stakes that the rest of us have in its stability, China’s problems will be our problems too.

P eople have been predicting a hard land-ing for China’s economy and a direct

challenge to the Chinese Communist Party for at least twenty-five years. Hedge-fund manager Jim Chanos began warning in 2009 that the country’s real-estate market had moved China’s economy onto a “tread-mill to hell.” Wei Yao, an analyst at French bank Société Générale, warned earlier this year that China might soon face a “Minsky moment,” the point at which China col-lapses under the weight of the debts accrued by Chinese companies. Gordon Chang, au-thor of the 2001 book The Coming Collapse of China, argues that its current slowdown


is nothing less than China’s “Lehman mo-ment,” a reference to the largest bankruptcy in U.S. history. Chanos, Wei and Chang have plenty of company, and their warnings may one day be proven right. Whatever the imbalances in China’s economy, however, they are unlikely to stoke regime-threat-ening levels of unrest in the near future because three decades of go-go growth and swelling national pride provide leaders with considerable political capital.

Give China’s planners their due: they have enacted substantive, far-reaching economic reforms more consistently and for longer than policy makers in any other emerging-market country. In a country long plagued by peasant rebellions, they created movement in a once-static society by enabling hundreds of millions of workers to shuttle between the countryside and fast-growing cities. They invested heavily in the roads, bridges and ports that move products and in the communications networks that move information. In 2001, they defied skeptics by committing the country to the World Trade Organization—and have generally abided by the institution’s rules and rulings. They moved quickly following the onset of the financial crisis in 2008 to stimulate growth and job creation through more spending on the country’s infrastructure. As important, they are resisting further such moves during the current slowdown in order to begin the next phase of reform, one which requires a step away from reliance on state-driven investment and spending.

Changes are also under way in the governance of China’s much-criticized

banking sector. Enormous levels of speculative lending have to be better regulated, though as with the European Central Bank the funds are there to recapitalize failing institutions wherever necessary as changes in financial-market governance are made. That is not a long-term solution, but Beijing will likely be able to balance between addressing these concerns and sustaining growth—preventing the near-term hard landing that some analysts expect.

The worrying news for outsiders hoping to profit from China’s growth is that its state-capitalist growth model remains strong. Plenty of foreign companies, including American firms, will continue to profit mightily from their commercial relationships with state-owned companies. But state capitalism hurts foreign firms in two ways. It undermines the foreign multinationals that must compete with Chinese state-owned rivals that are armed with substantial financial and political backing from their government, and it creates all kinds of obstacles and risks for foreign firms investing and operating inside China. Years ago, anxious to gain access to foreign investment, technology and managerial expertise, China opened its markets to welcome all three. Yet, as exposure to these resources began to empower Chinese companies to see foreign firms more often as commercial rivals than potential partners, they began using their connections with Chinese political officials at both the state and local levels to tilt the playing field in their favor. Some Chinese local and corporate decision makers have

China, its challenges and their implications for everyone else will be the world’s most important wild card over the next generation.


always opposed the introduction of foreign competition onto their turf.

The latest example of direct state involvement in China’s domestic economy takes the form of China’s creation in 2011 of “strategic emerging industries,” sectors designated as of special interest to the Chinese government, which wants to develop a system of “indigenous innovation” to help Chinese companies climb the value chain. Foreign investment in these sectors is welcome, and some will continue to earn healthy profits for some time to come, but the foreign companies that enter often are forced to share advanced technology with Chinese partners or have it stolen by Chinese competitors, and this problem is likely to intensify over time.

In addition, across a variety of consumer sectors, Western firms now face an increasingly unpredictable operating environment. Beyond familiar stories about information heavyweights Apple, Google and Yahoo and their struggles with the Chinese government, other episodes are less well known. In December 2012, China’s state-run broadcast network produced an investigative report charging that U.S. fast-food retailer Kentucky Fried Chicken was pumping antibiotics into the chicken it sold in China. A month later, kfc sales in China fell by more than 40 percent. Volkswagen, McDonald’s and the French firm Carrefour have received similar treatment in China’s official media. Recent corruption investigations have also focused on the pharmaceutical industry, while antitrust probes have targeted other food companies. Both will probably expand to more sectors in the months to come. Some of these moves are probably intended to deflect public anger at corruption within the ruling party and to blunt foreign criticism of Chinese companies, but as is often the case in China, foreign firms will face increasing regulatory pressure.

But it is the uncertainty over China’s future rather than the country’s current

strength that should worry us most. In fact, though it has so far avoided the volatility we’ve seen this year in Turkey and Brazil and the violence of the Middle East, China is the major emerging-market country least likely to develop along a predictable path.

First, there is the question of China’s aging population, a product in part of the country’s one-child policy. In 1980, China’s median age was twenty-two. That number is expected to surge to thirty-eight by 2020 and forty-seven by 2040. There are already nearly two hundred million Chinese citizens over the age of sixty, and by 2025, that number will top three hundred million.

As the total number of workers begins to fall, the economy cannot expand without a significant increase in the productivity of each worker. Without the kind of innovation that creates the technological change that expands production capacity, China’s economy will slow much more quickly than its leaders are hoping—and at a moment when China’s social safety net, still under construction, will meet its ultimate test. Can the reform process help China meet these challenges? That remains to be seen.

Complicating the effort to keep the peace as China rises is the gap inside the country between rich and poor. In 2012, China’s Gini coefficient—a measure of income inequality from 0 to 1, with higher numbers meaning increasing inequality—reached 0.47. Some analysts consider any number higher than 0.4 as a warning sign of potential unrest. Consider, too, that this is the figure published by China’s government and may not be accurate. What do China’s own business elite think of their country’s future? In July 2012, a study published by the Hurun Report, which documents the behavior and attitudes of China’s wealthiest citizens, reported that


more than 60 percent of those surveyed had either filed paperwork to leave the country or had already emigrated. More than 85 percent said they send their children to schools in other countries.

The greatest domestic test will come from the endemic weakness at the heart of China’s current strength: state capitalism. Social unrest may challenge the leadership, but state capitalism, the basis of China’s ability to grow its economy and create jobs, will play an enormous role in determining how severe that unrest is likely to be. Though many of China’s largest state-owned enterprises are professionally and competently managed, the state-capitalist system is subject to all the same inefficiencies and corruption risks of any system directed by government, particularly an authoritarian one. Its primary purpose is to create and maintain jobs, achieve investment objectives designed to bolster state stability and generate wealth for the well-connected few, not to unleash creativity that responds to public demand for new and better products and services. That’s why state capitalism is not equipped to create the lasting and broadly shared prosperity on which construction of an innovative digital-age economy will depend.

Further, once you build it, it’s a hard thing to take apart, because those who profit from the system have enough influence within the ruling elite to resist efforts to reform it. Innovation-based, self-regenerating economic success depends on “creative destruction,” a process by which the workers, resources and ideas that once sustained one company or sector are freed to recombine in new forms that then produce new goods and services that meet the evolving wants and needs of consumers. Those who administer China’s state-capitalist system fear creative destruction because they cannot control the ways in which it creates winners and

losers or the pace at which it moves. When old industries die, workers lose jobs and wages, and the risk of unrest grows. Even in a free-market system, politicians are blamed for lost jobs and wages, but when the government owns the company that owns the factory, its responsibility for job creation and protection is more direct and more obvious.

State capitalism cannot be maintained indefinitely because China is already losing some of the advantages on which its state-directed, export-driven economy has been based. When then premier Wen Jiabao declared several years ago that China’s development model was “unstable, unbalanced, uncoordinated, and unsustainable,” it was in part because he understood that growth in China had already produced demand for higher wages among Chinese factory workers, a process that will inevitably erode the cost advantages that drew so many foreign firms to outsource manufacturing to China years ago. Today, a growing number of Chinese companies are working to keep their competitive edge by outsourcing their own operations to cheaper labor markets in Southeast Asia.

Other Asian states have been here before. Export-driven growth once lifted postwar Japan out of poverty. Taiwan and South Korea followed Japan along this path. Japan in the 1970s, Taiwan in the 1980s and South Korea in the 1990s made the transition now facing China from high-growth, export-driven economies toward a more moderately paced model driven and stabilized by middle-class purchasing power. Yet, all three were either democracies or had begun to undertake substantive political liberalization during these transitions. Can China’s authoritarian system absorb the shocks this transition is sure to produce? That too remains to be seen.

Then there are the unprecedented tests


awaiting China’s leaders on the global stage. The nation’s economic interests are taking China’s government and state-owned companies into politically riskier countries. Meanwhile, a revolution in oil production and drilling techniques is attenuating U.S. dependence on oil from the Middle East. In fact, the United States has reduced its

imports from opec countries by more than 20 percent just in the past three years and could become the world’s largest oil producer by 2020 and energy self-sufficient by 2035. China, on the other hand, is becoming more dependent on imports from countries like Saudi Arabia, Iran, Iraq, Libya, Sudan and Venezuela. Beijing has so far managed to maintain a policy of “noninterference” in the affairs of other countries, but as Washington becomes less willing to engage in the Middle East, China will find itself forced by its thirst for energy to take up the slack, involving Beijing in conflicts it has little experience managing.

Complicating matters further, although China has investment partners, it has no powerful allies—that is, governments that share Beijing’s political values and have the capacity to make a meaningful contribution to China’s security challenges. Even Russia, China’s frequent partner in un Security

Council obstruction, is unlikely to deepen its military ties with Beijing. The two sides continue to compete for influence in the Central Asian states that lie between them, and deep distrust of the other’s intentions remains the dominant sentiment in both militaries. Cooperating to thwart U.S. plans is easy. Working to change the international

status quo is much more difficult. Nor can China count on an increase in its soft power to extend its influence. Mandarin Chinese is unlikely to replace English as the language of global popular culture, and China lacks the ideological appeal that once drew a large segment of the developing world toward the Soviet Union.

In a world where governments can’t afford to go it alone to protect their interests, China will struggle to build durable partnerships that extend its power.

W ashington has settled on a smart ap-proach to the unpredictability of

China’s future, one that combines direct engagement of China’s leaders with a hedg-ing strategy that deepens U.S. political, trade, investment and security ties with many of China’s neighbors. This is the aim of the “rebalancing” to Asia, a plan which explicitly recognizes the U.S. commitment


to play a comprehensive long-term role in a region that can drive global growth over the next generation, but which will also face a number of developing security challenges without the institutional framework—no Asian Union, no Asian nato—to effectively manage them. East Asia, in particular, is home to China, the emerging powerhouse, South Korea, a dynamic, developed coun-try, and Japan, still a leader among indus-trialized nations. Yet, it is also the arena in which China’s rivalries with Japan, India and a number of Southeast Asian nations will play out—and where the North Korean wild card will continue to generate uncer-tainty and risk.

The rebalancing will continue the process of shifting a significant percentage of U.S. naval assets toward Asia, but a central component of this strategy is completion of the Trans-Pacific Partnership (tpp), an enormous trade deal involving more than a dozen Pacific Rim countries. Crucially, Japan’s new government, led by Prime Minister Shinzo Abe, has overcome traditional Japanese resistance to multinational agreements that pry open sensitive economic sectors to begin to negotiate membership. The U.S.-South Korean free-trade agreement entered into force last year.

Some in China see the tpp as an attempt to contain China’s expansion, and there is little chance that Beijing will push for early membership since the agreement would open areas of its economy that are not yet strong enough to withstand foreign competition. Even if President Xi does lead China toward the tpp faster than expected,

the complexities of the multilateral negotiating process ensure that China won’t be able to join for some time to come. There is nothing in the tpp, however, that prevents members from forging trade and investment agreements with China or any other nonmember, allowing the United States to use it as a hedge against China’s growing regional power while leaving the door open for deeper engagement in the future. That’s the right balance.

Though the Obama administration has the right strategy, it has not given it the priority it deserves and is far too easily distracted by other issues, particularly in the Middle East. Washington can hardly afford to ignore developments in Syria, Egypt and other hot spots. The future of the euro zone will have far-reaching effects on the U.S. economy. Developments in Latin America are vitally important for U.S. security and prosperity. Yet, work on the rebalancing has barely begun, and opportunities to engage China directly have not received the energy and care they deserve.

America and China are the two largest economies, two leading trading nations and two biggest polluters. America is the world’s largest debtor nation, China the largest creditor. It is impossible to rebalance the global economy, slow climate change, meet emerging security threats, and promote peace and prosperity in Asia without as much cooperation as possible between the leading established and emerging powers. This work is in the interests of both countries and both governments.

Presidents Barack Obama and Xi Jinping have a lot to talk about. The future of the

Cooperating to thwart U.S. plans is easy. Working to change the international status quo is much more difficult.


largest bilateral trade relationship in history, the potential for security cooperation for mutual benefit, the future of the Korean Peninsula, containment of conflicts in cyberspace, opportunities for joint development of energy-efficient technologies as a means to stoke economic growth and combat climate change, and a hundred other subjects should fill the early agenda. And make no mistake: it is the presidents themselves who should lead this effort to give it the urgent attention it deserves.

It is easy enough to list the ways in which U.S. and Chinese interests differ. China’s leaders will not accept international responsibilities that compromise their ability to maintain stability at home. They will continue to allow the Chinese currency to appreciate at a pace designed to protect China’s development, not one intended to help Washington balance its books. They will not accept criticism of their human-rights policies or of their approach to Taiwan or Tibet.

For their part, U.S. leaders will continue to press China to accept more responsibility for helping to manage security threats that weigh on both the U.S. and Chinese economies. They will continue to insist

that China protect intellectual-property rights, abide by trade and investment rules, and work to resolve territorial disputes with its neighbors that might flare out of

control. And U.S. officials will continue to insist that China grant its citizens greater freedoms, even if they know that Beijing will resist.

These sources of disagreement are obvious, but they should not prevent the two governments from improving their relations wherever possible. Failure to make progress in one area should not slow work on another. In today’s world, much will depend on the willingness and ability of America and China to work together wherever they can—for their own benefit and for the world’s. n

18 The National Interest Defending America in Cyberspace

P resident Barack Obama has identified cybersecurity threats as among

the most serious challenges facing our nation. Secretary of Defense Chuck Hagel noted in April that cyberattacks “have grown into a defining security chal-lenge.” And former secretary of defense Leon Panetta told an audience in 2012 that distributed denial-of-service attacks have already hit U.S. financial institutions. De-scribing this as “a pre-9/11 moment,” he explained that “the threat we face is already here.” The president and two defense sec-retaries have thus acknowledged publicly that we as a society are extraordinarily vul-nerable. We rely on highly interdependent networks that are insecure, sensitive to in-terruption and lacking in resiliency. Our nation’s government, military, scientific, commercial and entertainment sectors all operate on the same networks as our adver-saries. America is continually under siege in cyberspace, and the volume, complexity and potential impact of these assaults are steadily increasing.

Yet even as it confronts mounting threats, the United States also possesses a significant historical opportunity to deter them. America has built something unique in cyberspace—an evolving set

of capabilities and activities that have not yet reached their collective potential. We have learned through two decades of trial and error that operationalizing our cyberdefenses by linking them to intelligence and information-assurance capabilities is not only the best but also the only viable response to growing threats. Our capabilities give us the power to change the narrative by making our networks more secure—and ensuring that cyberspace itself becomes a safer place for commerce, social interaction and the provision of public services. We want to take this opportunity to put these developments in historical context, and then explain why we as a nation must continue to build a cyberenterprise capable of guarding our critical infrastructure and population. We can and must do this while always protecting civil liberties, personal privacy and American values.

W e now rely on social structures that barely existed 150 years ago. The

order and functioning of modern societies, economies and militaries depend upon tight coordination of logistics and operations. Reliability of timing and flow has become indispensable for modern nations and their armed forces. This synchronization rests upon an infrastructure that allows com-munication, transport, finance, commerce, power and utilities to serve policy makers, managers, commanders and ordinary citi-zens in an efficient and reliable (i.e., unbro-

Keith B. Alexander is the director of the National Security Agency and commander of U.S. Cyber Command. Emily Goldman serves as strategic adviser to the commander. Michael Warner is command historian.

Defending America in Cyberspace

By Keith B. Alexander, Emily Goldman and Michael Warner

Defending America in Cyberspace 19November/December 2013

ken) manner. Efficiency and dependability make realistic planning and effective opera-tions possible across a whole society. Such intricate ties in the mesh of infrastructure systems also constitute a lucrative target for an attacker and a significant vulnerability for modern societies. Disrupt the synchro-nization, and the whole system of systems becomes unreliable—thus diminishing the nation’s power and influence.

This unprecedented degree of exposure to systemic dislocation was first anticipated over a century ago when British cabinet ministers and business leaders contemplated the potential for disruption to their entire economy if French armored cruisers even temporarily interrupted the empire’s overseas trade. The perceived peril to British society prompted the Royal Navy’s intelligence office to begin gathering data for the strategic assessment of risk and vulnerability. That effort convinced decision makers that Britain was vulnerable to disruption of its commerce and to sabotage of its war-fighting capabilities. At the same time, Royal Navy planners recognized opportunities to exploit Germany’s systemic vulnerability to economic disruption. This would require the coordination of a range of institutions and capabilities: financial services, international communications, shipping, energy, diplomacy, and naval and intelligence activities meshed into what historian Nicholas Lambert aptly describes as an “Armageddon” strategy.

London approved use of this collection of levers as a weapon against Germany in 1912, but when war came soon afterward British leaders quickly recoiled from the plan under economic and diplomatic pressure. Britain’s economic-warfare measures were proving to be shockingly effective. At the outset of war in 1914 a global financial panic affected world trade on a scale like that of 1929. Britain’s strategy swiftly exacerbated the

crisis. Citizen and business confidence in economic institutions collapsed. Traders withdrew from markets. World trade ebbed. Commodity exchanges closed their doors. Banks recalled loans, and global liquidity dried up. In an increasingly globalized and interconnected world, moreover, many of the unintended victims of economic warfare were British.

While the British never fully implemented their 1912 vision of coordinated levers of power to defeat an enemy, the notion of employing strategic technological and economic power indirectly helped bring about a new capability in the United States. One of the most important pillars of Britain’s strategy, which was bequeathed to the United States, was a strategic signals-intelligence capability that served both national and battlefield users. By 1952, the United States had established the National Security Agency (nsa) as the capstone of a signals-intelligence enterprise. That capability became computerized over time, and the resulting “cryptologic platform” emerged as one of the bases of expertise and infrastructure for cyberspace and cyberoperations. From this emerged America’s military cyberspace architecture and capabilities. In 1981, the Pentagon gave the nsa the mission to help secure data in Department of Defense computers. In 1990, that role expanded to the government’s “national-security information systems.” The nsa also played a role in helping the government and military to understand the vulnerability of the nation’s critical infrastructure. When planning accelerated for military cyberoperations after 2001, the nsa provided expertise to the Pentagon’s new “network warfare” capabilities.

Since then, cyberspace has become vital for the functioning of our nation in the digital age. Our national digital infrastructure facilitates the movement of

The National Interest20 Defending America in Cyberspace

commodities and information, and stores them in virtual form as well. We now use cyberspace to synchronize those critical infrastructure systems that coordinated economies and militaries a century ago. Many of the same vulnerabilities that Royal Navy planners noted in 1905 apply in cyberspace and are magnified by our dependence on the information sector. The features that allow all these infrastructure sectors to link together in cyberspace, however, also make them accessible to intruders from almost anywhere at a comparative minimum of cost and risk. The cyberdimension, therefore, adds an unprecedented degree of complexity and vulnerability to the task of defending o u r s e l v e s a g a i n s t a m o d e r n - d a y “Armageddon” strategy.

The century-old dream and nightmare of crippling a modern society by wrecking

its infrastructure—or just by disturbing its synchronization of functions—is now a reality others are dreaming of employing against the United States. We do not know how effective such a strategy would be against the United States in practice, but glimpses of global financial panics in recent years should raise concern about even

partial “success” for an adversary attempting such an attack.

M ilitary cybercapabilities are now being “normalized,” following a tra-

ditional path from commercial innovations to war-fighting systems (much like that of aviation in the last century). Several nations have pondered cyberdoctrine for years at senior military schools and think tanks. Cy-berattacks against Georgia in 2008 demon-strated how network warfare could be em-ployed alongside conventional military forc-es to produce operational effects. Lessons learned from such operations are now being turned into tactics and planning by future adversaries. This normalization of cyberef-fects and their integration with convention-al forces will not diminish their power—on the contrary, it will magnify it. Decision makers like former secretary Panetta have

mentioned the possibility of a “cyber Pearl Harbor” to evoke our current predicament. We may have already witnessed the cyberequivalents of the sinking of a battleship at Taranto and practice runs with shallow-water torpedoes (the inspiration and preparation, respectively, for Ja-pan’s Pearl Harbor attack).

Cyberconflict occurs on a second level as well. Three times over the previous millennium, military revolutions allowed forces to conquer huge territories and forcibly transfer riches from losers to winners (namely, in

the Mongol conquests of China, Russia and Baghdad; the Spanish conquests of the Americas; and the European empires in the nineteenth century). Remote cyberexploitation now facilitates the systematic pillaging of a rival state without military conquest and the ruin of the losing power. We have seen a staggering list of


intrusions into major corporations in our communications, financial, information-technology, defense and natural-resource sectors. The intellectual property exfiltrated to date can be counted in the tens to hundreds of thousands of terabytes. We are witnessing another great shift of wealth by means of cybertheft, and this blunts our technological and innovative edge. Yet we can neither prevent major attacks nor stop wholesale theft of intellectual capital because we rely on architecture built for availability, functionality and ease of use—with security bolted on as an afterthought.

The United States has not sat idle, however, in the face of diverse and persistent threats in cyberspace that no one federal department or agency alone can defeat. There is clear recognition that the nation’s cybersecurity requires a collaborative approach and that each department brings unique authorities, resources and capabilities to the table. The Department of Homeland Security is the lead federal department responsible for national protection against domestic cybersecurity incidents. The Department of Justice, through the Federal Bureau of Investigation, is the lead federal department responsible for the investigation, attribution, disruption and prosecution of cybersecurity incidents. The Department of Defense has the lead for national defense, with the responsibility for defending the nation from foreign cyberattack. This team approach helps us protect U.S. infrastructure and information, detect attacks and deter adversaries in cyberspace. Relationships also have been forged with private enterprises that carry the data (or create or study the

hardware and software that manage the data). Working together, we are improving our knowledge about what is happening across the cyberdomain, enhancing shared situational awareness for the whole U.S. government while ensuring robust protection for privacy and civil liberties.

At the heart of our national-scale capability for defending the nation in cyberspace is the set of relationships for intelligence, analysis, and information security and assurance. The nsa makes that team work. The agency’s importance was reflected in then secretary of defense Robert Gates’s 2009 decision to designate the director of the nsa as commander of U.S. Cyber Command (uscybercom) as well, and to locate the new command’s headquarters at Fort Meade, Maryland, alongside the nsa. Through these decisions, the department leveraged the similarities and overlaps between the capabilities needed for the conduct of the nsa’s core missions—signals intelligence and information assurance—and those of uscybercom: to provide for the defense and secure operation of Defense Department networks and, upon order by appropriate authority, to operate in cyberspace in defense of the nation.

The nsa and uscybercom operate under multiple layers of institutional oversight that reinforce our commitment to privacy and civil liberties. These include processes internal to both organizations, executive-branch oversight accountability mechanisms, congressional oversight and judicial scrutiny. Physical, managerial and technical safeguards serve to prevent, correct and report violations of procedures. There is a

Every nation has significant vulnerabilities that can be exploited in and through cyberspace; almost alone among nations, we have the ability to lessen ours dramatically.


culture of accountability and compliance, rigorous training and competency testing, auditable nsa practices and self-reporting of incidents. The nsa and uscybercom do not set these procedures but comply with very specific provisions approved by our nation’s lawmakers. Far from imperiling civil liberties and privacy, the tight links between the nsa and our growing cybercapabilities help to ensure professional, sober and accountable consideration of potential impacts from our operations.

The evolution of uscybercom has reinforced the imperative for a close and unique connection with the nsa. The command’s creation in 2010 reorganized the department’s Title 10 “war fighting” segment of our cyberteam and represented a major organizational step toward developing and refining the Department of Defense’s role in strengthening the nation’s cybersecurity. Events since the formation of uscybercom have taught us a great deal about the gravity of the cybersecurity threat, the development of the Department of Defense’s operational capabilities, the department’s role in a whole-of-government approach to cybersecurity, and structural, policy and doctrinal changes that are needed. Some of these changes can be implemented as part of the natural evolution of the command. Others require activity outside uscybercom itself—within the Department of Defense, by the executive branch more broadly, by Congress and by the private sector.

The synergy between the nsa and uscybercom is evident every day even if it is not visible. The cryptologic platform constitutes the collection of signals-intelligence and communications-security capabilities that since 1952 have served users ranging from national customers to departmental analysts to battlefield commanders. To the extent permissible by law, uscybercom and the nsa have integrated operations, people and capabilities

to help the nation and its allies respond to threats in cyberspace. uscybercom’s defense of U.S. military networks depends on knowing what is happening in cyberspace, which in turn depends on intelligence produced by the nsa and other members of the intelligence community on adversary intentions and capabilities. uscybercom’s planning and operations also rely on the nsa’s cybercapabilities. No one entity in the United States manages or coordinates all this activity on a strategic scale. It requires cooperation across government agencies and with industry.

The cyberteam works for strategic, operational and tactical ends, and it does so because we cannot afford (in terms of resources, security or missed opportunities) to maintain distinct capabilities for strategic, operational and tactical decision makers. This approach makes it possible for the United States to operate national-security information systems with some assurance of security; to understand the dimensions of the threats that we face; and to know which threats are exaggerated. It also gives us a measure of warning and situational awareness and is the basis on which those vital attributes will be improved in the future. What are the possibilities for maximizing its potential?

A t the dawn of the “cyberage” in the 1980s, the United States was positioned

to take a commanding military lead in this new domain. Much of the world’s cyberin-frastructure, capacity and computer-security expertise resided in America, and the U.S. government debated policies that might have made federal and critical infrastructure net-works much more secure than contempo-rary external threats could have surmounted. The U.S. military and intelligence commu-nity held strong advantages in cybercapa-bilities that might have been mobilized in the 1990s. Although potential threats were


recognized early, there was little urgency to reorganize and change established processes. By the time the United States started losing intellectual property on a massive scale in the middle of the last decade, the opportunity to capitalize on commanding advantages had been lost.

Today the United States is striving to maintain the edge it holds over potential adversaries in cyberspace. This advantage is preserved in part by the large U.S. government capacity in this domain. Our lead is also maintained by our adversaries’ own difficulties in crafting new policies, doctrines and organizations to operate in the new cyberdomain; in some cases their social and political contexts are even more challenging than ours. This American advantage might not last long. We still, however, would not trade our predicament for that of any other nation on earth. Every nation has significant vulnerabilities that can be exploited in and through cyberspace; almost alone among nations, we have the ability to lessen ours dramatically.

As then deputy secretary of defense William Lynn explained in Foreign Affairs in 2010, global circumstances continue to require an agile and technologically advanced cybercapability. We have made progress but s t i l l must do more to ensure that we have: the situational awareness needed to defend our networks; the authority to respond to threats to the United States, even beyond the boundaries of military systems; legislation that facilitates information sharing with the private sector; established security standards for critical infrastructure; trained and ready cyberforces certified to common, baseline standards; doctrine along

with tactics, techniques and procedures for educating our armed forces on the conduct of military operations in cyberspace; a defensible cyberarchitecture enabled by the new Joint Information Environment (jie); and clear lines of command and control to ensure network-speed decision making and action. The Department of Defense is making progress on an array of efforts to address these challenges, all the while protecting the privacy of our citizens and the civil liberties that are at the foundation of our political system.

The Pentagon is moving to reduce significantly the number of its networks and limit the points where those networks touch the Internet. Its new joint network—the jie—is inherently more defensible than the fifteen thousand disparate enclaves that currently exist in the Department of Defense. uscybercom is involved in efforts to leverage cloud-computing technology to dramatically increase the ability to safely and securely store and access data.

We continue to improve our ability to understand the vulnerabilities of our networks, the cyberenvironment and the capabilities of adversaries. Doing so improves situational awareness of what is happening in cyberspace for the benefit of


government organizations, private industry and foreign partners.

We are aware that as we increase our dependence on networks in cyberspace, we must have a codified and logical manner by which to provide structure, command and control to our forces—and to allow the coordination and synchronization of U.S. military operations with those of our military allies and our partners.

We are developing a force capable of defending the nation in cyberspace, operating and defending Department of Defense information networks, and providing direct support to Unified Combatant Command plans and operations. These forces must be able to defend our national-security networks, providing a vital sanctuary from which we can operate even while under attack. Having such an assured capability will not only defend Department of Defense and national-security functions, but also help government and civilian networks by convincing adversaries that an “Armageddon” strategy will not succeed against America.

We are working to understand how existing international and domestic laws and norms apply in the new cyberenvironment. We are also developing processes and policies to manage cyberemergencies and to defeat cyberattacks.

Our reliance on cyberspace yields signif-icant strategic benefits but also poses

grave risks to our nation. The very nature of cyberspace is one of convergence—of net-works, devices and people combining and interacting in new and increasingly com-plex ways. Communications that previously moved in separate channels now travel in one, global network—the Internet. We must be able to operate securely in this conver-gent space and to protect the broader social, political and economic developments that the digital age has brought us. The things

we value—personal wealth, national eco-nomic prosperity, intellectual property, our nation’s defense secrets and even our way of life—are all targets for our adversaries. More and more, those treasures reside in cyber-space, and that is the battleground where adversaries can threaten us. The potential for strategic-level theft and disruption is growing as adversaries probe our critical in-frastructure networks and take our data. We do not know how economically and physi-cally damaging coordinated cyberattacks could be if mounted on a national scale—or if a “limited” attack could get out of hand and cause cascading destruction. But the vulnerability of critical infrastructure and the power of cyberweapons together rep-resent serious cause for concern about the resiliency of modern, networked economies and societies.

Defending the nation in cyberspace, p revent ing s t r a t eg i c su rpr i s e and maintaining technological advantage all depend on collaboration, information sharing and a world-class workforce. This requires teamwork across the military, intell igence community, the federal agencies, industry, academia and our international partners. Leadership is vitally important as well. The U.S. government has made significant strides in defining cyberdoctrine, organizing cybercapabilities and building cybercapacity. We must do much more to sustain our momentum in a domain where adversary capabilities continue to evolve as fast as or faster than ours do. Our cyberteam can be the core of whatever national capability we build, but that capability must also extend well beyond the confines and authorities of the Department of Defense and even the federal government. Building that extended cyberenterprise now is indispensable to our ability to deter and defeat enemies in cyberspace so that they do not threaten our security, prosperity and way of life. n

25Les Misérables November/December 2013

F rance’s economy is not just doing badly. It is in profound decline. The

slide has proceeded far enough now that businesspeople and politicians across the Continent increasingly refer to France as the “sick man of Europe”—quite a dis-tinction at a moment when Greece, Portu-gal, Spain and Italy share the hospital ward. For decades, European Union structures were strong enough to allow Paris to ignore the country’s economic shortcomings. No longer. Unless Paris reforms its economic policies and practices, it could have a disas-trous effect. Further economic woes may undermine the Franco-German cooperation on which the eu has relied, confronting the union with either dissolution or, more likely, an increasingly Germanic future.

Though recent economic reports show some slight improvement in the French economy, the underlying picture is nothing if not bleak. A monthly uptick in industrial production this spring prompted President François Hollande to declare the recession over. He was wrong. To be sure, he can now point, if he wishes, to a modest spring expansion in France’s gross domestic product (gdp). He would do well, however, to resist declaring victory over a few data points. His optimistic response to seeming industrial strength was quickly rebutted by subsequent

indicators of renewed decline. He should have known that the preponderance of economic evidence remains grim and is unlikely to change anytime soon.

More than one thousand factories have closed in France since 2009. And not a week goes by without another announcement of relocations to Eastern Europe or Asia. Rates of new business formation today remain 13.3 percent lower than at the end of 2009, while business failures are 7 percent higher. The pace of home sales, though it seems to have stopped declining, shows no sign of improvement and remains 16 percent below 2008 levels. Residential real-estate prices continue to decline. Unemployment rolls have grown without interruption, recently averaging some 10.5 percent of the nation’s workforce. Youth unemployment averages over 26 percent. Real wages in France, having stagnated for some time, have declined for the last four consecutive quarters. The country’s balance of international payments continues to sink deeper into the red, with the shortfall of exports to imports almost doubling in just the past year to almost 3 percent of gdp. Government finances, too, continue in deficit, far exceeding the eu’s mandated maximum of 3 percent of the economy. Budget shortfalls over the years have brought public debt outstanding to fully 90 percent of France’s gdp.

French authorities mostly have either denied the situation’s severity or blamed

Milton Ezrati is senior economist and market strategist for Lord, Abbett & Co. His forthcoming book, Thirty Tomorrows (Saint Martin’s Press, 2014), links globalization to aging demographics.

Les Misérables

By Milton Ezrati

The National Interest26 Les Misérables

it on Germany’s push for budget austerity throughout the euro zone. There is no shortage of critical remarks to make about the German approach, but it can hardly explain France’s economic problems. France, after all, hardly has imposed much austerity. It has promised to do so but otherwise has asked of itself none of the sharp government spending cuts evident elsewhere in Europe’s periphery. On the contrary, French government spending has continued to grow, rising almost 4 percent during the last two years. Government in France now constitutes some 57 percent of the entire economy, well above the euro zone’s average. Meanwhile, Paris recently sidestepped the need for more strictures, receiving permission from the eu bureaucracy to continue wider budget deficits than eu rules allow until 2015

at the earliest. Nor can French officials honestly blame German austerity when their nation’s economic slide has beginnings long before the current crisis or Berlin’s response to it. France, quite simply, has been underperforming the rest of Europe for over a decade.

It is this longer-term erosion that speaks to France’s economic failure. Germany offers a useful counterpoint. Whereas ten

years ago the French economy rivaled Germany’s, today France produces only half the value added. French exports, having fallen more than 20 percent since 2005, are lower today than anytime during the last twenty years. In contrast, Germany has enjoyed an export surge in the past few years, pushing the country up from recession lows to its all-time high. France has even begun to trail Europe’s troubled periphery. While it has 10 percent fewer exporting firms than it had thirteen years ago, troubled Italy has 8.7 percent more. France’s share of global exports has fallen from 7 percent in 1999 to only 3 percent today. During this time, its share of the euro zone’s exports has fallen from 17 percent to merely 12 percent. Real per capita incomes in France have grown at barely half Germany’s rate, while profits

in French industry have fallen from highs approaching 9 percent of gdp to barely over 6 percent today, only half the euro zone’s average and hardly sufficient for French industry to finance itself.

Th i s d aun t ing r e co rd has accordingly sapped any enthusiasm about France’s economic prospects. Major rating agencies—Standard & Poor’s, Moody’s and Fitch—have al l downgraded the country and characterized its economy and its credit

as having a “negative outlook.” The government’s own official forecast looks for tepid growth at best going forward into 2014 and 2015. The International Monetary Fund (imf ) expects negligible real growth of less than 1 percent in 2014 and not much better over the longer run. This modest projected growth is, in the grand sweep of economic history, little more than a technical difference from

Les Misérables 27November/December 2013

recession. Indeed, the basic picture is so bad that Fitch, the last agency to downgrade France, felt obliged to explain why it had not gone further, weakly citing France’s agricultural and demographic strengths. Unsurprisingly, business and consumer confidence in France have fallen to their lowest levels in years.

Rather than Berlin-imposed austerity, something clearly more fundamental is at work. As is usually the case with economic fundamentals, good or bad, the root is domestic. In France’s case, the trouble is largely of Paris’s making. Successive governments, socialist and conservative, have layered onto the economy a complex of i l l -conceived policies that have hamstrung business with oppressive taxes, stultifying labor regulations, and a raft of product and production controls. These have fed on each other to sap the nation’s economic vitality, thwart efficiency, depress productivity and effort, and generally destroy the economy’s ability to compete. Compounding these problems, the country’s lavish social services seem to serve neither the taxpayers who support them nor labor’s interests—wasting a significant part of the country’s human resources.

Taxes are the most straightforward and immediate economic burden. Payroll levies in France amount to 38.8 percent, and with the added burden of business income taxes and the value-added tax (vat), employers in France pay the government the equivalent of almost 64 percent of their payrolls. This is a much heavier weight than firms in other countries must bear. Germany, for instance, imposes a tax wedge on its business of about 53 percent, high compared to the 38.5 percent imposed by the United States, but still more than 10 full percentage points less than France. Harder to quantify but no less a burden on French business is the notorious complexity of the French tax code, which, business

surveys indicate, rivals even that of the United States. Its myriad loopholes, set against the high statutory tax rates, tempt managers to divert time to tax planning that they might better dedicate to production and sales.

High individual taxes sap France’s economic dynamism in their own, less direct way. Hollande lost on his plan to tax high incomes (over €1 million a year) at an astronomical rate of 75 percent, but he still managed to drive a number of extremely productive people out of the country and sour many more. Meanwhile, Paris still imposes a 1 percent tax on certain assets, in addition to especially high taxes on dividend, interest and rent income. For those who cannot navigate the code’s complexities to find a way through one of its many loopholes, the combination of high statutory income taxes and the asset tax creates a remarkably heavy burden. The Center for Economic and Policy Research calculates that these levies rise to almost 200 percent on interest and rent income and close to 223 percent on dividend income. This is hardly a way to encourage the investment and innovation so critical to a developed economy’s competitive edge.

I f this tax regime were not destructive enough, France has long-standing labor

rules that seem almost designed to destroy economic dynamism and efficiency. These complex regulations, itemized in the gov-ernment’s 3,200-page Code du Travail, apply to any company with fifty or more workers. It speaks to the burden they im-pose that France today has 2.4 times the number of firms with forty-nine employees than with fifty.

The most well known of these rules is the thirty-five-hour workweek, imposed on all, however much they may want to produce. The code also imposes a minimum of five weeks paid leave, compared with three in


Germany and no minimum in the United States. It requires 156 weeks parental leave, about the same as in Germany but huge compared with twelve in the United States. It limits management’s ability to alter wages and hours, and obligates companies

of one thousand or more employees to place laid-off workers in new positions and train them, at the firm’s expense, for the transition, which can last between four and nine months. Until recently, employees had the right to challenge dismissal for up to five years. On average, one in four laid-off workers has done so—not a small burden on businesses. The code also imposes a mandatory retirement at age sixty—compared to an average of sixty-four in developed nations generally, according to the Organisation for Economic Co-operation and Development (oecd)—and mandates a minimum wage set at 60 percent of the median wage nationwide, high even by generous European standards.

Such regulations not only limit the flexibility and efficiency of French business, they also waste the nation’s labor resources. While mandatory early retirements strain state and private pension plans, they also deny France a pool of

trained workers that in other nations still contribute actively to their economies. Government statistics show less than 20 percent of those aged sixty to sixty-four work in France, compared with more than twice that percentage in the United States

and elsewhere, even in Europe. France’s shortened workweek denies the economy still more valuable labor talent, while the country’s generous unemployment benefits encourage still more to stay out of active production. Little wonder, then, that in France some 54 percent of the working-age population holds themselves outside the workforce, compared with 42 percent in Germany and 32 percent in the United States. A popular index to combine all these effects shows that France, in terms of people working and the hours each works, uses 47.4 percent of its full potential. In Germany, the figure is 50 percent; in the United States, it is 68.2 percent.

This code further burdens business by interfering with its ability to manage its own production. The expense and difficulties involved in laying off workers, adjusting wages and setting work schedules often convinces French businesses simply to forgo responses to business fluctuations that


would otherwise give them a competitive edge. Worse, they prompt French industry to deny itself talent. In order to avoid the potential cost of firing, managers resist hiring despite potential business advantages. Many firms try to sidestep this problem with short-term employment contracts, some only for a period of months, so much so that fully 82 percent of new hires in 2012 involved such contracts. But this management “solution” comes with its own cost. The uncertainties of short-term employment undermine employee effort. The lack of commitment involved also dissuades firms from training. On both counts, the French economy fails to develop the pool of skilled labor that has become the hallmark of developed and modern knowledge-based economies.

Seemingly not content with these anticompetitive measures, the government has also contrived to encumber business with onerous product and production rules. Through licensing, zoning and other administrative barriers in numbers that defy cataloging here, France has discouraged economic activity across a broad front. The Heritage Foundation, taking such regulations into account, characterizes France’s business environment as only “modestly free” in its scoring of countries across the world. Nor is this all. A recent oecd study found France’s regulatory structure to be more restrictive than those of most of the developed economies that constitute the organization’s membership. France’s failings, it noted, occur in almost every major category: economic regulation, product regulation, impositions by

local policies, state control of the details of business operations and barriers to entrepreneurship. The best France did was in the area of administrative regulation, and there it only matched the oecd median.

Part of the problem lies in the sheer number of governmental units that have control in France. The country’s smallest governmental unit, the commune, represents only 1,800 people on average. That compares with an eu average of 5,500 people in the smallest unit of government. This arrangement leaves France with thirty-six thousand governing entities, each setting rules and regulations, usually to suit the preferences of local business and labor interests. Thus, local shopkeepers were more successful in France than elsewhere in blocking large-scale retailers. That may have preserved a more attractive, certainly a more quaint, look to French towns and cities, but it also has denied France a trend that has become a major force for employment elsewhere in the world. It was Paris’s cooperation with such local pressure that also blocked Amazon’s effort to introduce online delivery service into the country and that thwarted attempts to allow supermarkets, as well as pharmacies, to sell over-the-counter drugs. The same sorts of interests have also steadfastly blocked efforts to increase the number of taxis in Paris, which to this day remains at the original 1924 quota.

Making matters even worse, the French government, for all the revenue it collects, seems to do less for its citizens than other countries do. The unemployed, though generously provided for, get much less help

Successive governments have layered onto the economy a complex of ill-conceived policies that have hamstrung business with oppressive taxes, stultifying labor regulations and a raft of product controls.


from the state finding new jobs or needed training. Paris spends only a third as much as Berlin on such direct help. In France, the average government employee assisting the unemployed with retraining and in their job search covers seventy-nine people. That compares with thirty-nine in Germany. Likewise, French schools do not prepare their charges for the job market as well as those of other countries. Recent oecd comparisons of high-school test scores show French students trailing their European and American counterparts in reading and science. The only place where the French students outscored many competitors was in math, and they still trailed the Germans. France, it would seem, is more inclined to warehouse people than help them apply themselves to economic effort.

This entire and varied weight of dysfunction has created a vicious cycle. Taxes, regulations and the loss of labor talent have so eroded profitability in French business that it has neglected its own upkeep. Again, Germany provides a handy counterpoint. During the last three years French industry has installed just over three thousand industrial robots, compared with the twenty thousand installed by German industry. Germany has spent almost 70 percent more on research and development than has France. The 2 percent of its gdp that France spends on technology investments is barely over half of the rate in Germany. This investment shortfall has interacted with France’s waste of labor talent to erode worker productivity so that even though French and German wages have moved up in tandem, the labor cost per unit of output in France has risen by 28 percent over the past ten years, compared with only 8 percent in Germany.

This destructive interaction has not just thwarted growth, but it has also begun France’s deindustrialization. Cost disadvantages have reduced industrial

value added from 18 percent of the French economy in 2000 to only 12.5 percent recently, the lowest in the euro zone. French employment in manufacturing has dropped 20 percent since 2000. Meanwhile, the investment and talent shortfall has pushed what remains of the French industry increasingly toward less sophisticated products and processes. While overall manufacturing employment has dropped, employment in firms that produce unsophisticated goods and services has actually risen by 18 percent. The oecd notes that more than one-third of French manufacturing is medium- or low-tech, compared with only about one-quarter in Germany and slightly less than 25 percent in the United States. France, quite simply, is beginning to resemble a less developed economy.

F rance probably would have taken re-medial action long ago were it not for

the implicit support of the eu, the common currency and Germany. Surely it is not a coincidence that France’s greatest deteriora-tion has occurred in the thirteen years since the adoption of the euro and the formation of the euro zone. The country’s balance of exports over imports, for instance, re-mained strongly positive through much of the 1990s and only began to slip into deficit in this new century. The decline in the prof-itability of French business also has become most evident since the inauguration of the euro, as have the slide in France’s share of global and European exports, the deteriora-tion in French productivity and the coun-try’s turn to less sophisticated products and processes. It is not that the currency union caused the problem. Rather, it blunted the pain France would otherwise have felt and so let matters go further than they might have otherwise.

Certainly, the eu’s common agricultural policy (cap) has helped France otherwise


live well despite its economic failings. Under this scheme, the eu budgets substantial funds to sustain food prices and ensure the profitability of agriculture. Because France’s economy has an especially large agricultural sector, the program effectively transfers funds to France from the more industrial members of the union, such as Germany. It is a major flow too. The cap constitutes about 40 percent of the eu’s budget and is scheduled to rise to some €100 billion over the next five years. The amount that accrues to France varies from year to year, depending on which crops require the greatest pr ice support, but eu figures show that France gets about one-fifth of the total on average, the biggest share by far. The €8 billion that would accrue, according to the eu’s latest long-term budgeting, would alone constitute almost a 0.5 percent injection into France’s economy, and it would return to France a large portion of its entire contribution to the eu budget. It is hardly surprising, then, that Hollande so violently resisted calls by British prime minister David Cameron to cut the eu budget and, by implication, the cap as well.

The euro has allowed France to continue its competitive failings in a different way. If there were no common currency and France operated under its old franc, the declines in exports and investment flows that would accompany its economy’s competitive losses would quickly have undermined the

currency’s value. The falling franc would ultimately have helped French industry compete by reducing the prices of its product in other currencies. It also would have eroded the global purchasing power of French consumers, government and business, imposing a spending discipline

t h r o u g h o u t t h e economy. Further, the currency losses would have increased the cost of credit, as lenders, wary of losing still more on the falling franc, would have demanded a higher rate on any loan that paid them in francs. T h e u n a v o i d a b l e burden of h igher credit costs would h a ve c o n s t r a i n e d government budgets and forced Paris to reconsider the lavish benefits it provides. Meanwhile, the pain emerging from all these strains would

surely have created a strong constituency to reform the practices that led to them, one Paris could not easily defy.

But under the common currency and the euro zone, France has felt none of these pressures. Even as policy there has destroyed the economy’s competitiveness, the currency has stayed stable, supported by the greater economic prowess of Germany and other members. French industry has, consequently, received none of the pricing relief it would have from a falling franc. Because at the same time the euro’s constancy has sustained the wealth and buying power of the French people and the French government, neither has the country felt any restraint. Instead, the


balance of payments and budget have just gone deeper into deficit, as France and its government have drawn in goods and services from elsewhere in the euro zone that its own economy no longer produces. With no pain, no constituency for reform has developed, as it would have under the franc.

So, too, the euro zone has shielded Paris from the increased credit costs. Currently, longer-term French government bonds pay a low rate of near 2.5 percent, barely over inflation. Failing economies, like France, usually pay more. Clearly lenders today feel secure that the European Central Bank will protect the euro’s value more effectively than the Bank of France would have the franc and that France, as a founding member of the eu and still its second-largest economy, is too big to fail. They believe that the rest of the union, most notably Germany, would see that its obligations are met. With lower debt-servicing costs than it would have under the franc, Paris has felt less competition within the budget for its other spending priorities, and so there is no pressure for change from this front either.

E ven in this latest crisis, the structure of the union has helped disguise the coun-

try’s economic failings. France’s contribu-tions to the stability funds for the rescue of Europe’s beleaguered periphery are second only to Germany’s. But in reality, France bears disproportionately less of the cost. For one, there is the ongoing inflow France gets from the cap. But France also benefits more than Germany and others from the relief the euro zone gives Greece, Spain,

Italy and the rest of Europe’s periphery. As a proportion of total exports, France is more than twice as exposed as Germany to these countries. To the extent that eu aid sup-ports these beleaguered economies, more of the funds loop back to France than to Germany. Meanwhile, because Germany sells almost 40 percent of its exports outside Europe altogether, it effectively provides the bulk of the outside funding for the rescue effort.

Germany’s leadership is well aware of the situation. It can surely see how France has benefited disproportionately from the union. It can also see how France has leveraged its advantages within the union and its influence there to direct more economic power than it could produce for itself. Indeed, former French president François Mitterrand, when first moving for the common currency in the 1990s, made explicit his goal to bolster French influence globally by giving France an element of political control over economic power beyond its borders. Then, of course, France’s economy stood on a par with the economy of the newly reunited Germany. As German economic power has increased and France’s has ebbed, subsequent presidents and prime ministers have refrained from such explicit renderings of French objectives. But, as should be clear, France uses the union in general and Germany in particular to punch geopolitically above its economic weight, to live beyond its means, and to carry on with policies and practices that it otherwise could not have sustained. It is inevitable that Berlin will ultimately want

France uses the union and Germany to punch geopolitically above its economic weight, to live beyond its means, and to carry on with policies and practices that it otherwise could not have sustained.


to free itself from such a situation and assert an influence consistent with its relative economic power, something that can only happen at Paris’s expense.

For much of the long time spent building the eu and under the euro, Berlin has resisted such an assertion. A lingering guilt from the Second World War has exerted an influence. But more fundamentally, Germany also gains from the currency union, differently than France, but significantly enough to prompt Berlin to avoid actions that might increase any centrifugal forces pulling the eu apart. There are at least two such considerations weighing on Berlin.

First, the euro has helped German industry compete globally. If the euro had never existed and Germany had continued with its deutsche mark, the huge flows of funds into Germany today would have pushed that currency’s foreign exchange value to astronomical levels, effectively pricing much German product off global markets. But because the euro encompasses other, weaker economies, its value has stayed lower than a separate deutsche mark would have, leaving Germany with an outright global pricing edge. Second, the euro’s structure has enshrined a special advantage for German business within Europe. Because Germany entered the union when its separate deutsche mark was weak relative to the country’s impressive economic fundamentals, it gave German product a distinct pricing edge, especially compared to countries in Europe’s periphery, which happened to enter the euro when their separate currencies were momentarily strong. imf data indicate that this German pricing edge amounted to 6.0 percent when the euro was launched. Because Germany has since improved its economic fundamentals while these other countries (France and the shattered economies in Europe’s periphery) have

lagged in their improvements, that pricing edge has widened to double-digit levels.

However much such considerations have restrained Berlin to date, they will not do so indefinitely. Especially as French weakness forces Germany to shoulder an increasing portion of the union’s support, Berlin should sense that it can retain the advantages of the union without having to make concessions to Paris. Indeed, the negotiations surrounding Europe’s current crisis indicate that the change is already occurring. While German chancellor Angela Merkel has tried hard to accommodate Europe in its crisis, she, unlike past German leaders, has effectively vetoed French efforts to push measures that run counter to Berlin’s interests. Germany, for instance, has steadfastly resisted French proposals for the euro zone to issue bonds jointly to finance its rescue of the periphery. Not only can Berlin see that the rescue itself benefits France disproportionately, but it also realizes that only its economic power could guarantee such pools of debt, making the bonds effectively a blank check written on Germany for common use within the euro zone. Similarly, Germany has insisted on strict euro zone–wide banking regulations before even considering plans for zone-wide relief for banks outside Germany.

Evidence of the power shift has emerged in other matters as well. Officials in Berlin, unlike in the past, refused to ignore the Germanophobic rhetoric used in a French Socialist Party working paper. German finance minister Wolfgang Schäuble angrily refuted the paper’s crass characterization of his countrymen, while Andreas Schockenhoff, a member of Germany’s socialist opposition, took his French counterparts to task for their “inappropriate” behavior. Polish foreign minister Radek Sikorski acknowledged the power shift in 2011 by calling for German


leadership. That Poland, of all nations, should make such a call speaks loudly to how far the change has already progressed. A recent strategy paper produced by the Polish Institute of International Affairs has reinforced this message, explicitly citing the need for Warsaw to court Berlin because of France’s diminished ability to impact eu policies. Even Paris has all but admitted its ebbing power. By billing itself as spokesnation for the Mediterranean, it has all but admitted that acting on its own carries less weight than it once did.

Perhaps it is the recognition of this impending shift that has at last impelled France, even under the socialist Hollande, to consider policy reforms. Paris has no lack of blueprints for how to revitalize its industry and redress the political-economic balance with Germany. The most recent government-commiss ioned out l ine, authored by French business leader Louis Gallois, arrived in 2012. Last year the imf also made explicit recommendations for French economic reform. As a sign of France’s lost stature within the eu, even the bureaucracy in Brussels has made recommendations. Paris was outraged. The various proposals all say pretty much the same things, advocating tax relief for businesses and streamlining regulations

to allow more flexibility in product and especially labor markets. Gallois, speaking in terms of a “competitiveness shock,” claimed that only such measures would allow firms to adjust more effectively to market fluctuations, introduce new products and invest in new technologies to improve productivity, profitability and their competitive ability.

Remarkably, the socialist government appears to have begun to act on many of these recommendations, though matters remain horr ibly muddled. Under its “National Pact for Growth, Competitiveness and Employment,” Paris has introduced several initiatives. A Competitiveness and Employment Tax Credit (cice in the French) would offer €20 billion in tax relief to companies, financed by €10 billion in general spending cuts and an increase in the vat. An Accord National Interprofessionel (ani) would discourage fixed-term employment contracts by placing a levy on them and help reduce youth unemployment by offering an exception to firms that hire people under twenty-six years old. The ani would allow firms more flexibility in setting wages and hours, as well as make firing easier by allowing firms to settle their dismissal obligations with lump-sum payments and

allowing only two years for employees to challenge layoffs. In return, however, it would demand that wage adjustments and changes in hours occur only to avoid layoffs and that when these occur firms help finance job mobility and training. To drive people back to work, the measure also would make extended unemployment benefits contingent on training and an active job search—what


the French and other European reformers refer to as “flexicurity.” The government has also established and funded three financial vehicles to invest in research and development, higher-technology firms and what the government calls “sectors of the future.”

I f France were to build on such reform ef-forts, it could in time reestablish its own

economic viability and competitive prowess and, consequently, reestablish something like the original Franco-German political-economic balance within the eu. This, obvi-ously, is the more comfortable option for France, but also more generally. It would return the European scene to something fa-miliar. If, however, France fails and its econ-omy continues its relative slide—and espe-cially if at the same time Italy, Spain and other nations in Europe’s beleaguered pe-riphery make effective economic reforms—then the power balance will shift and the eu could change into something very different, something much more Germanic. It is too early in the game to handicap with any as-surance, but probabilities at this initial stage would seem to favor the latter likelihood: less than sufficient reform in France and the more transformative future for Europe.

Certainly France cannot count on the reforms recently put in place. They are inadequate and leave many questions about Paris’s direction. Positive as they may appear, they have arrived amid much contrary maneuvering. Paris, having relieved one tax burden, has at the same time raised others. The 75 percent maximum rate failed, of course, but it has

nonetheless sent a mixed message about government emphasis. Paris, by financing some corporate tax relief with a vat hike, only burdens the economy and the companies that operate in it in a different way. Even small points muddle the message. Former French president Nicolas Sarkozy had cut the restaurant tax from 18 percent to 5.5 percent. But Hollande raised it again to 7 percent last year and has scheduled an increase to 10 percent next year. Hollande’s commitments to labor-market reform and revitalization also sound hollow given that he eagerly reversed his predecessor’s small increase in the nation’s retirement age, bringing it back from sixty-two years, still lower than the average of developed nations, to sixty years.

The reforms themselves carry a confused message. Their complexity and heavy conditions retain the heavy, top-down control of the old regulations. All the new financing vehicles set to modernize French businesses and pick “sectors of the future” are entirely controlled by the same Paris bureaucracy that created the moribund structure now in such need of reform. Even as all these new financing vehicles aim at higher technology and greater value added, the cice gives companies tax relief only on lower-paid employees, implicitly encouraging firms to choose practices and products that favor less skilled people, and so necessarily continue the disappointing trend toward less sophisticated products and processes. In the ani, firms get tax relief but only for some employees designated by the state in some circumstances. In order to manage their production, and so

There is scant evidence that France will rouse itself from its socialist sickbed. Or that it even wants to.


by necessity set hours and salaries, firms must commit to government-mandated employment objectives. The new rules only take from workers their old ability to question their wages because those wages are now set by a state-devised formula. Throughout, there seems to be no recognition that only a company’s managers can make it efficient and competitive.

If the French, even with their reforms, cannot rid themselves of the compulsion for state control and the root, it seems, of their economic shortcomings, then the eu’s future will have to accommodate the decline of French influence. Some associate a shrinking France with doom for the eu. Such sentiments are understandable. France, after all, was a founding member of the whole project of European unity and has been a leading light of the effort since.

But the union already has begun adjust ing to a diminished French presence. Between the disproportionate returns France gets on the cap and that accrue to it from the aid given to Europe’s periphery, it is not apparent how much of a net contribution France actually makes. Germany may already be managing economically without France. Berlin’s recent pursuit of trade agreements with China on its own speaks to its willingness to support the European experiment and, in the words of a recent Washington Post op-ed, unilaterally set an agenda for the euro zone as a whole. As indicated, Germany already has begun to veto French initiatives and write durable rules for dealing with the current fiscal-financial crisis. Others within Europe, it is evident, are accommodating themselves to Berlin’s leadership. A simple

incident from earlier this year captures the sense of what is already occurring. At a meeting of finance ministers during the Cyprus troubles, it was reported that French finance minister Pierre Moscovici fell asleep and that no one at the meeting noticed until imf head Christine Lagarde woke him. He has since denied that he actually dozed off, but even if the story is inaccurate, it nonetheless captures the developing acceptance of France’s waning role.

The change will develop slowly, certainly by the standards of the twenty-four-hour news cycle. No wars will be fought and no troops will march as in past European power shifts. The new leadership and emphasis will further avoid easy recognition by occurring entirely within the old eu forms and institutions. The greatest official violence will come from the occasional snub, as Sarkozy gave to Cameron when he refused to follow the French lead as he might have in the past and voted against Sarkozy’s proposals for Europe. Within these structures, the reality of power within the union, and certainly the euro zone, has already moved in a distinctly Germanic direction. Jacob Heilbrunn surely overstated when he wrote recently in these pages: “The past view that what was good for Germany was bad for the European Union is being supplanted by a new attitude that what is good for Germany is even better for its neighbors.” Still, he did capture the direction in which things will continue unless France can get its act together and offer a viable counterbalance. So far, there is scant evidence that France will rouse itself from its socialist sickbed. Or that it even wants to. n

38 The National Interest Give Corruption a Chance

C orruption, more often than not, seems to resemble a plague. Af-ghanistan, where the cia and Brit-

ish intelligence (in competition with the Iranians) have quite literally been hand-ing over duffel bags stuffed full with tax-payer money to Prime Minister Hamid Karzai and his associates, is perhaps the most prominent example of its invasiveness and hardiness. Nothing seems to be able to eradicate it. Immunization efforts fail. Mutations occur. The only course seems to be to attempt to adapt to it. For despite the efforts expended by several American presi-dents on behalf of Karzai’s administration, the United States has no surer way of ensur-ing influence and access to Karzai and his advisers than through direct cash payments into a slush fund designed to purchase the loyalty of important and powerful person-ages within the Afghan government. The bankruptcy of the Western strategy in Af-ghanistan could hardly be expressed in more vivid terms. Such failures in Afghanistan, not to mention Iraq, have occurred while the broader (and noncoercive) dimensions of “state building” or more generally “devel-opment” have also paid less-than-stellar re-turns. It is difficult to avoid the conclusion that the project of implanting “good” insti-tutions in non-Western societies, whether through conquest (as in Iraq and Afghani-stan) or through consensual, noncoercive

means (as in Cambodia), has turned out to be a thankless task.

But is corruption really the source of the problem? Rather than viewing it as a pathology, as most Westerners seem to do, it is better to understand it as a type of currency used to establish and manage power relationships under certain systems of authority. As such, it is neither inherently unstable nor illegitimate. If the international community wants to eradicate corruption in the developing world, it is imperative to understand what it is, how it works, and why it is a potentially stable and legitimate system. Doing this requires stepping back and viewing the evolution of political order through a different set of lenses than most people are accustomed to, but the potential payoff for doing so is a greater sensitivity to how foreign societies actually work—and a deeper understanding of why changing them is so very difficult.

For several millennia now human societ-ies have created political structures that

can be termed “states.” What we call the “modern state,” however, is a historically unique phenomenon that emerged organi-cally in Western Europe by the nineteenth century and has been characteristic of West-ern political organization ever since. This modern state is defined by several charac-teristics, each of which is necessary for an entity to be properly termed a state. These characteristics are a monopoly on legiti-mate violence over a defined territory and

Vivek S. Sharma is a visiting associate professor of political science at the University of Copenhagen.

Give Corruption a Chance

By Vivek S. Sharma

Give Corruption a Chance 39November/December 2013

population over which no higher author-ity exists. Defined as such, it is clear that what is being described is a type of political authority and critically, not a type of ad-ministration. Having a monopoly on legiti-mate violence over a defined territory and population does in fact require organiza-tion and administration. It does not, how-ever, require a particular type of “admin-istration” (specifically, it does not require what Max Weber called a “rational-legal” bureaucracy). It is, as is well understood, entirely possible (and logically coherent) to have a modern state operate according to principles other than those that define modern Western societies (that is, an ad-ministration or bureaucracy that functions on the basis of meritocracy underpinned by specific liberal notions of fairness and ethical conduct). In other words, it is criti-cal to bear in mind that the problem that the development community is seeking to confront is not primarily a problem of ad-ministration (although these too of course exist): it is, instead, primarily a problem of authority. Having a modern state (replete with modern administrative forms) does not imply anything about how power and authority actually function within it. The modern state does not create the emergence of modern legal-rational forms of authority, and so simply creating those administrative structures will not do anything to guarantee that they actually function internally in a salutary way.

The World Bank has pithily described the development project’s essence as how to turn the Congo into Denmark. The logical place to start answering this

question is by examining how Denmark became “Denmark.” When these policy makers turn to the academic literature on Western political development, what they find is that it is principally a story of the emergence of modern forms of governance and above all those of the state. There is an implicit and explicit assumption in the European political-development literature that the emergence of the modern West is tied to the rise of administration. The wonders of modern Western civilization become the positive externalities of the emergence of the formal structures of the modern state. One important implication of this is that much of the academic literature on “state formation” actually focuses on the wrong end of the problem: it is focused on explaining how the administrative structures of European societies evolved and attained their “modern” forms when the real problem is not the existence of bureaucracy but rather its internal logic. And this internal logic is covered by the domain of the concept of political authority. Another way of putting this is that we need to distinguish between the sources of administration (the concern of the state-formation literature) and the sources of the actual behavior within them.

I t has been entirely normal in human his-tory for one society to attempt to varying

extents and with varying degrees of conse-quence to alter the institutions of another society. Such attempts can be and have been made across several dimensions of social or-ganization, including religion, property and kinship, among others. The development

Rather than viewing corruption as a pathology, it is better to understand it as a type of currency used to establish and

manage power relationships under certain systems of authority.

The National Interest40 Give Corruption a Chance

project can be understood as being a part of a very long history of societies trying to change other ones to resemble themselves.

What the development community seeks to do is establish self-sustaining institutions that produce similar outcomes to those obtained in the West in societies that do not possess them. In its current garb, the development project seeks to remodel the social institutions of non-Western societies in order to change their human-welfare outcomes. The problem is that this, as is well understood by now, cannot simply be achieved by replicating administrative forms. The outcomes produced by Denmark are not merely the function of possessing good administrative institutions; rather, they are instead a consequence of the emergence of particular configurations of authority that are deeply rooted in the society. The “efficient” and “fair” functioning of Denmark’s administrative institutions is a consequence of the fact that these administrative organs are staffed by Danes who take for granted certain patterns of authority in general. Danes did not become prosperous because of the Danish state: they became prosperous because of the way in which they organized their lives in general. The Danish state

is a reflection and a consequence of this deeper change in the way in which Danish social organization evolved. Simply taking Danish-style administrative organs and transplanting them to Afghanistan cannot work because the people who would actually staff them would be Afghans, and Afghan institutions are infused with a different category of authority. The problem is at the level of individual human behavior and its aggregate consequences—not the formal institutional settings in which they are displayed.

The problem that the development community faces is that in order for much of its agenda to work it would have to confront the deeper reality that good administrative outcomes ( in a modern rat ional- legal sense) require a particular kind of society: the administrative efficiencies of the modern West are underpinned by a specific configuration of authority that flows from the society into the state. It is the normal expectation of certain behavioral patterns and the punishment of deviance that sustain authority structures in general and specifically in the modern West. Authority structures in all societies are deeply rooted and ingrained in the very


fabric of the daily lives of human beings. They are by definition legitimate (usually by tradition or something attempting to masquerade as such) and therefore shape the reasonable expectations that individuals have with one another. In order for the development project to succeed, it needs to overcome both the sheer inert force of tradition as well as the resistance of societies in which authority structures depend on certain patterns of power relations. Persuading bureaucrats that the real pattern of authority that governs their lives—and which they may have varying degrees of stakes in—is illegitimate requires demonstrating to them that it is in their best interest to engage in new types of behavior underpinned by new patterns of legitimate authority. And such change in authority structures is never easy even when there is legitimate demand for different configurations.

In order for the development project to succeed beyond the actual alleviation of human suffering it will have to find ways in which to incentivize individuals—and especially elites (unless we propose to decapitate them, elites are crucial)—to adhere to different standards of public and private conduct. Otherwise, all that will happen is the creation of administrative structures that will be penetrated and permeated by the natural incentive structures organic to the existing society. The key point of the recent history of the development project has been the failure of liberal mechanisms to prompt other societies to alter their institutional profiles, irrespective of the extent to which they possess the formal administrative organs of the modern state. Even in those cases where tremendous force and violence have been used, as in Iraq and Afghanistan, this project has failed to change the nature of authority in the broader society: the identity of the winners and the losers

changes constantly but the fundamental dynamics are the same. And so we are back to the problem of corruption and authority.

H istorically, most societies that have possessed a sufficient amount of per-

manent public authority to be deemed a state have also been governed by other prin-ciples of authority based on patronage and clientage systems that were, of course, also closely intertwined with kinship. Societies such as these intertwine the “private” inter-ests of particular individuals and their net-works of kin, clients and patrons into the formal administrative organs of the “state.” This, of course, had been the case in West-ern societies until relatively recently. The notion that someone ought not to profit from an office in an individual sense would have been unintelligible to most people who have ever lived in a state. The issue of profit here must be understood carefully. To say that an individual profits from his office by rent seeking is not a “corruption” of an individual or an entire system. The funda-mental functioning of the system depends on systems of patrons and clients because it is through these networks that power is expressed and exercised. It is the grease that keeps the gears of the system running.

To take the ancient Roman example: from the beginning to the end of the empire, the polit ical system—both administrative and military—was based on intertwining networks of kinship and clientage. Indeed, the Roman Empire itself was a consequence of the extension via many different mechanisms of Roman senatorial clientage networks over the entirety of the Mediterranean world and then some. When we speak of the Roman provincial administration, what we are referring to are the great Roman families governing provinces through local elites who were tied into the broader system of clientage. So while the Roman army may


have created the empire in one sense, it was only through the drawing of other elites into the orbit of the great Roman senatorial families that Roman rule was actually conducted and sustained. When Romans confronted barbarians, they dealt with them in exactly the same way because there was no other alternative: Roman authority depended, ultimately, on the networks of patronage and clientage (occasioned with violence, of course) with various barbarian groups and therefore through relationships of dominance and control that both sides instinctively understood. In this context, to say that Caesar or Pompey or Crassus or any of the other Roman senators out to make a name and fortune for themselves “profited” from their office is to misunderstand what that really means. What was actually going on was that individuals and their networks used their own resources gained through long careers of office holding to enhance the power and dignity of the Roman people and their republic and later empire. The public interests of the state were completely dependent on the proper functioning of “private” networks based on clientage. Roman patrons had to profit from their offices because if they did not they would have been unable to carry out their duties as Roman patrons and thus to be useful agents of the Roman state. There cannot, therefore, be “corruption” in a strict sense in a society whose public and private authority structures are infused with kinship and clientage networks. It is quite simply the way things are done.

A further illustration of this point is granted by taking another famously

“corrupt” place: India. Any attempt to un-derstand corruption in India must begin with the recognition that the fundamental unit of analysis there is kinship, understood in a broad sense. In India the language of

kinship infuses both public and private dis-course. It is the measure of ethical conduct and propriety. It is the standard by which an individual’s worth is adjudicated. All aspects of Indian social organization are in-fused by kinship and its precious networks, including the economic sphere (something that has been very much noticed by the Economist) and of course the public sphere.

Indian social organization is also fundamentally defined by a variety of group identities that have become increasingly corporatist in nature and increasingly embedded into the fundamental way in which power is exercised. India, of course, began independence with a deeper experience of European institutions (outside those of the settler colonies) than any other society in the colonial period. And it therefore emerged with the best administrative inheritance in the postcolonial world. While the generation that led India to independence sought to create a rational-legal bureaucratic state, its leaders did not foresee the extent to which the state that they inherited (including its noncorrupt elite Indian Civil Service administrative structures and personnel) would become permeated by the authority patterns of the society, including the establishment of patrimonialism within the administrative organs of the state itself. And these patrimonial tendencies have only grown stronger since independence. Once the founding generation passed away, much of the value system that had underpinned the clean and relatively efficient administration in the early years gave way to increasingly strong dynastic and clientage networks. The fact that Rahul Gandhi is not the current prime minister of India is simply one of the more amusing puzzles of contemporary Indian politics: it is positively odd that he is not. And so the problem in India is not fundamentally a problem of administration; it is a problem


of authority. “Corruption” is what makes the whole system work: without it the Indian state would be unable to placate all of the noisy constituencies demanding a cut of the patronage pie. The Indian state is the principal arena in which a vast network of patron-client and kinship relations mediates how the spoils of the system are distributed. Being powerful in India requires being able to deliver goods to family, friends and dependents: it is the very currency of power. Not using your office in this way means to deliberately alienate the networks of power and dependency upon which normal life depends.

It is also important to emphasize that the West tends to fixate on the inefficiencies and often-tragic outcomes that this system produces but fails to recognize the significance of the phenomenon as a whole. Indian political conflicts are mediated through patronage networks. The system can, therefore, be viewed as a species of conflict resolution. It is by offering rewards to powerful individuals and constituencies within the Indian body politic that the Indian state navigates its treacherous communal, regional, linguistic and, of course, religious cleavages. The fact that India has survived as a democratic state—let alone a “united” state—is a testament to the abilities of a system like this to produce relative stability. One of the few positive consequences of this system is that the Indian state has always been able to deploy its vast reservoir of patronage powers and status to bind to it those who would otherwise be potential opponents of its existence. One way to understand just how important this is for the overall stability of the Indian state is to consider what happens when these networks fail to

function properly. The Sikh insurgency in the state of Punjab in the 1980s was in some sense (though not completely) a consequence of a failure to come to an agreement over the relative distribution of spoils in the greater Punjab area. And most of the violent regional conflicts that have simmered and occasionally flared

since independence have a dimension of failed patronage distribution. The Indian state has to confront its problems with the tools that it has and pay due attention to established and legitimate mechanisms of conflict resolution. It is a terrible and tragic outcome of this logic that India cannot produce a Western-style administrative state. But this is a consequence of a deeper problem of authority. The bureaucracy is itself a mechanism used to solidify and tie important constituencies to the state; given that India is poor, there are never enough resources to fully operate the system. As a result, many populations are starved of patronage, and these then become potential and active opponents of the Indian state.

While India has indeed grown richer and more powerful over the past two decades, none of that progress is the product of a


change in authority structures. Quite the contrary. The dynastic tendency in India and the system of patronage have simply grown larger and flashier, but the system remains unchanged and many hundreds of millions of people are the victims of this fact. But it must be understood that the patrimonial system that is India cannot simply be seen in moral terms (although it can, of course, also be viewed through a normative lens). This system does not exist because of “bad” people. Its existence is the result of the numerous compromises that the Indian state had to reach with the many potential opponents of the Indian experiment. And, more importantly, the elite have had no incentive to change it unti l recently. What is potential ly revolutionary in India is not the public denunciation of corruption but rather the fact that the society is simultaneously shifting away from older patterns of kinship and association. In other words, if India is to become like the West in this respect it will be because the authority structures that sustain these practices have lost their legitimacy in a constituency that can do something about it. But it is very important to understand that what sustains this system is that it is in fact a legitimate and accepted way in which to conduct social relationships. The point is that it is a stable system, which is not to say that it is a “good” system.

What we call “corruption” has been the normal and legitimate practice of most human societies and can actually produce certain categories of good outcomes. In order to change a system like this (in the

absence of endogenous demand as in, just perhaps, contemporary India) it is necessary to change the incentive structures of the society at a very micro and therefore basic level. We are talking about what the definition of ethical conduct is and the extent to which it is internally policed. Building formal institutions can in no way substitute for the creation of incentive structures that govern actual lives. And whatever else is true about other systems of social transformation that have existed historically, it appears that in our modern age there may be no way to use liberal means to attain liberal ends in nonliberal societies. Changing authority structures is a very big deal and historically has always been accompanied by violence and social dislocation. We cannot anticipate that individuals will alter their daily expectations of normal human interactions without causing an overall shift in the nature of the system of power relations.

A ll this brings us back to Hamid Kar-zai and those duffel bags stuffed with

American tax dollars. The United States had a choice about intervention in Afghani-stan. One option was a limited interven-tion along the lines of an imperial raid to settle some frontier and then leave, but done while working through the local au-thority structures to achieve those goals and accepting the limitation on influence and power that this implied. Or it could have attempted to restructure Afghan society on the grounds that the kind of threat that was emanating from it could only be fundamen-tally resolved by a change in the basic social

What we call “corruption” has been the normal and legitimate practice of most human societies and can actually produce certain categories of good outcomes.


organization of that society. Either way, the cooperation of elites would have had to have been secured on the basis of their legitimate interests. And in Afghanistan that meant that the regime through which the United States sought to achieve its goals would have had to establish its authority on the basis of the system that governed the assumptions of most of the people it was called to rule. Karzai had to have the resources with which to create clientage networks because there could be no other way for him to ensure that the administra-tion would actually heed his orders. He had to place kin and trusted clients in key positions and they had to use their positions to further the overall network of influence because that was essential to Karzai’s power and perhaps his very life.

And where could these resources possibly have come from? Well, the only significant revenue streams in Afghanistan have been drugs and aid, and both of these have fueled the overall system. The United States should not have been surprised. Indeed, it seems that the cia, at the very least, understood that there were no other

alternatives but to deliver sacks full of cash: Karzai could not rule Afghanistan otherwise, and without funding his patronage networks the United States would have no leverage over him. What is remarkable is not that the cia chose to bribe Karzai; what is surprising is that it shocks us (and, of course, there is an added level of hypocrisy given the tremendous public and private pressure put on the Afghans to clean up their collective act). For we are now a liberal society, and in a liberal society it is very difficult to make the case that bribery and corruption may be the only tools we have at our disposal because we do not have the power to coerce them to become like us. It reeks and taps into the residual historical anger that caused Western administrations to become modern rational-legal ones in the first place. And yet, it is difficult not to conclude that, in some instances, corruption must be accepted as an undesirable but nonetheless potentially legitimate mechanism for engaging with societies organized along different lines. Perhaps it is time to give corruption a chance. n

46 The National Interest The Next American Majority

America’s changing demographics, long a delicate topic, have become an increasingly prominent part

of national political debate. The subject’s prominence was assured when President Barack Obama won reelection with less than 40 percent of the white vote in 2012. It quickly became conventional wisdom that Mitt Romney had antagonized Hispan-ic voters by proposing that illegal aliens en-gage in “self-deportation” and that the Re-publican Party was committing political sui-cide by catering to a shrinking white voter base. Leading Republican strategists such as Karl Rove urged the gop to change course. Writing in the Wall Street Journal, Rove an-nounced: “If the gop leaves nonwhite voters to the Democrats, then its margins in safe congressional districts and red states will dwindle—not overnight, but over years and decades.” Rove pointed to a Georgia county where a 339 percent increase in the Hispan-ic population was accompanied by a drop in the Republican share of the presidential vote—from 66.4 percent in 2000 to 51.2 percent in 2012.

One result of Obama’s victory was to rejuvenate the cause of reforming U.S. immigration law. Within five months of Obama’s second inauguration, the Senate approved legislation that would place

eleven million illegal aliens on a “path to citizenship,” and, in order to dampen demand for undocumented labor, would greatly increase the flow of legal immigrants and guest workers. The legislation would also increase spending to secure the border. The ensuing debate over immigration reform, like the postmortem on the presidential election, has been dominated by the theme of changing demographics. When Jorge Ramos, the news anchor for the country’s largest Spanish-language broadcast network, was interviewed about the Senate bill on National Public Radio, he said:

If Latinos perceive that Republicans are to blame for the absence of immigration reform, I think Republicans are going to pay the price for that. . . . You know, the Hispanic popula-tion will triple to 150 million in less than 40 years. . . . Republicans better understand that this is a different country, that we are in the middle of a truly, truly demographic revolu-tion. Latinos are changing the way we speak, the way we dance, the way we do politics in this country, the way we vote.

His partisan political analysis aside, Ramos was not wrong about the “demographic revolution.” In 1950, European immigrants and their descendants made up nearly 90 percent of the U.S. population. Since then, “non-Hispanic whites,” according to the 2010 census, have fallen to 64 percent of the population. The

William W. Chip is an international attorney living in Washington, dc, and a member of the board of directors of the Center for Immigration Studies.

The Next American Majority

By William W. Chip

The Next American Majority 47November/December 2013

Census Bureau’s “2012 National Population Projections” predicts that their share will drop below 50 percent in the 2040s.

Rove and Ramos speak as though this development were a law of nature. It is not. Instead, the laws of Congress, and their selective enforcement by the executive branch, have driven the demographic revolution. Though Hispanics certainly enjoy a higher birthrate than non-Hispanic whites—more than a third higher, according to the “2010 National Vital Statistics Report” of the Department of Health and Human Services—the demographic change has been propelled most by unprecedented levels of legal and illegal immigration in recent decades. The Department of Homeland Security’s “2011 Yearbook of Immigration Statistics” reports that legal immigration increased from 320,000 to 1,030,000 per annum between the 1960s and the 2000s. Today, small nations like Haiti, El Salvador and the Dominican Republic send more immigrants than any European nation.

Based on these immigration and fertility trends, the “2012 National Population Projections” estimates that the “Hispanic-origin” population will nearly double from 17 percent of the population in 2012 to 31 percent in 2060. Buried in the government’s projections is an even more profound observation, that “after 2020 the Hispanic population is projected to add more people to the United States every year than would all other race/ethnic groups combined.” In other words, if current immigration and fertility trends continue, the United States will eventually become a majority-Hispanic nation, perhaps before the end of this century. In California, our most populous state, births to Hispanic mothers already outnumber births to all other ethnic groups combined. Texas, our second most populous state, will shortly follow suit. Ironically, while our current immigration

policies are thought to increase diversity, in the long run they may simply replace one ethnic majority with another.

Immigration is a complex subject, but the history of U.S. immigration law can

be summarized in a single paragraph. From independence until the end of World War I, immigration was virtually unrestricted, with the exception of limits on immigra-tion from a few countries (notably China) and on certain “undesirables” (e.g., prosti-tutes and mendicants). In the 1920s, immi-gration was harshly curtailed by imposing “quotas” on Eastern Hemisphere countries in proportion to the turn-of-the-century ethnic composition of the United States. The national quota system effectively dis-criminated against Asian immigration, and largely for that reason it was replaced in 1965 with the current system, which assigns the same numerical limit to every country (with extra slots for Canada and Mexico).

The 1965 law reserved most immigrant visas for aliens sponsored by a U.S. relative. If the system limited sponsorship to members of the family that produced the sponsor (parents and siblings) or of the family that the sponsor produced (spouse and children), the amount of immigration triggered by a single citizen would be limited. However, because relations from both families can be sponsored, a citizen can initiate an unending chain of visa eligibility: a naturalized immigrant might sponsor his parents, his unmarried siblings and a spouse; each of the siblings might sponsor a spouse from the home country; the spouses of the sponsor and his siblings might sponsor their own parents and unmarried siblings; and so on.

The 1965 legal-immigration reforms occurred just as migration patterns of illegal workers from Mexico began to shift, with more bringing their families and fewer returning home. In 1986, Congress

The National Interest48 The Next American Majority

enacted financial and criminal sanctions against employers who failed to request work-eligibility documents from new hires. To win the support of immigrant-advocacy groups and businesses with illegal aliens on their payrolls, approximately 2.8 million undocumented aliens were legalized.

In the meantime, the family-chain migration system instituted by the 1965

reforms had generated long waiting lists for visas. In 1990, Congress sought to shorten the wait with a 40 percent increase in the number of visas. Of course, as soon as the recipients of these additional visas became eligible to sponsor other relatives left behind, waiting lists would begin to grow again. As part of the 1990 law, Congress also mandated the formation of the bipartisan U.S. Commission on Immigration Reform to recommend a longer-term solution.

Most of the commission’s work was carried out by the National Academy of Sciences under the direction of Barbara Jordan (the first African American woman elected to Congress from the South), who was appointed to chair the commission by President Bill Clinton. Relying upon research by the National Academy of Sciences, the commission found that the

high levels of immigration since the 1960s, partly fueled by family-chain migration, were depressing the wages of low-skilled Americans. The commission’s 1997 report, “Becoming an American,” proposed annual ceilings of four hundred thousand visas for spouses, children and parents of citizens and 150,000 visas for aliens with exceptional skills and refugees, effectively

cutting legal immigration in half. As is often the case with recommendations of expert bipartisan commissions, nothing happened.

Although primarily tasked with reforming legal immigration, the Jordan commission also addressed the vexed issue of illegal immigration. The 1986 employer-sanctions provisions had proven ineffective given the ease of securing counterfeit work-eligibility documents, and within ten years there were even more illegal aliens in the United States

than in 1986. The Jordan commission, for its part, concluded that another legalization program would only make matters worse and instead recommended that employers be required to verify each new employee’s Social Security number by telephone or over the Internet.

This E-Verify system, although easy to use, has been resisted by business lobbyists, in part because employers are already required to furnish employee Social Security numbers to the Internal Revenue Service, which shares them with the Social Security Administration. Owing to bureaucratic politics within the executive branch and between congressional committees, this information is not shared with immigration-enforcement agencies, forcing employers to confirm the validity of the numbers a second time to avoid immigration penalties.


Throughout the history of American im-migration legislation, starting with pre–

Revolutionary War laws on importing in-dentured servants and slaves, the paramount influence on the legislative process has been business interests. The avidity of business for more labor is obvious: it kept wages from ris-ing and labor from organizing. Until the for-mation of national unions in the twentieth century, the labor interest was represented in the legislative process by those whom we would today call “progressives”—members of the middle and upper classes who opposed on moral grounds the use of child labor and immigrant workers to depress wages and break up unions. In 1895, Booker T. Washington delivered the following plea to attendees at the Cotton States and Interna-tional Exposition in Atlanta:

To those of the white race who look to the incoming of those of foreign birth and strange tongue and habits for the prosperity of the South, were I permitted, I would repeat what I say to my own race: “Cast down your bucket where you are.” Cast it down among the eight millions of Negroes whose habits you know, whose fidelity and love you have tested in days when to have proved treacherous meant the ruin of your fireside.

Washington and other progressives were joined in opposition to unrestricted immigration by yesteryear’s “social conservatives”—citizens who feared that an influx of Catholic and Jewish immigrants would undermine the country’s Protestant culture. However, even in combination, progressives and social conservatives were no match for the business interest, which time and again blocked popular legislation to control immigration.

Two developments tipped the scales in the early 1920s, leading to the single occasion in American history when Congress acted to reduce the total level

of legal immigration. First, under the leadership of Samuel Gompers, himself an immigrant, the American Federation of Labor made an end to mass migration from Europe one of the key demands of the country’s first nationally effective labor organization. Second, and probably of greater importance, anarchists and socialists began showing up among the postwar flood of immigrant workers into American cities. Fear of social and political instability moved enough businessmen into the restrictionist camp to enable passage of the 1920s quota legislation.

Today, as in the past, large-scale immigration is supported by business interests and opposed by most social conservatives. What is strikingly different today is the extent to which progressive forces, including congressional Democrats, civil-rights leaders and even segments of organized labor, have sided with big business in opposing most measures to restrict immigration. This loss of a restrictionist faction on the left to balance the open-borders faction on the right is key to understanding why a nation now confronted with falling water tables, a collapsing infrastructure, failing schools, declining wages and widespread unemployment is on the verge of sanctioning what amounts to the largest wave of legal immigration in American history.

When progressives initiated the 1965 reforms that triggered the current wave of mass migration, they were not deliberately aiming for greater diversity. On the contrary, Senator Edward Kennedy testified, “Our cities will not be flooded with a million immigrants annually.” Senator Robert F. Kennedy argued that the elimination of quotas “can have no significant effect on the ethnic balance of the United States.” They were wrong. But Ted Kennedy went on to embrace the ensuing demographic revolution, as have contemporary liberals


like Joel Kotkin, who predicted in his 2010 book The Next 100 Million: America in 2050 that the “staggering amalgam of racial, ethnic, and religious groups” that we are destined to become would bring about “the construction of a new civilization.” Amid the celebration, more conservative voices, such as Pat Buchanan in his 2011 Suicide of a Superpower, deplored the abandonment of our historic ethnic center of gravity, whose values and habits (notwithstanding many shortcomings) fostered political stability, economic success and individual freedom unparalleled in human history.

A s writers on the left and the right de-bate whether white Americans should

celebrate or deplore their impending minor-ity status, they seldom reflect on the impli-cations for Hispanic Americans of their im-pending majority status. In so large a group, one naturally encounters a remarkable range of talent and perspectives. However, an ac-cumulating mound of data gathered by His-panic scholars indicates that as much as half of the Hispanic population, far from form-ing the nucleus of a confident new middle class that will set a fresh tone for another American Century, are coalescing into a new underclass.

What most distinguishes the booming, immigration-driven Hispanic community from non-Hispanic whites (and also from the much smaller but equally booming Asian immigrant community) is uneven educational attainment, a handicap that stubbornly persists from generation to generation. In 2008, ucla sociology professors Edward Telles and Vilma

Ortiz completed an exhaustive analysis of intergenerational progress among Mexican Americans entitled Generations of Exclusion. Not surprisingly, they reported that first-generation Hispanic citizens outperformed their parents, who often had not completed grade school, but educational progress in the second, third and even fourth generations had been static or even reversed itself. Among other striking conclusions, the professors also found that more than a quarter of fourth-generation Mexican Americans were not graduating from high school and that between the third and fourth generations the percentage graduating from college had declined from 14 percent to 6 percent (compared to 35 percent of non-Hispanic whites). In 2010, Carola and Marcelo Suárez-Orozco, codirectors of immigration studies at nyu, documented in Learning a New Land: Immigrant Students in American Society the extraordinary challenges of educating children in the many schools where Hispanic and other immigrant children are now a majority of the student body, including lack of parental support, ethnic self-segregation and fear of violence.

This educational deficit has had deleterious consequences, as measured by the government’s “National Vital Statistics Reports” and its periodic “American Community Survey” and “Current Population Survey.” According to these sources, Hispanic immigrants are significantly more likely to live in poverty and to lack health insurance than their white native counterparts. The likelihood that poverty will pass to the next generation

Why is a nation confronted with a collapsing infrastructure, declining wages and widespread unemployment on the verge of sanctioning the

largest wave of legal immigration in American history?


is high, since half of Hispanic children are born out of wedlock. What’s more, in 2010 University of California professors Patricia Gandara and Frances Contreras argued in The Latino Education Crisis: The Consequences of Failed Social Policies that encouraging reports of higher Hispanic rates of graduation from high school often did not account for Hispanics who never entered high school in the first place. They warned that “as a group, Latino students today perform academically at levels that will consign them to lives as members of a permanent underclass in American society. Moreover, their situation is projected to worsen over time.”

Academic stagnation in so large and rapidly expanding a segment of the population has some sobering implications for our nation’s standing in the world. The fact that U.S. students score worse on standardized tests than their peers in many foreign countries is widely known. ExxonMobil’s “Let’s Solve This” campaign warns that “the Program for International Students Assessment [pisa] ranked U.S. students 17th in the world in science and 25th in math.” pisa is a project of the Organisation for Economic Co-operation and Development that tests fifteen-year-olds in over sixty countries every three years. The 2009 test results are summarized in the U.S. Department of Education’s “Highlights from pisa 2009: Performance of U.S. 15-Year-Old Students in Reading, Mathematics, and Science Literacy in an International Context,” which includes an ethnic breakdown of U.S. scores.

Few educators will be surprised that Asian Americans had the highest pisa scores, followed by non-Hispanic whites, Hispanics and African Americans, in that order. More will be surprised to learn that in only one Asian location (the city of Shanghai) did students score better than Asian Americans, in only one European country (Finland)

did they score better than non-Hispanic whites and in no Latin American country did students score better than Hispanic Americans. African American students also scored higher than students in the only African country that participated in pisa (Tunisia). Thus, although U.S. students on average rank below the top-scoring Asian and European countries in the pisa tests, this says less about the relative quality of our educational system than about the relative diversity of our student population.

The academic performance of Hispanics as a group compared to other ethnic groups

is not easy to explain, indeed no easier to explain than the differing achievement levels of, say, Korean Americans compared to Filipino Americans or Jews compared to gentiles. However, U.S. immigration policies must shoulder some of the blame. The problem with our policies is not that we admit too many immigrants from countries with low pisa scores; the problem is that our immigration law discriminates across the board against talent and achievement.


The experience of Cuban immigration is enlightening. Prior to the 1980 Mariel boatlift, most Cuban immigrants were middle-class refugees from Fidel Castro’s Communist regime. On average, these Hispanic immigrants have flourished, as have their children and grandchildren. When I was an undergraduate at Yale, and “diversity admissions” were just getting off the ground, one of my new Hispanic classmates told me that he and other students filling the “Hispanic quota” were amused to discover that most of them were the offspring of well-to-do Cuban professionals, not the children of underprivileged Mexican Americans.

But Cuba was not unique in having a large, well-educated middle class. Mexico, the source of most Hispanic immigrants, has millions of successful entrepreneurs and professionals who have embraced an ethic of work and learning and who are prospering within the limits imposed by crime, corruption and other local impediments to upward mobility. Most under the age of fifty are fluent or nearly fluent in English and (in my experience) are more cultured than their American counterparts. Had the U.S. government deliberately set out to increase the Hispanic share of the U.S. population, it could easily have done so by recruiting hundreds of thousands of the “best and brightest” from Mexico and other neighbors to the south.

Not everyone agrees that the dishearten-ing statistics on Hispanic education

and family formation are harbingers of a troubled future. In 2001, neoconservative journalist Michael Barone predicted in The New Americans that today’s Hispanic immi-grants would repeat the triumphant march into the American middle class of the Italian immigrants who disembarked at Ellis Island a century earlier. I agree with Barone that Hispanic immigrants, imbued with many of

the Latin, Catholic traditions of the earlier Italian immigrants, could do worse than to emulate the achievements of their anteced-ents. The stretch of land between Boston and Baltimore is thick with Roman Catholic cathedrals, universities and hospitals estab-lished (and sometimes hand constructed) by Italian, Irish and Polish newcomers.

Unfortunately, within the contemporary Hispanic community there has been comparably less building of institutions. This may be due to bad timing. The parochial schools that drilled so many Catholic immigrant children in the rigors of their religion and the mores of Anglo-Protestant culture are fewer in number and cost more to attend, mainly because the ranks of nuns who staffed them in exchange for food and shelter have been depleted. More importantly, the twentieth-century revolution in automated manufacturing that enabled Ellis Island immigrants as well as their native-born contemporaries to aspire to a middle-class lifestyle without a university degree has come to a close and been succeeded by revolutions in transportation and information processing that have globalized the economy.

The dual forces of rapid globalization and mass immigration have stunted upward mobility in the United States and contributed to the much-lamented growth in the wealth and income gap. In a globalized, free-trading economy, any product or service that can be made or performed by a low-paid worker will be imported from abroad, unless it cannot be imported at all. Because of globalization, the number of U.S. residents who can earn a good living competing in the market for importable goods and services is shrinking; because of immigration, the number of U.S. residents who must earn their living providing retail, building-maintenance, nursing, carpentry and other nonimportable services to the globally


As writers debate whether white Americans should celebrate or deplore their impending minority status, they seldom reflect on the

implications for Hispanics of their impending majority status.

competitive minority is expanding. If the number of people who can afford to pay for a service is declining, and the number of people who earn their living by providing that service is growing, the law of supply and demand mandates that the latter’s wages must fall.

The collapse of real wages for Americans without a college degree has had a devastating impact on family formation, and not just within the Hispanic community. Last year, in Coming Apart: The State of White America, 1960–2010, Charles Murray of the American Enterprise Institute tracked the growth of “lower class” whites from 8 percent of the total white population in the late 1960s to over 20 percent in 2010. The two largest segments of this expanding lower-class population were single mothers and men who could not make enough money to keep two adults out of poverty.

Acknowledgement of these realities has been generally absent from the debate. In a rare exception, T. A. Frank argued in the New Republic earlier this year that liberals should oppose the immigration-reform bill currently under consideration for reasons similar to those described above. But he lamented that this view was likely to be dismissed out of hand as retrograde and unthinking: “The consensus among decent people in favor of the immigration bill making its way through Congress is so firm that expressing dissent feels a bit like taking the floor to suggest we chop down the Redwood National Park.”

To the injuries wrought by uncontrolled immigration on Americans of every race

and ethnicity has been added for Hispanic Americans the unique insult of losing their own voice. Traditional Hispanic groups such as the League of Latin American Citizens, run by dues-paying members and advocating patriotism and assimilation, have been nearly driven out of business by foundation-funded organizations. For some of these advocacy groups, the Hispanic experience was foreshadowed not by the uplifting saga of Ellis Island immigrants, but instead by the struggles of African Americans. From that perspective, enforcing our immigration laws is just another form of discrimination.

The simple fact is that in a globalized society, mass immigration serves to depress the wages of working-class citizens—both natives and immigrants—and thereby to swell an underclass whose problems seem close to irremediable by our society and its government. As Frank observed, this may be “good for wealthy Americans,” but it’s an “immense blow to America’s working class and poor.” To say this is not a value judgment on those who seek to come to the United States. We, not they, are to blame for our out-of-date, weakly enforced immigration policies. The country and the world have changed significantly over the past century, and with these changes America’s ability to successfully absorb large numbers of low-skilled immigrants has decreased sharply. But until this issue can be examined in a cool and dispassionate manner, the shadow cast by a forest of myths will continue to occlude a rational debate about immigration into America. n

55Money Never Sleeps November/December 2013

P resident Obama and Congress continue to wrestle with competing

ideas to fix America’s housing crisis, ranging from abolishing Fannie Mae and Freddie Mac to introducing new regulations for repairing the rickety mortgage-financing system years after it crashed. To understand the enduring nature of today’s housing-system mess, it is not really necessary to do much more than to look backward. To look, that is, at the careers of two former prominent politicians, each of whom has played an integral role in American finance in recent decades.

The f i rs t i s former Connect icut senator Chris Dodd; the other is former Massachusetts representative Barney Frank. Both men have a lot in common. Both are Democrats. Both were influential members of their chambers’ banking and financial-services panels (they chaired their respective committees when Congress passed the Dodd-Frank financial-reform law in July 2010). Both personified the cozy tripartite relationship involving big banks, big housing and big government. And both pooh-poohed the skeptics and stoutly defended Fannie Mae and Freddie Mac—long after many experts were warning that those huge government-sponsored enterprises (gses) had overextended

themselves in the frothy U.S. housing market before the crash.

When it came to listening to dissenting voices, Frank was a bully and proud of it. During one subcommittee hearing, when Congressional Budget Office director Robert Reischauer expressed concerns about taxpayer liabilities if Fannie and Freddie encountered financial difficulty, Frank responded so vehemently that the subcommittee chairman, the gentlemanly Texan Henry B. Gonzalez, admonished him to stop badgering the witness. His propinquity to Fannie Mae was manifest when the company hired his domestic partner upon his graduation from business school at Dartmouth and in the $75,000 that Fannie donated to a Boston nonprofit group cofounded by Frank’s mother. As Gretchen Morgenson and Joshua Rosner observe in their 2011 book, Reckless Endangerment, “Frank was a perpetual protector of Fannie, and those in his orbit were rewarded by the company.”

And what about Dodd? He, too, defended Fannie and Freddie, denying that they were in serious financial straits even after Treasury Secretary Hank Paulson sought to augment capital and regulatory requirements for the gses as part of a bailout package. Dodd promoted legislation to assist troubled subprime-mortgage lenders such as California-based Countrywide Financial when they faced collapse after the housing bubble burst. It later turned out that he had accepted below-market mortgage

Christopher Whalen is a writer and investment banker who lives in New York City. He is the author of Inflated: How Money and Debt Built the American Dream (Wiley, 2010).

Money Never Sleeps

By Christopher Whalen

The National Interest56 Money Never Sleeps

rates from Countrywide for refinancing his Washington and Connecticut homes. The Senate Ethics Committee concluded that, while Dodd had not knowingly pursued special treatment, he should have investigated the matter when he discovered that Countrywide had placed him in a special category of customers.

Mark Calabria, director of financial-regulation studies at the Cato Institute, wrote in 2010 that nothing in the Dodd-Frank legislation ended the huge intervention by the U.S. government in the mortgage market. Nor would it help avoid the next crisis. He wrote:

Perhaps it should come as no surprise that Sen. Christopher Dodd and Rep. Barney Frank, the bill’s primary authors, would fail to end the numerous government distortions of our finan-cial and mortgage markets that led to the crisis. Both have been either architects or supporters of those distortions. One might as well ask the fox to build the henhouse.

So should it really come as a surprise to anyone that the Dodd-Frank bill, which was supposed to prevent a recurrence of the housing crisis, is riddled with problems that Congress continues to attempt to remedy? Three years after its passage, the bill increasingly resembles a new Washington Monument—to folly and hubris. Even its supporters acknowledge its shortcomings. Writing in the Wall Street Journal, for example, Alan S. Blinder, a former vice chairman of the Federal Reserve, noted, “The Dodd-Frank Act is taking on water fast.” The consequences for banks and the economy could be dire. Yet it needs to be said that most of the critics of the law, including Blinder, would address concerns about it with yet more regulation.

The Dodd-Frank law puts new obstacles to getting credit in front of business-

es and consumers, while leaving the riski-est parts of the big banks untouched. The law imposes partial limits on bank trading for their own accounts through legislation known as the Volcker Rule—a rule that, as the Wall Street Journal noted, “languishes unfinished and unenforced, mired in policy tangles and infighting among five sepa-rate agencies whose job is to produce the fine print.” It currently fails fully to curtail commercial-bank securities activities or sep-arate banks from securities dealers, as was done by the Glass-Steagall provisions of the Banking Act of 1933. Even today, despite Dodd-Frank, the basic business model of Wall Street, which helped foment the crisis, remains largely intact. And the same federal regulators who so badly botched things in the years leading up to the crisis are still in charge. Worse, investors in mortgage securi-ties—many of whom were victimized by lending fraud and questionable mortgage bundling that occurred further upstream—have been penalized repeatedly and forced to foot the bill for cleaning up the mess, including foreclosure settlements with the states and litigation between banks and fed-eral housing agencies. Meanwhile, guber-natorial aspirants such as attorneys gen-eral Eric Schneiderman of New York and Kamala Harris of California have fattened their electoral war chests by exploiting, in the name of consumer protection, the on-going settlement process with large banks. If American consumers used their homes as atms prior to the crisis, aspiring governors like Harris use banks and private investors as a source of ready campaign cash.

Given the cozy relationships reflected in Dodd’s and Frank’s ties to Fannie Mae and Freddie Mac, it isn’t surprising that Congress didn’t directly address the root cause of the crisis. The obvious conclusion is that we need to reform Congress and its corrupt relationship with the housing industry. As one veteran counsel in the

Money Never Sleeps 57November/December 2013

House said in an interview for this article: “Congress got in bed with the housing-industrial complex decades ago. Guess who got screwed?” The roots of this prolonged affair go back decades, to the beginning of Washington’s involvement in the housing sector. It was veteran Capitol Hill analyst Robert Feinberg who originally called it the “housing-industrial complex,” in a nod to Dwight Eisenhower’s warning about the military-industrial complex. The former appears as impermeable to true reform as the latter. For the subprime crisis was the inevitable outcome of this housing-industrial complex and its years-long push for a government-supported bull market in residential real estate built upon public finance.

The watchdogs and regulators who were supposed to protect the country from financial harm, Morgenson and Rosner note, were actually complicit in the actions that led to the implosion of the American economy. The watchdogs, in other words, didn’t do much watching, and the regulators didn’t regulate. From the mid-1990s onward, the Federal Reserve, the Treasury Department and other regulators, along with various federal housing agencies, all acted as facilitators for acts of securities fraud and malfeasance by the largest banks that rivaled the worst excesses of the Roaring Twenties. These same regulators, led by former treasury secretaries Timothy Geithner, Hank Paulson and Lawrence Summers, then told Congress and the American people that we could not prosecute the responsible individuals for fear of “systemic risk.” To date there have been just a handful of minor fraud prosecutions involving mortgage securities issued by the largest banks. Dodd-Frank does not address

the issue of financial fraud, much less the festering political issues behind the subprime crisis.

It was Congress that nearly precipitated the co l l apse o f the economy by systematically dismantling Glass-Steagall’s separation of banking and securities underwriting. Glass-Steagall imposed clear and simple prohibitions on what banks could and could not do in just five brief sections of the Banking Act, comprising just thirty-seven pages. Such simple prescriptions didn’t require any huge new enforcement bureaucracy. Dodd-Frank, by contrast, is a mess. It takes up 2,319 pages and imposes expansive and highly detailed rules on nearly every aspect of financial-institution management.

The new l aye r s o f government

regulation imposed on the financial-services industry include a new Consumer Financial Protection Bureau (cfpb) to protect Americans from the predations of large banks. Another is the creation of the Financial Stability Oversight Council to manage the risk of sudden


liquidation of large, troubled financial companies. Hundreds of new restrictions also are imposed on hedge funds and ratings agencies, adding mind-numbing new layers of regulatory bureaucracy to these businesses. One result of this raft of intrusive regulations and legal strictures is that nearly a third of all Americans have essentially been frozen out from buying a home.

Meanwhile, although Dodd-Frank’s statement of intent brims with promises, the law lacks powerful provisions that might help to prevent another financial crisis. For example, former Democratic senator Ted Kaufman of Delaware says that the “orderly liquidation authority” established by Dodd-Frank is a paper tiger. At a Washington conference this May, he said that Dodd-Frank cannot handle the liquidation of insolvent financial institutions and hence can’t end the practice of government bailouts of large banks. Curtailing the bailouts was of course a primary goal of Dodd-Frank. Thomas Hoenig, former president of the Federal

Reserve Bank of Kansas City and now vice chairman of the Federal Deposit Insurance Corporation, told the House Financial Services Committee that the biggest banks are “woefully undercapitalized” within a “very vulnerable financial system.” sec commissioner Daniel Gallagher blasted the Dodd-Frank law in January. “It’s a perfect example,” he said, “of not letting a good crisis go to waste. . . . The act is a model of the new paradigm of legislation: a good concept, in this case regulatory reform, overwhelmed by a grab bag of wish list items.”

Jus t a s the Sarbanes -Oxley l aw sidestepped the securities fraud perpetrated by Enron and WorldCom, and instead focused on corporate governance, Dodd-Frank also deliberately misses the point. Washington’s grab-bag habits stem from the fact that few members of Congress have the time, let alone the inclination, to study finance, much less the intricacies of a bill such as Dodd-Frank. When it comes to designing legislation, members and their staffs ultimately are led around by the nose by big-bank lobbyists who finance reelection campaigns—or not. But the most telling point about Dodd-Frank is that even with thousands of provisions it does not address the root of the crisis—namely, the government’s intimate involvement in housing finance.

That involvement goes back to the Great Depression and, before that, to

progressive-era concepts that came to the fore in American politics during World War I and the presidency of Woodrow Wilson. In terms of the origins of the subprime crisis that led to the passage of the Dodd-Frank law, obviously housing is the main foundation. Government subsidy and pro-motion of home ownership by all Ameri-cans from the 1930s onward is the his-toric precursor of the collapse of the U.S.


financial markets in the last decade. The failure of markets for private mortgage secu-rities would start the avalanche that became known as the subprime crisis, but the entire U.S. mortgage market was built upon a financial and legal template that assumed a leading role for Uncle Sam.

Since the turn of the last century, American progressives have pushed for legal remedies to contain the worst tendencies of big business and the malefactors of wealth. A main goal of the progressive movement was purification of government by exposing corruption and undercutting political machines and bosses. The other notable tendency in Washington from World War I through the Great Depression was the creation of “parastatal” entities in Washington, modeled after 1920s European countries experimenting with fascism and Communism, especially Italy, Germany and the Soviet Union. The use of gses during World War I and the New Deal reinforced this model of a direct and continuing role for the federal government in the U.S. economy, a model that was effectively combined with the progressive urge to use the state as an agency for social good. gses such as the Reconstruction Finance Corporation (chartered by President Herbert Hoover, a Republican with progressive leanings) were explicitly modeled after European organizations.

This tendency to rely upon the state rather than private individuals for economic solutions very much underlies the U.S. approach to housing in the post–World War II era and reflects a broader philosophical conflict in the American

body politic. It is worth noting that when Franklin Roosevelt commanded that Congress pass the Glass-Steagall laws, it was, of course, good politics to attack the big banks and Wall Street speculators, just as it is today. In 1936, the Journal of Social Psychology sought to survey latent authoritarian tendencies of the American populace. While the vast majority of respondents described themselves as antifascist, they also expressed support for fascist views so long as they were not identified as such, as renowned cultural historian Wolfgang Schivelbusch recounted in his 2006 book Three New Deals. Even Walter Lippmann had declared during the early stages of the Great Depression that perhaps the time had arrived to roll up the Constitution and put it into abeyance. The grim economic realities of the Great Depression made Americans amenable to authoritarian views that would never have won majority support prior to World War I or during the Roaring Twenties.

After losing the 1932 election, Hoover identified housing as one of the more attractive areas for generating employment. Though he was highly critical of fdr’s New Deal public-works programs and mildly critical of government providing cheap credit for private business, he supported the use of housing to create jobs. “The American people are always underhoused both in quantity and quality,” Hoover declared in pressing his case for government support. Hoover, who had served as commerce secretary in both the Harding and Coolidge administrations (and as Wilson’s Food Administration chief during

Although Dodd-Frank’s statement of intent brims with promises, the law lacks powerful provisions

that might help to prevent another financial crisis.


World War I), was no ideologue when it came to the economy. Unfortunately, fdr and the Democrats in Congress ignored Hoover’s proposal in 1933 to use the newly created Federal Home Loan Banks to discount mortgage loans, a proposal that “would have done more good than billions in tax money,” Hoover wrote in his three-volume memoirs.

The New Dealers were not about to let a good crisis go to waste if they could leverage it to gain a firm grip on political and economic power, which is what they did. And it’s fair to note that the Great Depression was so deep because of the flimsy condition of the mortgage-finance industry a century ago. Mortgage finance in the ear ly 1930s was pr imi t ive and definitely not consumer friendly, providing a ready laboratory for p rogre s s i ve re fo rm under fdr and the New Dealers. Banks did not typically provide mortgage loans, which instead were short-term instruments financed by title and insurance companies.

From the New Deal onward, the market for home mortgages was dominated by federal housing agencies such as the Home Owners’ Loan Corporation (holc) and the Federal Housing Administration (fha). The holc had the power to restructure existing home loans, while the fha provided a guarantee for investors to encourage them to hold mortgages. From the mid-1930s, the government provided a guarantee to investors willing to invest in mortgage paper, thereby creating a marketplace that otherwise would not have existed. Their

key innovation was to change the structure of the mortgage from what was essentially a short-term demand note into a long-term (typically twenty-year) fixed-rate, self-amortizing debt instrument.

Once the immediate emergency of the Depression was met, however, the federal apparatus created around housing continued to operate and perform a role that the private sector would not. The holc was dissolved and the fha remained

as guarantor. Fannie Mae was created to facilitate a secondary mor t g age ma rke t . Owing to laws passed during the Depression and several ear l ier landmark Supreme Court decisions, the pr ivate sector was not yet prepared to underwrite twenty-year fixed-rate mortgages without a guarantee. The fha provided sure ty for pr iva te investors, and Fannie Mae helped banks fund term loans. But the key

point is that by embracing a government-intervention model similar to those of European nations such as Germany and Denmark, Roosevelt fundamentally altered both home financing and the country’s political economy. fdr effectively replaced traditional private lending with publicly supported risk-pooling, rendering home loans more affordable but also injecting a large public subsidy—as well as the same type of cronyism and political corruption one now sees in the European Union’s largely nationalized banking sector.

During and after World War II, the U.S. government provided subsidized loan guarantees to returning soldiers, creating


a new entitlement for housing that would eventually grow into a more general federal subsidy for much of the middle class. In 1944, a Veterans Affairs loan program was added to the Veterans Bill of Rights. By 1948, Fannie Mae was buying va loans and adding greatly to credit availability. In 1968, Fannie Mae was split in two, creating Ginnie Mae to continue underwriting government-guaranteed mortgages while Fannie Mae was “privatized.”

An August 1968 memo from Housing Secretary Joseph Califano to President Lyndon Johnson outlines the budget savings from the Fannie Mae privatization. Even as the Johnson White House planned the privatization, though, Fannie Mae was pursuing an ambitious effort to promote greater home ownership. “It will probably save some $200 million in the budget by having the private corporation, rather than the public Fannie Mae, sell bonds in September,” Califano told the president. Little did the secretary know that four decades later, a pseudoprivate Fannie Mae would nearly bring about a collapse of the U.S. financial markets.

Congress created Freddie Mac in 1970 to securitize mortgages originated by savings and loans. Only then did the private sector begin to think about getting into housing finance in a serious way, without a federal guarantee for the credit risk on the mortgage. Indeed, from the 1970s onward, a procession of federal subsidies and initiatives increased the federal support for the U.S. housing sector. In 1987, Congress passed tax rules for “Real Estate Mortgage Investment Conduits,” which gave Fannie and Freddie an effective monopoly over the market for residential mortgage-backed securities. The fact of this legal monopoly opened the door for the gses to underwrite and sell toxic loans to investors under the benign label of “short-term government securities.”

In the forty years since Freddie’s cre-ation, the U.S. housing market has gone

through dramatic boom-and-bust cycles. In 2006, the private sector was underwriting a significant portion of the overall mortgage market, but today private mortgage lending has almost disappeared. Virtually all of the $1.5 trillion in residential mortgages that will be underwritten in 2013 will carry a federal guarantee. Private mortgage-backed securities will probably total no more than $50 billion this year, down from hundreds of billions annually before the crisis. The last decade may mark a peak for private financing for mortgages—and for home ownership—that may not be reached again.

U.S. home-mortgage rates, although up slightly since midyear, remain extremely low. The current rates advertised by private banks and lenders reflect a subsidy of several percentage points above where a hypothetical private market investor would lend. And Dodd-Frank leaves the federal monopoly on mortgage finance virtually untouched.

Unfortunately, Dodd-Frank does not address the financial crisis at its core. Under the law, lenders are encouraged to originate “qualified mortgages.” These low-risk loans include those backed by the fha and the va, conventional loans bought by Fannie Mae and Freddie Mac, and some “portfolio” loans, which are mortgages that lenders originate and then keep. But qualified mortgages exclude many of the mortgage-loan options that have been available in the past. The terrible irony of Dodd-Frank is that it seeks to address the misdeeds of Washington and Wall Street by reducing the availability of credit for American consumers at both ends of the credit spectrum.

Blue-chip “jumbo” borrowers whose loans are too large for the agency market are discriminated against by Dodd-Frank, an illustration of the mindlessness of


the reform legislation. And Dodd-Frank doesn’t just affect borrowers at the top of the marketplace. The qualified-mortgage guidelines limit points and fees to 3 percent of the amount being financed and prohibit prepayment penalties that protect lenders from refinancing in the first three years of a loan. But such a stiff standard will lock many borrowers with weaker credit out of the market. That certainly won’t expand local real-estate sales or maintain home values. Qualified mortgages, according to the cfpb, “generally require that the borrower’s monthly debt, including the mortgage, isn’t more than 43 percent of the borrower’s monthly pre-tax income.” Unfortunately, the 43 percent debt-to-income standard and other rules imposed by Dodd-Frank leave many potential home buyers without financing. Instead, American families will be locked into renting homes at a cumulative cost far above that required to buy the very same dwelling. Is this what Chris Dodd and Barney Frank mean when they talk about helping American families?

In a sign of the continuing agitation in Congress over the largest banks, Demo-

cratic senator Elizabeth Warren of Massa-chusetts and Arizona’s Republican senator John McCain have introduced legislation to separate commercial and investment bank-ing in the mold of the Depression-era Glass-Steagall law. The proposal is mostly a po-litical exercise since the legislation has little chance of approval, but it is important be-cause the political attraction of assailing the largest banks has not diminished even five

years after the onset of the subprime crisis.The most interesting thing about

McCain-Warren is that it would complete the evolution only partly accomplished in Dodd-Frank by the Volcker Rule, named after former Federal Reserve chairman Paul Volcker, who pursued draconian anti-inflation policies in the late 1970s and early 1980s. Specifically, the McCain-Warren legislation would separate securities underwriting and trading from banking, and allow large dealers such as Merrill Lynch and Morgan Stanley to trade once again for their own account. The Volcker Rule’s limits on trading activities of banks for their own account do not address the causes of the subprime crisis, but they do sequester bank capital from the financial markets, reducing liquidity in many types of debt and equity securities.

It is no small irony that the Volcker Rule could be the cause of the next financial crisis by limiting the ability of banks to provide liquidity to financial markets, as was the case this past June when Fed chairman Ben Bernanke began to signal an end to easy-money policies. Ultimately we need to either repeal the Volcker Rule or move forward with something like a Glass-Steagall-type legal separation of banking from investment activities to release this capital. In the latter case, “narrow banks” would function as depositories, lenders and fiduciaries, and they would become clients of the investment banks. The investment banks would need substantial balance sheets to operate outside the umbrella of “too big to fail.” But this would be a big improvement over the current—and very

The terrible irony of Dodd-Frank is that it seeks to address the misdeeds of Washington and Wall Street by reducing the availability of credit for American consumers at both ends of the credit spectrum.


dangerous—situation created by the half measure of the Volcker Rule within Dodd-Frank.

The fact that members of Congress such as Warren and McCain, among others, still feel the need to push for a separation of the securities and banking arms of the largest universal banks speaks volumes about the unfinished nature of the debate surrounding the Dodd-Frank legislation. Bashing the big banks remains good politics, even if chances of actually passing legislation to split up those banks are very thin. Besides, when members of Congress bash the big banks, the banks and their surrogates write ever more checks to fill campaign war chests.

In the next several years, the full negative impact of Dodd-Frank on the U.S. economy, and particularly its housing sector, will likely become apparent. Then the emphasis on higher capital in banks

will be replaced by a desire for stronger growth and more jobs. One of the key targets for such counterreformation will be the cfpb, the Calvinist instrument of righteousness of Senator Warren, which has greatly reduced the availability of credit to American consumers. The intentions of Warren and others may be noble, but their efforts to regulate the U.S. financial markets are almost certainly doomed to failure. But even as Congress seeks to repair some of the deficiencies of the Dodd-Frank bill, it will surely remain oblivious to the real relationships between finance, markets and capital. If history, as Edward Gibbon recorded in The Decline and Fall of the Roman Empire, consists of the “crimes, follies, and misfortunes of mankind,” then the congressional record on financial regulation does little to dispel his gloomy verdict. n

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64 The National Interest Reviews & Essays

Reviews & Essays

MisunderestimatingBush and CheneyBy Christian Caryl

Peter Baker, Days of Fire: Bush and Cheney in the White House (New York: Doubleday, 2013), 816 pp., $35.00.

A specter is haunting Washington— the specter of George W. Bush. President Obama may have spent

almost five years in the White House by now, but it’s still possible to detect the fur-tive presence of a certain restless shade lurk-ing in the dimmer corners of the federal mansion. Needless to say, this is something of a first: usually U.S. presidents have to die before they can join the illustrious corps of Washington ghosts, and 43 is, of course, still very much alive in his tony Dallas neighborhood, by all accounts enthusiasti-cally pursuing his new avocation as an ama-teur painter. Yet his spirit is proving remark-ably hard to exorcise.

Anyone who doubts this need only consider the current debate about how to deal with Bashar al-Assad. The pollsters and the pundits have found a remarkably stubborn public consensus against the use of force, and the reasons for this reluctance invariably circle back to the

case of a previous Baathist dictator who stood accused of using weapons of mass destruction against his own citizens. America’s war against Saddam Hussein may be history, but for once the American people’s notoriously flabby short-term memory has not failed them. They have distinctly little appetite for anything that looks like a redo.

So how could George W. Bush, of all people, have created such a potent legacy? As New York Times White House correspondent Peter Baker reminds us in his magisterial new book Days of Fire, Bush left office as one of the most unpopular presidents of modern times. The Iraq War was clearly the signal failure of his presidency—a point now conceded even by many of his erstwhile supporters. But that’s just the first item in the index of errors. What about the shameful embrace of torture as a principle of the so-called global war on terror? The bewildering insouciance toward the war in Afghanistan? The self-destructive contempt for America’s allies? The fumbling response to the Katrina disaster? The policies that paved the way for the worst economic crisis since the Great Depression?

Given this list of cock-ups, it would have been understandable if Baker had chosen to structure his narrative as an 816-page affidavit for the prosecution. There are still plenty of short-fused Bushophobes out there, so a hatchet job might have made for great sales. But that would also be bad history. For better or for worse, we—and President Obama most of all—still live in the world that Bush built.

Christian Caryl is a senior fellow at the Legatum Institute in London and a contributing editor at The National Interest and Foreign Policy.

Reviews & Essays 65November/December 2013

Think about i t . The pr i son a t Guantánamo Bay still operates. The drone war goes on—the current president, indeed, has expanded it far beyond Bush’s wildest imaginings. As for the National Security Agency’s vast warrantless-surveillance schemes set up in the years after 9/11, the current White House hasn’t missed a beat there, either. Indeed, despite Obama’s promises to guarantee government transparency and protect whistle-blowers, his White House has gone after leakers with a ferocity that puts George W. to shame. (The current administration has brought charges against seven people under the World War I–era Espionage Act; the previous White House prosecuted only one.)

So could one, indeed, argue that the Bush presidency produced anything positive? In his efforts to provide balance, Baker does his best to make the case for Bush and Dick Cheney. He argues that this duo

accomplished significant things. They lifted a nation wounded by sneak attack on Septem-ber 11, 2001, and safeguarded it from fur-ther assault, putting in place a new national security architecture for a dangerous era that would endure after they left office. At home, they instituted sweeping changes in education, health care, and taxes while heading off another Great Depression and the collapse of the sto-ried auto industry. Abroad, they liberated fifty million people from despotic governments in the Middle East and central Asia, gave voice to the aspirations of democracy around the world, and helped turn the tide against a killer disease in Africa. They confronted crisis after crisis, not

just a single “day of fire” on that bright morn-ing in September, but days of fire over eight years.

Baker’s effort to illuminate these aspects of the story won’t make him any friends on the left. Far from it. But, again, the continuities are difficult to deny. The newly elected Obama happily continued the economic emergency measures instituted by Bush in the waning days of his term. The Troubled Asset Relief Program and the bailout for the U.S. automotive industry—some of the most far-reaching interventions in the national economy ever undertaken—were launched by the laissez-faire Texas conservative, not the community organizer from Chicago. And though few Americans seem to have noticed, those programs worked out pretty well in the end—and both presidents can rightfully claim a share of the credit.

Obama also has kept No Child Left Behind, Bush’s signature education reform, maintained the costly Medicare prescription-drug program, and expanded the higher fuel-economy standards and renewable-energy incentives that Bush passed in his second term. “While Obama ran against Bush’s tax cuts, he ended up preserving roughly 85 percent of them, reversing them for just the top 1 percent of American taxpayers,” Baker writes. “And Obama made one of his highest second-term priorities an overhaul of the immigration system, moving to complete Bush’s unfinished mission.” All correct.

In short, it’s too easy to diss George W. Bush. For many of his detractors, he’s still

For better or for worse, we—and President Obama most of all—still live in the world that Bush built.

The National Interest66 Reviews & Essays

a walking caricature: Dubya, the Shrub, the lock-jawed dope of Will Ferrell’s road show. But Baker convincingly argues that there’s no understanding where we are today unless we take a cold-eyed look at the reign of Bush and Cheney.

Y es, let’s not forget Cheney, so loathed on the left. Baker shrewdly opted to

structure this book as a dual biography, the story of an unprecedented partner-ship between the president and his deputy. Previous accounts, Baker believes, have tended to miss the full complexity of the two men’s relationship. “Popular mythol-ogy had Cheney using the dark side of the force to manipulate a weak-minded presi-dent into doing his bidding,” Baker writes. “The image took on such power that books were written about ‘the co-presidency’ and

‘the hijacking of the American presiden-cy.’” But Baker says this is nonsense: the “cartoonish caricature . . . overstated the reality and missed the fundamental path of the relationship.”

No doubt Cheney made himself into the “most influential vice president in American history”—a position he achieved through his unparalleled knowledge of the inner workings of Washington, which he gleaned through decades of service in both the executive branch and Congress. Yet Baker goes on to show how Cheney blew it. Ultimately he squandered this influence as his president moved to the center in his second term. While the basic arc of Bush’s life is by now familiar to most politically interested Americans (his early business failures, his reinvention as a baseball team owner, his fight against alcoholism and

his redemption through revivalist Christianity), Cheney’s biography is still obscured by myth, partisan resentment and his own sere public persona. I, for one, was shocked to realize that Cheney is actually just a mere five years older than his president: I’d assumed (like many Americans, I suspect) that he was at least fifteen or twenty years Bush’s senior. Maybe it was just his glabrous head, but Cheney always exuded, and continues to exude, a surly gravitas that the peevish Bush never mastered.

Nowadays we tend to think of Cheney as a kind of cranky old battle robot. But there was a time when he was more of an enfant terrible,


a remarkable political prodigy. In 1976, thanks to a wily political patron named Donald Rumsfeld, Cheney became, at age thirty-four, the youngest White House chief of staff in history (under President Gerald Ford). Bossing around underlings came naturally to him. In 1980, as a fledgling congressman, he ran for and won the number-four House post in the Republican Party. At the end of the decade he assumed the job of secretary of defense under President George H. W. Bush, in which capacity he was part of the team that planned and implemented the successful 1991 Gulf War, including the fateful decision to leave Saddam in power once allied forces had expelled him from Kuwait—a decision that Cheney stoutly defended, alleging that it would have been foolhardy to go all the way to Baghdad. Later he changed his mind. It was a career that gave Cheney unparalleled insight into the technology of inside-the-Beltway power.

But there was something else at work as well. Cheney’s experience in the 1970s, when the post-Watergate Congress was feverishly working to curtail presidential prerogatives wherever it could, left him with a markedly expansive view of executive power. In Cheney’s opinion (one he shared with Rumsfeld), the job of the president and his staff was to push back aggressively against any efforts to impinge upon presidential authority.

It was Cheney, indeed, who realized that the oft-derided office of the vice presidency was an ideal platform for anyone determined to mount an all-out defense of White House supremacy. The story of

how Cheney ran Bush Jr.’s vice presidential selection committee, only to end up getting the job himself, has been often repeated. Baker’s version is cautious and nuanced, but still illuminating. “The official version is that Bush never gave up on the idea of having Cheney as his running mate and wore him down,” Baker writes. There is some evidence for this scenario—Cheney, for example, refused the job the first time Bush offered it to him. Yet Baker concedes that it’s hard to entirely dismiss the notion that Cheney, the maestro of plausible deniability, had skewed the whole process in his favor, a verdict that Barton Gellman’s impressive book Angler, which details the efforts of Cheney and his aide David Addington to obtain compromising material about other potential candidates during the vetting process, suggests. Baker observes:

Yet some losing candidates and even some Cheney friends were convinced it was all an elaborate orchestration. “Cheney engineered the whole vice president thing,” said one friend. “The brilliance of Cheney is he let the other al-ternatives just light themselves on fire, one after the other. It was perfect.” Cheney never said as much to this friend, but it says something that someone close to him would come to this conclusion.

If you’re a student of the science of power, you’ll relish the passages that describe Cheney’s maneuverings. From the very beginning of his vice presidency we see Cheney deftly recalibrating the bureaucratic machinery to his own ends (for example,


by melding his high-powered staff with the president’s to an extent that no one else had ever dared to do before him).

One of the most intriguing accounts in the book involves Cheney’s effort, early in 2001, to gut U.S. approval of the Kyoto Protocol, which had been signed by Clinton. Cheney urged Bush to sign a letter that robustly denounced the Kyoto Protocol and rejected the notion of carbon caps (despite a campaign promise favoring carbon caps that actually enjoyed the support of some influential members of his team), then staged an extraordinary end run around the rest of the White House staff.

Cheney personally carried the letter to the Republican leadership in the Senate. Neither Christine Todd Whitman, Bush’s administrator of the Environmental Protection Agency, nor Secretary of State Colin Powell, nor National Security Adviser Condoleezza Rice was informed ahead of time. Baker persuasively contends that this moment, months before 9/11, marked the real start of the Bush administration’s fateful penchant for unilateralism. The Kyoto letter “made only passing mention of working with other countries to find alternatives to the flawed pact, and no one had prepared the allies for what was coming, feeding the impression of a go-it-alone attitude on the part of the new president.”

The Kyoto episode is a great example of how that go-it-alone philosophy toward other countries mirrored a similar mind-set toward certain checks and balances within the government itself. The vice president’s determined refusal to provide details of

his meetings with industry representatives during his deliberations on energy policy, for example, was grounded in the same philosophy of executive dominance. Watergate always loomed large for the old boy; he was determined to engage in his personal rollback campaign, bolstering the presidency by shedding congressional restraints imposed during the Ford administration. Cheney had an opening that was denied his predecessors, too. For obvious reasons, American wars have always tended to empower presidents, and the period following the terrorist attacks in New York and Washington merely affirmed this pattern.

B aker’s account of 9/11 and its after-math makes for a gripping read and

goes a long way toward illuminating the motives of White House policy makers who had to confront the possibility that the attacks were merely a prelude to an even more apocalyptic assault on the United States:

But Bush saw one of the towers fall and thought to himself that no American president had ever seen so many of his people die all at once before. Three thousand had been killed in the deadliest sneak attack in American history, all on his watch. At the time, he thought it was even more.

He reminds us that Bush, whose presidency was floundering, initially had a rocky time responding to the crisis, but then rebound-ed to remarkable effect starting with his im-promptu remarks at the still-smoking ruins

There is no evidence that Cheney ever succeeded in persuading Bush to adopt positions that he wasn’t already inclined to accept;

there are, however, quite a few cases where Bush defied him.


at ground zero in New York. For a while, buoyed by a remarkable bipartisan urge to unity and revenge, his popularity ratings soared to the 90 percent mark.

As it happened, Cheney, as James Mann vividly reported in The Vulcans, was an alumnus of many continuity-of-government exercises during the Cold War era, and his concurrent sensitivity to threats tended to feed the general sense of vulnerability and paranoia. (It was the vice president, for example, who urged Bush to keep away from Washington for most of the day on 9/11 itself; though that may have been a smart move on security grounds, it ultimately exposed the president to criticism.) Baker does an excellent job of summoning up the febrile atmosphere of the fall of 2001, when proliferating false reports and a general state of jumpiness merged with the mysterious anthrax-by-mail attacks and accounts of Osama bin Laden’s meeting with renegade Pakistani nuclear scientists to keep a nation’s nerves on end. And then, in October, a biological-weapons sensor went off in the White House:

“Mr. President,” Cheney started soberly, “the White House biological detectors have reg-istered the presence of botulinum toxin and there is no reliable antidote. Those of us who have been exposed to it could die.” Bush, taken aback, sought to understand what he had just heard. “What was that, Dick?” he asked. Colin Powell jumped in. “What is the exposure time?” he asked. Bush and Condoleezza Rice assumed he was calculating his last time in the White House, trying to figure out whether he had

been exposed too. It turned out he had been there within the possible exposure window.

Needless to say, it turned out to be a false alarm. But it’s a vivid example of the not entirely unjustified fears that vexed decision makers at the time.

In contrast to the portraits painted by his enemies, though, the vice president’s actual power over Bush was limited. Cheney was an enabler, someone who smoothed the way, not a man who gave orders to his superior. Baker notes that there is no evidence that Cheney ever succeeded in persuading Bush to adopt positions that he wasn’t already inclined to accept; there are, however, quite a few cases where Bush defied him. Despite Cheney’s urgings, Bush refused to stage the invasion of Iraq in the spring of 2002. And Cheney also strongly opposed Bush’s effort to obtain un authorization for the war when it finally took place a year later. (The U.S. draft resolution was withdrawn when it became clear that other members of the un Security Council were prepared to veto it.)

As Baker tells the story, Cheney’s enormous influence over the president was not a figment of the conspiracy theorists’ imagination—but nor did it prove as permanent as they might have supposed. In Bush’s second term in office, eager to craft a positive legacy that would outlive the shame of the Iraq fiasco, the president shifted to the center, leaving Cheney’s neoconservative camaril la suddenly isolated. For years, the neocons had held sway, isolating the State Department in their machinations to enmesh Washington


in a war of liberation in Iraq. They succeeded all too well. The disasters that ensued ended up creating shock, if not awe, in Bush’s mind. After the thumping of the 2006 midterm elections, Bush started to shift course. The neocons were out; the realists were in. At the Department of Defense, Rumsfeld eventually gave way to Robert Gates, a major moderating influence on foreign policy. (The shift also deprived Cheney of a crucial ally in interagency squabbles.) Condoleezza Rice assumed Powell’s old job as secretary of state, where she lobbied for a whole range of more moderate foreign-policy positions on fronts ranging from Iran to North Korea. Baker notes that her own bond with the president arguably contained a great deal more of genuine friendship and intimacy—fueled, at times, by a shared love of sports and exercise—than Bush’s relationship with Cheney. (At one point, as Baker recalls, Rice once inadvertently referred to her boss as “my husband” in the presence of journalists.) “By the latter half of his presidency,” Baker writes, Bush “had grown more confident in his own judgments and less dependent on his vice president.”

In one of the book’s most vivid scenes, Bush’s national-security aides convene to discuss the proper course of action against an illicit Syrian nuclear reactor being built with North Korean assistance. Should the United States assist an Israeli strike against the facility? Or simply let the Israelis go it alone? Cheney is the only one at the table to argue, forcefully, for a U.S. raid on the reactor. Bush asks for a show of

hands: “Does anyone here agree with the vice president?” No one, as it turned out.

Just in case there’s any doubt about the extent of Cheney’s political isolation by the end of Bush’s second term, Baker frames his book with an account of Cheney’s abortive efforts to persuade Bush to grant a presidential pardon to I. Lewis “Scooter” Libby, the Cheney aide convicted by a jury of perjury during a federal investigation to determine the culprit responsible for outing Valerie Plame as a cia agent (apparently in retribution for an op-ed written by her ex-ambassador husband Joseph Wilson that undercut the administration’s case for war in Iraq). While Bush was willing to commute Libby’s sentence, he refused to overturn the verdict of the jury, opening a breach between him and his vice president that undermines the customary description of Cheney as a Darth Vader figure, capable of shifting an indecisive president through minor exertions of the Force. As Baker shows us in the book on many occasions, Bush was far from pliant.

B aker has done a tremendous job of knitting together the disparate strains

of a complex and multilayered narrative. For all its density, the book proceeds at a beach-read velocity that makes it a pleasure to peruse. Especially enjoyable is Baker’s commendable urge to puncture many of the easy myths that still surround the Bush years. (Baker rightly points out that Bush administration hard-liners were not the only ones who genuinely believed that Sad-dam still had a wmd arsenal, though he also


shows how the White House’s determina-tion to prove its case ended up distorting the intelligence and, thus, the case that it made to the world.) Anyone who reads it will come away from this account with their understanding of the period greatly increased—which, after all, is just what a history like this is supposed to accomplish.

It hardly comes as a surprise that a book of such vast scope should leave its share of loose ends. Despite his detailed treatment of

the causes of the Iraq War, Baker is a bit too offhanded about its ultimate consequences. He dutifully mentions the number of U.S. and Iraqi dead and essentially leaves it at that. But that really isn’t enough. He doesn’t touch upon how the invasion and its aftermath devastated Iraqi society, vastly strengthening Iran’s position in the region and creating a whole new generation of battle-hardened jihadis who will bedevil the United States for years to come. (Many of

them are currently fighting in Syria.) Nor does he dwell on the lingering damage to the U.S. military, the many thousands of U.S. service members left disabled or the immense cost to the American economy. As far as the latter is concerned, some recent estimates put the total at some three trillion dollars—money that might have come in handy during the recent (and continuing) economic unpleasantness. Nor, indeed, does Baker spend quite as much time as

he might have on the economic policies of Bush and Cheney and the measures they took that increased the nation’s vulnerability to the shocks that led to the Great Recession. If he can manage to flesh out some of these darker aspects of the Bush-Cheney legacy in later editions, Baker might well claim to have written the definitive account of the period. Even in its current form, though, his book is a remarkable achievement. n


A Frenzied PedagogueBy Amity Shlaes

A. Scott Berg, Wilson (New York: Putnam, 2013), 832 pp., $40.00.

W hich previous president does President Barack Obama re-

semble most?Historians have likened the forty-fourth

president to the thirty-second, Franklin Roosevelt. Obama, after all, chose to open his first term with a progressive campaign that explicitly evoked fdr’s progressive Hundred Days. But Roosevelt functioned in a more political and opportunistic fashion than does Obama.

Asked once about his philosophy by a close colleague, Frances Perkins, Roosevelt replied, “I’m a Christian and a Democrat, that’s all.” Obama, by contrast, approaches topics with the comprehensive high-mindedness of a law-school professor. Roosevelt lived fraternally, for and in coalitions, whether the task was building them up or knocking them down. fdr’s New Deal consisted of an entire network

of deals between varying parties—between government and Congress, or, for a time, between government and big business, and between a leader and his people. Obama places less emphasis on “between.” Our current president prefers to go it alone. Instead of a deal, Obama offers principles for others to endorse if they wish.

Recently, scholars have started to point to similarities between Obama and another two-term progressive professor, Woodrow Wilson. After all, the twenty-eighth president, like Obama, looked at the world in terms of idea and cause. And in the case of Wilson, like Obama, there is a take-it-or-leave-it attitude. “Are people interested in personalities rather than in principles?” Wilson’s daughter Nell recalls Wilson asking in 1912 as he campaigned for president. “If that is true they will not vote for me.”

Perhaps because 2013 marks the centenary of Wilson’s inauguration, the Obama-Wilson comparisons are popping up with greater frequency. Often, the subject seems to be not whether Obama evokes Wilson but how. Not atypical has been the discussion of the two presidents in the New Republic, which was itself born during the Wilson era. Presidents Wilson and Obama share the feature of “technocratic arrogance,” argues Jeffrey Rosen. Rosen says it is no accident that Obama has leaned on a harsh Wilson-era law, the Espionage Act of 1917, to prosecute leakers of defense intelligence. Like Wilson, Obama, we are told, has a penchant for going to extremes, which has manifested itself in the prosecution of even mild offenders. The Georgetown University historian Michael Kazin offers

Amity Shlaes, chairman of the board of the Calvin Coolidge Memorial Foundation, serves as director of the 4% Growth Project at the George W. Bush Presidential Center. She is the author of Coolidge (Harper, 2013) and The Forgotten Man: A New History of the Great Depression (Harper, 2007).


a somewhat more flattering comparison. Obama resembles Wilson in his faith in government, Kazin writes, suggesting that Obama’s twenty-first-century plans to expand domestic government are possible only because Wilson “laid the foundation for the 20th century liberal state.” Without Wilson, there would have been no New Deal, and then no Great Society, and no Obama health-care reform and regulation. Wilson ought to be rated more highly, Kazin argues. As important as Roosevelt or Lyndon Johnson, he is “the forgotten president.”

That Wilson laid the foundations for modern presidential policy, foreign and domestic, cannot be denied. Wilson’s predecessor, Theodore Roosevelt, waged little wars to gain strategic territory for the United States, whether the territory involved was Cuba, the Philippines or at the Panama Canal. For tr, war was an impulse. Wilson, by contrast, proved the original neocon. He was ready to stake all on a big war if that war would serve a principle—in his instance, the principle of making the world “safe for democracy.” Wilson’s decision to draft hundreds of thousands of Americans and ship them overseas in World War I was so bold a move that many of his predecessors would never have even contemplated it. “Perhaps the greatest foreign army that ever crossed a sea in the history of the world prior to the present war was the Persian army of a million men, which bridged and crossed the Hellespont,” Wilson’s secretary of war, Newton Baker, wrote in wonderment. Persia’s army failed. America’s did not.

Wilson altered foreign policy in another way, by establishing American multilateralism. Whether the framework today is the United Nations or the G-20, the very assumption of the value of that framework can be traced back to Wilson, as John B. Judis has done in The Folly of Empire. Wilson’s own multilateral project, the League of Nations, was an exercise in futility, and most Americans know the story of how, while selling the League to the country on an exhausting railway tour, Wilson fell ill and then suffered a stroke that enfeebled him, putting paid to his dreams of League participation. But Wilson got Americans into the habit of thinking multilaterally, a shift that has proven more profound than the establishment of any individual institution. Harry Truman was a young captain mustering out in the same month that Wilson and the Allies handed a defeated Germany the Treaty of Versailles. Back at home, preparing to use his knowledge of supply chains to start a new life as a haberdasher, Truman watched Wilson launch an impassioned campaign for the League of Nations.

In domestic policy, Wilson left just as strong a mark, signing laws that created many of our modern institutions. Not only did Wilson sanction the income tax, he also backed the credo that Obama and indeed all Democrats sustain today: that taxing the rich more heavily than others performs the necessary work of “equalization” of an out-of-kilter society. Wilson signed into law the Clayton Antitrust Act, our first modern piece of antitrust legislation. And it was Wilson who, with great


presidential effort, forced the Senate to confirm his nomination to the Supreme Court of Louis Brandeis, the nation’s most powerful trustbuster. Under Wilson, the Federal Reserve System and the Federal Trade Commission were established, the latter representing the first comprehensive effort by the federal government to regulate commerce.

That Wilson has been forgotten, however, is a more dubious contention. Out of a tactical desperation to eschew any similarity with modern Republicans, Democrats tend to play down the fact that Wilson’s military interventionism in the name of sovereignty or morality resembles that of George H. W. Bush, who defended a Kuwaiti border, or George W. Bush, who also made war not only against terror but also for democracy. But to this day the public ranks Wilson among the top presidents in polls, beside George Washington or Franklin Roosevelt and well ahead of James Madison, John Adams or Ronald Reagan. William Howard Taft, Warren G. Harding and Calvin

Coolidge, the presidents who preceded or followed Wilson in office, commonly rate much lower than the former governor of New Jersey. And succeeding presidents of both parties paid great tribute to Wilson. Coolidge, the president in office at Wilson’s death, said that Wilson “made America a new and enlarged influence in the destiny of mankind.” The New Yorker Franklin Roosevelt, who had served as assistant secretary of the navy under Wilson, took it upon himself to raise millions to establish foundations and funds to honor Wilson’s name. Truman, who went on to found the League’s successor, the United Nations, called Wilson “the greatest of the greats.”

Such tribute raises a question: Does the record of the twenty-eighth president

actually warrant superstar status? Or was his record more mixed than his fans acknowl-edge? Wilson’s foreign-policy record itself has been scrutinized and found wanting by European historians, but too rarely subject-ed to searching examination by American ones. A second and even less examined area is the effect of Wilson’s progressive domestic program, the New Freedom. Both areas are worthy of attention because whether or not today’s politicians drop Wilson’s name, their actions, more often than not, are based on the premise that Wilson is worthy of emu-lation. A 2009 biography of the president, Woodrow Wilson, by John Milton Cooper, indicates simply that Wilson was a great and remarkable leader, and sunnier than his dour reputation might suggest.

All the more welcome, therefore, is the darker Wilson, by Pulitzer Prize winner A.


Scott Berg. Berg, who has chronicled the lives of Maxwell Perkins, Charles Lindbergh and Samuel Goldwyn, seeks to study the president’s “lengthening shadow” over our modern affairs. Indeed, Berg promises a new approach to Wilson, looking at, as the jacket copy says, “not just Wilson the icon—but Wilson the man.” Berg gained access to a valuable trove of newly uncovered material, including descriptions of a little-known operation performed on Wilson at the White House and details from Wilson’s physician, Cary Grayson, from the period when Wilson vainly sought Senate ratification of his League of Nations treaty and suffered multiple strokes. Such valuable facts are marshaled by Berg with the aim, as he put it in a recent interview, of telling the story not only of Wilson’s political odyssey, but also “the twentieth century through his life.”

And a tumultuous life it surely was, starting with its origins during the Civil War era. Thomas Woodrow Wilson was born in 1856 in Staunton, Virginia, the son of a stern Presbyterian minister, Joseph Ruggles Wilson Sr. During the war his family knew privation: short of several staples, Wilson’s charitable mother fed him nightly on soup made out of cowpeas. The sheer carnage of the North-South contest and the sight of blood and wounds captured the child’s attention first. All his life, Berg perceptively notes, Wilson would “gravitate toward women who could both nurse and nurture,” partly because his mother was such a woman, and partly, doubtless, because nurses were the figures who mitigated the suffering of soldiers.

But the impression of the War Between the States upon Wilson was not and could not be merely emotional. No, the environment was rich with contradictions that could not escape a perspicacious child. Wilson’s first schoolmaster was a veteran who called the Civil War the “War of Southern Independence.” Wilson came to chafe at the economic hypocrisy of the commerce-oriented North, which backed a tariff system that disadvantaged commerce of all kinds relating to agriculture. Moreover, Wilson was in Augusta, Georgia, when federal agents arrested Jefferson Davis, and he believed that the Civil War was not only about slavery but also about a subjugation of states and regions by a predatory national power. “A boy never gets over his boyhood,” the president explained, and “never can change those subtle influences which have become part of him.” Indeed. As president, Wilson approved of the extension of segregation in the federal civil service.

As boy and then man, Wilson often struggled. Wilson had trouble reading, suffering from what we today call dyslexia. Detached even as a youth, Wilson found his teachers and peers did not always recognize his brilliance or favor a youth they rated as prissy. The 1883 purchase of a typewriter changed his life. The young man first enrolled at the College of New Jersey, and then studied law at the University of Virginia. Disliking what he discovered of the practice of law, and unwilling to descend to the level of soliciting clients, Wilson determined to become a professor. Around the same time,

Does the record of the twenty-eighth president actually warrant superstar status? Or was his record more mixed than his fans acknowledge?


his loneliness ended. He fell hard for Ellen Louise Axson, the daughter of another Presbyterian minister. She reciprocated Wilson’s ardor.

Berg is among the first to focus on the extensive epistolary exchanges between the two lovers. The intensity of their affection for each other quickly emerges: Wilson worshipped Ellen as though he had never had another friend. It was to Ellen that the young man revealed his greatest secret: “I do feel a very real regret that I have been shut out from my heart’s first—primary—ambition and purpose, which was, to take an active if possible a leading, part in public life and strike out for myself, if I had the ability, a statesman’s career.” Wilson’s passion is so great that the reader fears that Ellen will dump him. But she did not, and the pair married just as Wilson commenced teaching, lecturing at a women’s college, Bryn Mawr, and then at Wesleyan in Connecticut, before returning to the College of New Jersey.

There Wilson experienced some of his greatest triumphs.

As Berg notes, Wilson early on gravitated toward certain philosophies and shunned others. He was not a fan of moral complexities. The young teacher approved of the conservative authority of a monarch, at least as described by Edmund Burke. He respected democracy more than the Constitution, which, he wrote in an 1885 book, Congressional Government, was “only the sap center” of governance. In 1905, the Supreme Court struck down a New York state law limiting the number of hours a baker might work, arguing that the law

compromised the “liberty of the individual” to make a contract.

The case, Lochner v. New York, outraged many progressives, Wilson among them. In a second book, published in 1908, Wilson warned that “the Constitution was not meant to hold the government back to the time of horses and wagons.” This lapidary phrase influenced future presidents, especially Franklin Roosevelt. After learning that the Supreme Court had rejected the labor rules of his National Recovery Administration, fdr acidly paraphrased Wilson and suggested that the new case, Schechter Poultry Corp. v. United States, was taking America back to the “horse and buggy definition of interstate commerce.”

Suspecting Congress, both Senate and House, of political mediocrity, Wilson also concluded that “the best rulers are always those to whom great power is intrusted.” The American system of checks and balances irritated the academic in Wilson. He wrote, “The federal government lacks strength because its powers are divided.” Wilson preferred the all-or-nothing and love-me-or-leave-me approach of the parliamentary system, where the prime minister rules until he loses the confidence of lawmakers.

E ven as he typed and argued, Wilson’s family grew. Soon he and Ellen could

count three daughters, Eleanor, Marga-ret and Jessie, all of whom adored him. Wilson’s family formed a moat between him and the rest of the world. Wilson had little to do with the eating clubs and the social whirl of Princeton (as the college


was renamed in 1896), later captured by F. Scott Fitzgerald, which he regarded with anathema and sought to anathematize. In the classroom, the firm-jawed, erect and pious Wilson inspired his students. Like his father, he relished preaching to his flock. In 1902, the college’s trustees named Wilson president, the first man to hold that job who was not an ordained min-ister. Wilson envisioned what he called “a Princeton in the nation’s service.”

Soon he would demand that America play a similar role for the world. His appreciation for the value of executive authority was heightened by his promotion. Working on an early speech to the Princeton community, Wilson confessed to Ellen, “I feel like a new prime minister getting ready to address his constituents.”

Reforming a university is a risky venture that can cost an unwary president his post. A few years later at Amherst College, another gifted president, Alexander Meiklejohn, flamed out in trying to lead his college toward “service” and away from the clutches of the Protestant Church. The trustees in the Connecticut Valley, including President Calvin Coolidge, ended up dismissing Meiklejohn, leaving their beloved school a mass of recriminations, embarrassments and tears. As Berg shows, Wilson moved with alacrity to extrude

students who failed to work hard enough or who violated the Princeton honor code. The mother of a boy expelled for cheating wrote to Wilson and tried emotional

blackmail: “I am to have an operation and I think I shall die if my boy is expelled.” Wilson would have none of it. “Madam,” he replied, “we cannot keep in college a boy reported by the student council as cheating; if we did, we should have no standard of honour. You force me to say a hard thing, but, if I had to choose between your life or my life or anybody’s life and the good of this college, I should choose the good of the college.”

A ferocious recruiter, Wilson went after his academic prey with the same single-mindedness Theodore Roosevelt exhibited in pursuing an African elephant. Wilson offered a young Chaucer scholar at Yale


named Robert Root a salary of $2,000, on the high side, and interviewed him for only forty minutes, during which time, Root remembered later, “Wilson asked no questions but spoke only of his plans for Princeton.” By the end Root was spellbound, so much so that had Wilson asked him to “work under him while he inaugurated a new university in Kamchatka or Senegambia,” Root recalled, “I would have said ‘yes’ without further question.” Root added, “I think that no university in the country has ever, before or since, added to its faculty at one blow so large.”

Equally intrepid as a fundraiser, Wilson studied donors for their quirks. While not officially a minister like his father, Wilson approached his targets with an unapologetic missionary zeal. Many on Wilson’s list of likelies were Presbyterians, and, as Berg notes, Wilson had no trouble “shamelessly bagpiping Princeton’s heritage wherever he could.” Wilson worked hard to extract millions from Andrew Carnegie, the great industrialist-turned-philanthropist, boasting to the old boy that he himself was “of pure Scots blood” and that Princeton was “thoroughly Scottish in all her history and traditions.” Scot that he was, Carnegie stayed tight, coughing up not hoped-for millions but a measly $100,000 for the conversion of swampland into a lake for Princeton’s crew team. Wilson pocketed the money but expressed his disappointment: “We needed bread and you gave us cake.”

But under Wilson, Princeton became Princeton. Millions were raised, and those millions were spent well. The college

got a real campus with quadrangles. It deepened its academic bench with respected scholars, and took its place among the serious universities. The New York Evening Post observed: “He has ruined what was universally admitted to be the most agreeable and aristocratic country club in America by transforming it into an institution of learning.” To be sure, there were moments of failure, even at Princeton. Wilson had been ferociously battling with his former chum Andrew F. West, dean of the graduate school at Princeton, over the establishment of a new graduate college with quads and tutorials based on the Oxford model. Wilson wanted it located in the heart of the college; West believed it should be separate. Wilson saw opposition to his plans not simply as an intellectual disagreement, but also as traitorous. He would not compromise. But his uncompromising stance meant that just as he would fail in the League of Nations debate, so he lost the conflict with West after a wealthy Princeton alumnus named Isaac Wyman left his estate to the college and named West as one of two executors. Wilson was finished. “We have beaten the living,” he told his wife, “but we cannot fight the dead. The game is up.”

But he entered a new one. Now it would be Woodrow Wilson in the nation’s

service. New Jersey politics of the period was a jungle of interest groups and insiders. But Wilson did not run with the pack. He ensured that it ran after him. Presenting his lack of political experience as an advantage, Wilson ran as a nonpolitician with the ca-

Wilson envisioned what he called “a Princeton in the nation’s service.” Soon he would demand

that America play a similar role for the world.


pacity to break corruption. The Princeton man’s speechifying entranced New Jersey party operators, who found the reformer refreshing. “Attempting none of the cheap ‘plays’ of the old campaign orator,” wrote a state lawmaker who became a fan, James Tumulty, “he impressively proceeded with this thrilling speech.” Wilson’s message at a state Democratic convention deeply im-pressed the Jersey cynics as well: “The fu-ture,” Wilson said, “is not for parties ‘play-ing politics’ but for measures conceived in the largest spirit.”

In 1910, Wilson won election as governor, a post in which he quickly discovered his inner progressive. His first move was to introduce a measure known as the Geran bill that required the direct elections of candidates in primaries rather than leaving the choice of men to county and state conventions. The bill became law the following April. Other measures were soon adopted. Joining Republican reformers, he made workers’ compensation New Jersey law, and established state oversight of transportation and utilities. A corrupt-practices law targeted electoral bribery and fraud. The old insiders marveled. There seemed to be nothing that Governor Wilson could not accomplish. His New Jersey work quickly earned the attention of national progressives, including the great activist against the railroad trusts, attorney Louis Brandeis, who journeyed to Sea Girt to visit with the governor in the summer of 1912. Brandeis educated Wilson on what he called “the curse of bigness,” the case that the size of large companies alone damaged the general welfare. Shrewder than

anyone expected at charming the West, Wilson’s courtship of Texas was complete when he charmed Edward Mandell House (often known as “Colonel House”), the heir to a Texas fortune and a man of whom peers said “he has the entire state of Texas in his vest pocket.”

As Berg sketches it, Wilson’s ascent to the presidency was remarkably smooth. Wilson was a lucky fellow: the nation’s most famous progressive leader, former president Roosevelt, decided to create his own Bull Moose Party, and targeted his former protégé, President William Howard Taft. Wilson watched Taft and Roosevelt tussle with each other while he looked on serenely for an opening. In 1911, Roosevelt had written in Outlook magazine that he nursed concerns about the trust-busting he himself periodically championed: “Nothing of importance is gained by breaking up a huge interstate and international industrial organization that has not offended otherwise than by its size.” This softening was all that Wilson required. Wilson ran for president as a high-minded antitrust hawk, and fate favored his chances. In the same way that H. Ross Perot’s decision to run for president in 1992 against fellow conservative George H. W. Bush created an opportunity for another legally oriented professor and governor, Bill Clinton of Arkansas, the progressives’ split in 1912 worked for Wilson. The election went four ways, with the resolute socialist candidate, Eugene Debs, taking 6 percent of the vote, the Republican Taft taking 23 percent and Theodore Roosevelt claiming 27.4 percent. Wilson therefore won with a plurality of 41.8 percent.


At this point one might ask: Was the university president really ready to assume the presidency? Wilson’s 41.8 percent was the narrowest mandate any new president has enjoyed since then. It was narrower even than Bill Clinton’s slender 1992 plurality, which stood at 43 percent. For an executive who believed that his power base was the people, that fact must have been profoundly discomfiting. What’s more, the national scene that was the playground of a Roosevelt or a Taft was brand new to Wilson. As he moved into the White House, Wilson’s health already troubled him. He suffered from hypertension and was in the habit of pumping his stomach to siphon out gastric acid. When physician Cary Grayson demanded that Wilson halt this weird practice, the patient, as he always did to those closest around him, lashed out, calling Grayson a “therapeutic nihilist”—and then hired Grayson as chief White House physician. In reviewing the Grayson papers, Berg shows that when Wilson made Grayson White House doctor, he expected Grayson to give his chronic stomach disorder the same attention that Colonel House or Joe Tumulty, now in the Wilson entourage, might dedicate to foreign or domestic policy. His own importance was as significant as the welfare of the country. Grayson’s reports of his patient convey a sense of an autocrat who had already internalized a sense of his authority over the entire globe, practically declaring, “The world, c’est moi.” Wilson categorized all his troubles, whether troubles of state or health, in the same way: he referred to his gastric disorders as “turmoil in Central

America” or “disturbances in the equatorial regions.”

In 1913, the new president could take comfort in two facts. The first was that

the progressive train itself was moving for-ward: ratification of amendments to cre-ate the income tax, to get women the vote and to create a modern central bank were in progress or had already occurred. All a president need do was play the role of the statesman Wilson had described to Ellen, seat himself at the head of the train and claim victory. This Wilson did, with the distinctions between his own progressivism and Theodore Roosevelt’s fading to noth-ing. Wilson surrounded himself with like-minded men, including Brandeis. He also hired a brilliant treasury secretary, William McAdoo. He managed to overcome, at least momentarily, a natural aversion to Congress and, stunningly, traveled to the Hill to pitch his New Freedom program before lawmak-ers, the first president to do so since John Adams. Wilson’s wife was also ill, and the Wilsons and their three daughters enjoyed an active social life. Before long McAdoo, a distinguished widower, would court and win the hand of Wilson’s daughter Eleanor, an event that only reinforced the clubbish aspect of the president’s inner circle. The second advantage was that the area Wilson liked least, foreign policy, did not seem par-ticularly significant. “It would be the irony of fate,” Wilson said, “if my administration had to deal chiefly with foreign affairs.”

It did. Just sixteen months after Wilson assumed office, in a period when Wilson was distracted by Ellen’s illness, Archduke


Franz Ferdinand was assassinated by a Serbian nationalist in Sarajevo. By August 1914, Wilson was convinced that the United States could stay neutral: “We must be impartial in thought as well as in action, must put a curb upon our sentiments as well as upon every transaction that might be construed as a preference of one party to the struggle before another.” Just days later, Wilson’s wife died. Always uxorious, the president nearly died from grief after his wife’s passing. “God has stricken me almost beyond what I can bear,” he wrote around the time of Ellen’s death. Later, in mourning and as Germany invaded France and Belgium, Wilson wrote that the European war distracted him. “In God’s gracious arrangement of things I have little

time to think about myself.” Berg, with harsh accuracy, notes of the self-centered Wilson that “with the destruction of his universe, he found strength in the collapse

of the world.” Berg goes on to trace the familiar story that follows: Wilson did lead the United States in entering the war, did ship those millions overseas, did lead the nation in sustaining hundreds of thousands of casualties, and crafted a peace plan on the principles of democracy and self-determination.

Berg paints all this well, capturing the president’s agonies at his wife’s death. Even after remarriage, Wilson kept a flashlight on his stand at night, shining it on a pastel portrait of Ellen whenever he felt distress. Berg’s coverage of Wilson’s illnesses, including a difficult recovery from an operation that foreshadowed his stroke, is excellent. The presidency aged men terribly in those days, a smoke-filled era that

knew no statin drugs, no angiograms and no antibiotics. Wilson was no exception, and Berg’s camera moves close in to show the tension in Wilson’s neck that signaled


circulatory weakness. In Berg’s picture, one can almost detect the hardening of the presidential arteries.

Berg likewise skillfully conveys the effect of Wilson’s temperament and plans upon the course of the war. After first staunchly opposing entry, and even campaigning on staying out in 1916, Wilson in the end did jump in. As is so often the case with presidents, the challenge of the crisis moved Wilson to respond instinctually, rather than intellectually. Wilson’s instinctual response was religious: America became the “Christ’s Army” he had described in his early writings. The president who had so boldly favored freedom abroad that he placed the word in the title of his program now behaved in remarkably cavalier fashion when it came to the freedoms of others at home. Over the course of the war Wilson ran roughshod over the civil rights of war skeptics. Debs’s campaigning against the war may have been wrong, but Wilson seemed to derive a special joy from keeping his old political opponent behind bars.

Funding a “Christ’s Army” required enormous sacrifice, as all realized. But what the country could not expect was the autocratic way in which the administration would exact that sacrifice. Wilson and McAdoo settled on a policy of confiscatory taxation and heavy borrowing to fund the conflict. Just years before, when lawmakers had conceived of the income tax, they set the levy at a top rate of 7 percent. Wilson and McAdoo did not hesitate to raise that rate all the way up into the 70 percent range. Their justification for the tax rise was not merely based on expedience but

also on morality. “We need not be afraid to tax them, if we lay taxes justly,” he said. Socking it to the wealthy was for their own good as well as the country’s. Once again, he took pleasure from scourging errant sinners.

The presidential son-in-law, for his part, set the total amount to be borrowed in splendidly offhand fashion, which he later described:

I had formed a tentative conclusion as to the amount of the first loan. It ought to be, I thought, three billion dollars. I can hardly tell you how I arrived at the sum of three billions. . . . I am sure that the deciding influence in my mind was not a mass of statistics, but what is commonly caused a “hunch”—a feeling or impression rather than a logical demonstration.

Any protest at such high-handedness risked earning public condemnation from the ad-ministration as representing the motives of a low and coarse partisan operator. “Politics is adjourned,” as Wilson loftily told the Sixty-Fifth Congress.

During the war and after the armistice, Wilson turned ever inward, playing solitaire aboard the ship that took him to Paris. After greeting him with a hero’s welcome, France frustrated Wilson. He was disturbed by French leader George Clemenceau’s implacable anti-German stance. Wilson joked that France’s position resembled that of an India rubber ball: “You tried to make an impression but as soon as you moved your finger the ball was as round as ever.” Rather than persevere, Wilson faltered. His principle of self-determination


was inconsistently and self-servingly applied at the conference. He returned to America with a new mission, but was unable to execute it, either. Increasingly, and especially through the difficult and vain domestic campaign to win support for his League of Nations, Wilson was afflicted by poor health. As he rasped his way across America on a whistle-stop tour, he sacrificed himself for his faith.

B erg is admirably alert to Wilson’s de-bilities, mental and physical. But his

smooth professionalism means that he has offered a rather superficial account. For in focusing so diligently on Wilson’s tender psyche and health, he neglects to give atten-tion to the consequences of Wilson’s style or his policies. What is missing, in other words, is an analysis of Wilson as president rather than celebrity or psychiatric case. This is a grave defect in a book seeking to offer a de-finitive account. For Wilson was not merely weak. He was also, often, just plain wrong.

The error starts on the crucial foreign-policy front. Was U.S. entry into the European war warranted? Most of us believe so, but the case is not really considered by Berg. After the war, Europe desperately needed comity, some sense of international union to preclude a repeat of World War I’s carnage. But that comity could not be enforced if the parties involved, domestic or foreign, were not all in agreement. Wilson antagonized the House and Senate by failing to win their support for his League effort, leaning on Colonel House rather than the House. The president antagonized the Senate in turn by presenting the treaty

for ratification as a fait accompli. He thereby doomed what he deemed his own most precious objective.

More importantly, Wilson missed what others easily saw. Without bearable terms for Germany, the League of Nations could not function, and Germany, wounded by the war-guilt clause of the Treaty of Versailles, would go to war again. Those who cared not a whit for the feelings of antagonized U.S. senators, the Europeans, discerned this failure most clearly. Wilson, John Maynard Keynes said, “allowed himself to be drugged by their atmosphere” at Versailles. To Wilson, his league mattered more than Germany. The president treated Germany as he had the wayward Princeton student: as an abomination, a pestilence to be expelled from the pristine Wilsonian consciousness. Keynes was shocked and ended up writing a book that prophesied the next war, The Economic Consequences of the Peace. Another perceptive observer wrote that Wilson was “a man who, had he lived a couple of centuries ago, would have been the greatest tyrant of the world, because he does not seem to have the slightest conception that he can ever be wrong.” Perhaps H. L. Mencken, who branded Wilson the “late Messiah” and a “fallen Moses,” captured Wilson’s sententious delusions best: “When Wilson got upon his legs in those days he seems to have gone into a sort of trance, with all the peculiar illusions and delusions that belong to a frenzied pedagogue.”

In the case of domestic policy, the damage created by Wilson’s fecklessness was also not inconsiderable. McAdoo’s relentless fund

Wilson went so far as to say, as John Kennedy and Ronald Reagan later would, that tax rates like his own depressed

enterprise. But he did not declare the autocratic experiment over.


drive did pay for the war, but also created “economic consequences of the peace” at home. America, then an academic and intellectual backwater, lacked a Keynes to limn those consequences. And Republicans were not eager to appear disloyal. But the consequences were real, starting with a fierce inflation that the Wilson administration never acknowledged. After wartime price controls were lifted, prices shot up by 30–40 percent. Individual businesses made immense fortunes supplying the weapons and goods for Wilson’s crusade, but the general financial markets went on a “capital strike” after the war ended. Taxes were so prohibitive that many companies hesitated to rehire. Unemployment was heading upward, too, past the 10 percent line. In his 1919 State of the Union address, Wilson went so far as to say, as John Kennedy and Ronald Reagan later would, that tax rates like his own depressed enterprise. But he did

not declare the autocratic experiment over. Quite the contrary. In the end the mess Wilson created could only be addressed by a drastic cutting back of government and a severe t ightening of interest rates. William P. G. Harding, the head of the Federal Reserve, found himself playing the ug ly ro l e Pau l Volcker would later hold, doubling interest rates to kill inflationary e x p e c t a t i o n s . T h i s

treatment worked: after a year or two, the inflation and joblessness were gone. But the Fed effort, especially, imposed a recession on the nation. One of the casualties of that recession happened to be the haberdasher shop of the man who so admired Wilson, Harry Truman.

Truman never made the connection between Wilson’s arbitrariness and the depression, as they called it then, of the early 1920s. Nor, for that matter, did many others at the time. In a gold-standard era, inflation was so rare that citizens did not recognize the new animal when they saw it. Therefore Wilson was given a pass, even supported, when he rated the high prices as the consequences of war profiteering. Nor was Wilson alone. This monetary misunderstanding begat subsequent errors and losses.

A s t r i k i n g e x a m p l e o f s u c h incomprehension came across my desk as I


researched my own presidential biography, Coolidge. In 1919, the Boston police force, demanding higher compensation, joined Samuel Gompers’s American Federation of Labor and walked off the job. Chaos ensued in Boston, and the sitting governor of the state, Coolidge, backed up the Boston police commissioner in a decision to fire the strikers. Conservatives strongly admire the Coolidge decision, and many believe that it inspired Ronald Reagan in an equally tough decision he took more than half a century later, the decision to fire the striking air-traffic controllers of the Professional Air Traffic Controllers Organization. Conservatives also cite the courage of Coolidge in discussions over the pension demands of public workers in Wisconsin or Michigan. The general argument is that Coolidge, and then Reagan, taught public-sector unions a necessary lesson.

Yet a perusal of the details in the Boston case reveals a hidden factor in the Boston police action: inflation. As prices rose following the war, wages did not rise with them, and policemen struggled to pay for their families. In those days, there were no automatic adjustments to wages for changes in the price level. The Housewives’ League wrote the president a letter that grappled with the mysterious price problem, asking him to “reduce the cost of living, which through present prices of bread, meat and corn has become unbearable.” The policemen needed, and wanted, more money. By treating such concerns as mere labor obstreperousness, Coolidge and others ignored a true grievance. Those others included President Wilson, who, after

hesitating, came down on the police like a ton of cobblestones, calling their strike “a crime against civilization.” Thus did Wilson hurt the labor movement at the center of his progressive platform.

Berg refrains from illuminating such in-ternal inconsistencies and consequenc-

es of progressive policy. This unwillingness doubtless derives in part from the perils of the biographical genre. A biographer must choose between telling the story from his subject’s point of view and telling it from his own. Often, opting for the former conveys more information. Perhaps Berg concluded that suspending disbelief and trailing Wilson faithfully on his via dolo-rosa would give Americans the man he had promised. As Berg has doubtless observed, the results of hostile or even purely ana-lytic biographies are often mediocre: Rob-ert Caro’s portrait of Robert Moses of New York represents the rare exception. And an intensely hostile biography will stoke a fire, but the smoke it generates precludes enlightenment. In addition, in getting to know one’s subject, the biographer comes to like and defend him. To pen a hostile biography is a desolate task, especially over a decade, the period of time for which Berg studied Wilson. In the case of a president, let alone a war president like Wilson, to criticize one’s subject also feels downright treasonous.

The book market for its part reinforces these antianalytic tendencies in authors. Biography readers are like the voters whom Wilson looked down upon: they prefer personality to ideas. They enjoy


the odd portrait of the villain: Hitler, Mao, Stalin. But most U.S. readers will not accept anything close to a vilification of an American president. As a result of some mix of these factors, Berg does not entirely achieve the “telling of the twentieth century” to which he aspires. He separates icon from man, as promised, but does not deliver the era. Wilson is just Wilson.

Perhaps a description of the full extent of Wilson’s folly requires not a biography but a general history. In Woodrow Wilson and the Roots of Modern Liberalism, Ronald Pestritto has carried out some of the work, but he focuses more on the sphere of philosophy than on quotidian society. In Bernard M. Baruch, a biography of Wilson’s adviser and financier of that name, James Grant captures some of the more unfortunate financial results of the Wilson administration. But more is required. If Wilsonian interventionism failed abroad, modern interventionists need to know more about why that happened. And if Wilsonian intervention in the economy failed at home, modern planners and presidents, including of course President Obama, need to know that, too. That Wilson could not recognize the damage he perpetrated hardly constitutes an excuse for historians to downplay it. The discussion over what variety of Protestant or narcissist Wilson was has been long, interesting and stimulating, but the next biographer would do well to focus on his policies in a more thorough and sustained fashion. America’s early progressives, presidents and others, require at this moment not canonization but invigilation. n

Breach of LogicBy James Joyner

Andrew J. Bacevich, Breach of Trust: How Americans Failed Their Soldiers and Their Country (New York: Metropolitan Books, 2013), 256 pp., $26.00.

F ollowing his graduation from West Point, Andrew J. Bacevich had a

distinguished career as an army offi-cer, retiring as a colonel and serving in both Vietnam and the Gulf War. He has since carved out a second career as an iconoclas-tic scholar preaching the evils of perpetual war. In numerous essays and books, Bacev-ich, who teaches international relations at Boston University, has ventilated his con-tempt and despair for America’s penchant for intervention abroad, directing his ire at both the liberal hawks and neoconserva-tives. Throughout, his stands have been rooted in a cultural conservatism that sees America as having strayed badly from its re-publican origins to succumb to the imperial temptation.

In his new book Breach of Trust, Bacevich expands upon his critique of American society and the military. Bacevich’s central

James Joyner is an associate professor of security studies at the Marine Corps Command and Staff College and a nonresident senior fellow with the Brent Scowcroft Center on International Security at the Atlantic Council. The views expressed in this essay are his own.


contention is that a chasm has developed between the two, one that ill serves both. He depicts a crisis in civil-military relations, one that rests on the transformation of the military into a separate caste in violation of the fundamental tenets of American democracy. Historically, it has been citizens who have shouldered the responsibility to defend the Republic. Relying on professionals, he argues, makes war too easy and those trusted with conducting it unaccountable.

But just how compelling are these claims? Bacevich explains that he “began this book intending to write a conventional narrative history of U.S. civil-military relations since World War II,” but ultimately decided to write on the problems created by America’s “reliance on a force of military professionals who exist at a considerable remove from the rest of society.” He would have been better served had he pursued the intended project. Instead, he has produced an unpersuasive work that vents myriad gripes and grievances while misattributing their cause.

Bacevich manages to undermine his central argument in his introductory chapter. According to him, “To sustain a massively unpopular war, the state had resorted to coercive means: report for duty or go to jail.” As a result, “Those less clever or more compliant ended up in uniform and in Vietnam.” Yet just two pages later, it is the all-volunteer force that enables the 2003 invasion of Iraq: “With the people opting out, war became the exclusive

province of the state. Washington could do what it wanted—and it did.” Given that Washington was able to sustain a much more massive, exponentially more deadly war through three presidential administrations with a draftee force, it stands to reason that something other than switching away from conscription is the underlying issue.

Bacevich himself has repeatedly told us what that “something” is. In his 2005 work The New American Militarism, he argued that American foreign policy has historically been dominated by a desire to “reshape the world in accordance with American interests and values.” Indeed, he wrote, Americans see those as “so closely intertwined as to be indistinguishable.” He also cited C. Wright Mills’s 1956 argument that the United States is possessed of “a ‘military metaphysics’—a tendency to see international problems as military problems and to discount the likelihood of finding a solution except through military means.”

Next in his 2010 work, Washington Rules, Bacevich references Henry Luce’s 1941 Life manifesto clamoring for an “American


Century” and exhorting his fellow citizens to “accept wholeheartedly our duty to exert upon the world the full impact of our influence for such purposes as we see fit and by such means as we see fit.” Bacevich rightly tells us that “at times, the armed forces have relied on citizen-soldiers to fill their ranks; at other times, long service professionals.” Yet a continuity exists:

Call them the sacred trinity: an abiding con-viction that the minimum essentials of inter-national peace and order require the United States to maintain a global military presence, to configure its forces for global power projection, and to counter existing or anticipated threats by relying on a policy of global interventionism.

The arguments in those two books are, on their face, much more in accord with the historical record. And indeed, Bacevich is much too good a historian—and too intellectually honest—to hide key evidence from the reader. Thus, he is consistently obliged to undercut his own case by pointing to inconvenient facts, yet seems not to notice that he is doing so.

By far the most compelling charge that Bacevich levels against a professional

force is that it violates the American social contract. He refers to the 1944 declaration by Under Secretary of War Robert Patter-son that “in a democracy, all citizens have equal rights and equal obligations. When the nation is in peril, the obligation of sav-ing it should be shared by all, not foisted on a small percentage.” Bacevich notes that America fielded a twelve-million-man

force for World War II, including the sons of the president and other leading politi-cians, Hollywood idols, sporting heroes and other elites. Yet we’re not trying to raise a force of twelve million today, let alone the proportionally larger force for a national population that has more than doubled. It seems odd, indeed, to force those who would otherwise be wildly suc-cessful in their own chosen field to instead fight our wars.

He cites statements by Winston Churchill and the Pentagon’s Joint War Plans Committee that the populations of England and the United States would not put up with a long war of attrition. He says that this is why “compared to the losses suffered by the other major belligerents, the United States emerged from the war largely unscathed.” It also helped that we joined World War II several years after the other nations and fought it as an away game and therefore took no casualties on the home front. But the democracies generally took few casualties compared to the autocratic states; the Soviet Union, Germany, Japan and China are the only participants who lost as many as five hundred thousand dead—and they all lost millions.

Moreover, the United States lost over thirty-six thousand in Korea and fifty-eight thousand in Vietnam, both with draftee armies. In all of the wars and military actions over the four decades of the all-volunteer era combined, we’ve lost fewer than 7,600. The death of 266 volunteers was enough to send us high-tailing it out of Beirut; it only took forty-three in Somalia.

While it’s not inconceivable that the


transition to an all-volunteer force has made us more risk averse rather than less—Bacevich himself has documented the emergence of a cult of worship of the military—the more plausible explanations lie elsewhere. Many of the interventions of the past decades, while small, were undertaken to further peripheral interests. The fact that the battles of the last two decades have been fought and documented almost instantaneously on television and, more recently, in social media has also personalized each casualty in a way that didn’t happen even as recently as Vietnam. Military training, equipment and medical care have all improved radically, reducing the death toll.

Regardless, there’s simply no evidence that the fact that “somebody else” is doing the fighting and dying has made us less sensitive to the loss of American sons and daughters. Far from it. We’re demonstrably much more sensitive to military casualties than we were during the most recent draft era and, indeed, any previous point in American history.

Bacevich is particularly concerned with what he terms the “Great Decoupling” seen in the war on terror in which, unlike in the Civil War and World War II, fighting a war didn’t come with a radical transformation of the civil economy. Instead of rationing consumer goods and manning the factories, Americans not in uniform were told to go shopping and “enjoy America’s great destination spots” while receiving a tax cut. Whatever the folly of tax cuts while spending hundreds of billions of dollars fighting overseas conflicts, there’s

no unemotional argument for imposing austerity on the public in the aftermath of the 9/11 attacks. The Civil War and World War II involved massive field armies slogging it out in symmetrical conflict; the wars in Afghanistan and Iraq were both lightning-fast regime-change missions followed by years of counterterror and counterinsurgency operations. Not only would we not have wanted to fight these wars with amateurs, but their cost was a small fraction of gdp compared to those earlier conflicts.

Bacevich romanticizes the Civil War and World War II as exemplars of an earlier golden era when “war was the people’s business and could not be otherwise. For the state to embark upon armed conflict of any magnitude required informed popular consent.” Alas, he laments, “In their disgust over Vietnam, Americans withdrew from this arrangement.” But this elides a rather important point: Americans fought in Vietnam under that arrangement. Nearly sixty thousand died in the most controversial war in our history. And most of them had no choice in the matter. No wonder Americans withdrew from the arrangement.

As a consequence of the Great D e c o u p l i n g , B a c e v i c h c h a r g e s , “Washington’s penchant for war has appreciably increased.” This is nonsense. As Geoffrey Perret lays out, in a book Bacevich cites elsewhere, we are A Country Made By War. The book’s subtitle: From the Revolution to Vietnam—The Story of America’s Rise to Power. Consult a timeline of U.S. military operations and one finds

The most compelling charge that Bacevich levels against a professional force is that it violates the American social contract.


a steady stream of them throughout every time period, seemingly irrespective of whether there’s a draft on. Similarly, Bacevich repeatedly refers to George C. Marshall’s declaration that “a democracy cannot fight a Seven Years War,” noting that we did just that in Iraq, with an all-volunteer force, but somehow overlooking

the fact that we also did it in Vietnam with a conscript force—odd, considering he served there himself as a young army officer. Indeed, the war had passed the seven-year threshold by the time he left.

Nor i s this the only place that Bacevich goes badly astray. He notes that Richard Nixon campaigned in 1968 on ending the draft on the grounds that it was incompatible with freedom.

Bacevich attributes this to “Nixonesque opportunism” aimed at undermining the antiwar protests and laments that “although Nixon had run for the presidency vowing to end the Vietnam War, eliminating the draft permitted him instead to prolong it.” This is wrong. Nixon empaneled the Gates Commission, which recommended a move to an all-volunteer force in its February 1970 report. But the existing draft was scheduled to expire at the end of June 1971, and Nixon asked for and received a two-year extension. The draft did not end until June 1973—five months after the Paris peace accords ended U.S. combat operations in Vietnam and three months after the last American troops left South Vietnam.

At t imes, Bacevich seems to be arguing against himself. He cites Lyndon Johnson’s White House aide Joseph Califano’s suggestion that “by removing the middle class from even the threat of conscription, we remove perhaps the greatest inhibition on a President’s decision to wage war.” Bacevich smacks him down: “Yet conscription hadn’t dissuaded Harry Truman from intervening in Korea in 1950 or stopped Johnson from plunging into Vietnam in 1965, facts that sapped Califano’s argument of its persuasive power.” Indeed. And Bacevich’s.

B acevich also provides a muddled ac-count of social change in the military.

He recounts the substantial improvements in the lot of the enlisted soldier that were necessary to “induce sufficient numbers of smart, able-bodied young Americans to


volunteer for military service.” He notes, “In peacetime, the army had treated the draftee as an unskilled day laborer, avail-able to perform whatever tasks might need doing. In the volunteer army, a soldier’s time acquired value. An increasingly costly commodity, it was not to be wasted on nonessentials.”

While seemingly cause for celebration, Bacevich detects in these changes the roots of the institution’s own destruction. For one thing, routine drudge work—“scrubbing pots and pans, grooming the parade ground, and even guarding the front gate”—was farmed out to civilian contractors. It’s true that pretty much every large company and organization in the country has done the same thing and, indeed, wouldn’t even consider making its own employees perform these tasks. But, for Bacevich, “Here was another insurgency of sorts, for-profit enterprises taking over turf the army had previously claimed as its own. In pursuit of economy, the army forfeited self-sufficiency.”

Even worse, while draftees tended to be single and get out as soon as they were legally able, volunteers tended to get married, start families and reenlist. This is a good thing, no? Apparently not, in that it obligated the army to become “family friendly” and build child-care centers. Also, the wives were “no longer content to accept the designation of ‘dependent’ while offering their services as volunteers, that is, unpaid auxiliaries.”

This is truly a bizarre formulation. For one thing, it was not the wives of draftees who served as “unpaid auxiliaries.” As

Bacevich himself notes, the draftees were mostly young and single. It was the wives of the senior noncommissioned officers and officers who “volunteered” to run the social support network and keep the fires burning on the home front. Moreover, none of this was a function of ending conscription and going with an all-volunteer force; rather, it was a function of changes in society as a whole. The women’s movement was under way at the same time as we were moving to an all-volunteer force and would almost surely have come to fruition even if we had not. Indeed, some of the same cultural changes that challenged conscript soldiering made treating its women as second-class citizens unacceptable. And that’s to say nothing of the notion that we ought to augment a system where men are forced to serve in the military with one that likewise obligates their wives. Freedom isn’t free, I guess.

Similarly, Bacevich seems to lament the fact that “life for military families residing off-base became all but indistinguishable from the life of nonmilitary families living next door” and that “both on duty and off, the army became a place that Beetle Bailey would have scarcely recognized and into which he would not have been allowed entry.” Offhand, these strike me as unalloyed goods.

Quoting a young female recruit’s 1975 prediction that “if there’s another war, we’ll be there because with this voluntary system the men who don’t want to be here aren’t here,” Bacevich writes, “Male and female alike, Americans had abandoned collective obligation in favor of personal


choice. Thanks to Richard Nixon, this applied to soldiering no less than to other pursuits.” Why this is anything but cause for celebration, Bacevich does not disclose. Indeed, he concedes that, while there have been some unfortunate incidents along the way, overall women “performed admirably” in the war in Iraq. Beyond this, while active recruiting of women into positions formerly reserved for males was doubtless initially a necessary compromise to increase the pool of potential volunteers, the aforementioned changes in the society writ large would have forced it to happen with or without a draft.

A fter the fall of the Soviet Union, Bacev-ich tells us, “For the Pentagon, peace

posed a concrete and imminent threat. Generals who had slept undisturbed back when Warsaw Pact commanders had osten-sibly been planning to launch World War III now fretted nervously over the prospect of their budget taking a hit.” In response, Bacevich charges, army leaders “conjure[d] up new dangers” to which only the “army could offer the necessary response.” And, he tells us, Saddam Hussein proved “a made-to-order helpmate.”

The problem with this is that when Saddam invaded Kuwait in August 1990, the U.S. Army was still very much on a Cold War footing. Despite the fall of the Berlin Wall months earlier, few were expecting the imminent collapse of the ussr. And the army brass, including Colin Powell, chairman of the Joint Chiefs of Staff, were far from eager for war in Iraq against Saddam’s mighty, battle-tested army.

It was not until well after Desert Storm that the end of the Cold War suddenly became obvious to all. Browse through the archives of this journal, for example, and one will find talk of “The Coming Resurgence of Russia” and musings such as “If the Cold War is over, why do we still feel a chill wind?” in the spring of 1991.

No doubt Bacevich nicely documents the exuberance with which the army embraced its post–Cold War transition into a lighter, smaller, more versatile force (if downplaying the extent to which it remained essentially a scale model of its predecessor). He suggests that Army Chief of Staff Gordon R. Sullivan and others in the brass were obsessed with demonstrating “continued relevance” and were “keen to put soldiers to work, taking on new assignments in unfamiliar places.” The evidence here is slight. Indeed, Bacevich notes that “within two years of the Soviet Union’s demise, Sullivan had discerned that the world was ‘growing more dangerous.’” Sullivan identified

a litany of problems: “ethnic and religious hos-tility, weapons proliferation, power struggles created by the disappearance of the Soviet Union, elimination of the fear of regional con-flicts escalating to superpower confrontation, radicalisms of a number of varieties, rising ex-pectations of democracy and free markets cou-pled with the inability of governments to meet those expectations.”

As it turns out, Sullivan was remarkably prescient. Furthermore, civilian internation-al-relations scholars were writing the exact


same thing at the time. It was hardly as if the army was alone in trying to divine the shape of the “post–Cold War” future; it was a full-blown industry.

Oddly, Bacevich seems here to be arguing for a larger force—or, at least, the ability to rapidly create one via conscription should the nation so desire. Bacevich correctly notes that, for the wars in Iraq and Afghanistan, the force was “much too small for the tasks at hand. The quality differential—highly trained, extravagantly equipped troops—did not fully compensate for the shortage of numbers.” Additionally, he points out that, with an all-volunteer force, “there existed no easy way to convert a too-small force into a sufficiently large one.” As a result of this shortfall, a very high operations tempo became “the new normal” for active-duty soldiers. Yet, in contrast to the conscript force in Vietnam, “the army as a whole did not disintegrate, nor did troops in the ranks protest or revolt. They kept going back again and again to wars they could not win.”

The problems with this analysis are manifold. First off, it’s by no means a given that having a substantially larger available force—even one comparably trained and equipped, much less an inferior version—would have made the difference in Iraq or Afghanistan. As in Vietnam, it’s quite probable that the strategic goals were simply unachievable, especially at a price America was willing to pay. Second, to the extent that the missions to which we apply military force are in the nation’s interests, it would seem beneficial indeed that the current force is ready, willing and able to

absorb the bumps and bruises of the long fights in Iraq and Afghanistan and go on to the next fight. Third—and Bacevich’s writings here and elsewhere make it clear he agrees—the solution to the problem of not winning unwinnable wars is rather obvious: stop fighting them. But that’s a decision up to civilian policy makers, not the service chiefs.

The common thread is one that Bacevich discussed at length in The New American Militarism: a large standing force. In the introduction to that book, he quotes James Madison: “War is the parent of armies.” But it is also the case that armies are the parent of war. This is not because of some sinister cabal of war profiteers in a military-industrial complex—the merchants of death, as they were known after World War I—but rather because, in a world where presidents are constantly besieged to “do something” about myriad global crises, that “something” quite frequently has a military component. Over the last two decades, these forces have been routinely called up without backlash from the public or the citizen-soldiers themselves. Bacevich says, “The military thereby voided the implicit contract that had defined the terms of service for these part-time soldiers—that the nation would call upon them only in extreme emergencies—and converted them in effect into an adjunct of the active-duty force.”

Then again, this has now been the norm for more than two decades, going back to Desert Shield and Desert Storm and continuing without much break through the various humanitarian interventions of

There’s simply no evidence that the fact that “somebody else” is doing the fighting and dying has made us less sensitive to the loss of American sons and daughters.


the 1990s and the war on terror. Those who signed up in recent years surely were not promised the “implicit contract” that was in effect when Bacevich and I served. Indeed, for all but the most senior members, the Reserve Component has always been an adjunct of the active force. Bacevich claims that “all options remain on the table” has become the “signature phrase of contemporary American statecraft.” He further asserts:

All it takes to bomb Belgrade, invade Iraq, or send Navy seals into Pakistan is concurrence among a half dozen people and a nod from the president. No need to secure prior congres-sional assent, certainly no need to consult the American people: that’s what the all-volunteer force allows.

But the all-volunteer force came into being with the end of the draft on June 30, 1973. Earlier that same year, Congress passed, over Nixon’s veto, the War Powers Resolu-tion, which sought to claw back some of the legislature’s power over the use of force after decades of executive overreach. It’s debat-able whether the trend has accelerated since the end of the draft and, if it has, whether and to what extent the end of the draft con-tributed to said acceleration. By definition, however, something that happened well after a trend has been identified cannot be the cause of the trend.

B acevich identifies some genuine prob-lems with the American military that

ought to be addressed. He notes that there were some 260,000 contractors on Amer-

ican payrolls in Iraq and Afghanistan in 2010, “more than the total number of U.S. troops committed to those theaters.” The expansion of private security contractors is indeed very expensive and wrought with issues of command and control. But he lumps in private security contractors who are de facto mercenary soldiers with those engaged in food service and other logisti-cal duties; these are very different issues. In addition, Bacevich charges, with little evi-dence, that the explosion in contractors is the result not of a bloated, disconnected bu-reaucracy and a Congress failing in its over-sight responsibilities but rather of a cozy relationship between members of Congress, retired generals and admirals, and the rich fat cats who stand to profit from massive government contracts amounting to legally sanctioned corruption.

Bacevich reasons that, with a large conscript force, the military could go back to “guarding its own gates, hauling its own fuel and supplies, preparing its own rations, and disposing of its own human waste, not to mention doing its own thinking.” But there’s no obvious reason why it would want to—much less why Americans should consent to allowing their sons and daughters to be involuntarily conscripted to perform such menial tasks. To be sure, contracting out these functions is expensive, and there has been a good amount of fraud, waste and abuse. Bacevich cites several studies pointing to over $60 billion in such losses, equal to “about $1 for every $3.50 spent on contractors.” But much of this money went to overseas firms, meaning it wasn’t lining the pockets of American


businessmen, politicians and other elites, and all of it was subject to the vast Pentagon contracting bureaucracy. A July report from the special inspector general for Afghanistan reconstruction is devastating in its critique of both Defense Department and usaid leadership on this issue. Such boondoggles as “moving forward with a $771.8 million purchase of aircraft the Afghan National Army cannot operate or maintain” will not be solved by the involuntary servitude of America’s youth for latrine duty.

The last third of the book is devoted to odd anecdotes calling out various pet peeves only tangentially related to the ostensible thesis. Considerable space is devoted to the sad saga of Colonel Theodore Westhusing, a 1983 West Point graduate who earned a PhD in philosophy at Emory studying military honor—only to commit suicide in Iraq when “his conception of honor collided with a radically discordant reality.” After receiving an anonymous letter claiming that a government contractor was not only cheat ing the U.S. government but also committing human-rights abuses, Westhusing dutifully reported it up his chain of command to then lieutenant general David Petraeus—appending his own view that the allegations were unfounded and that the contractor was “complying with its contractual obligations.” Inexplicably, Westhusing suddenly demonstrated a complete change

of personality and, a week after alerting Petraeus, fatally shot himself with his service revolver.

Rather than seeing this as an indictment of the army’s mental-health system, Bacevich concludes that corrupt contractors and a leadership that looks the other way are to blame. Indeed, it was “a sacrificial act and should command the attention of anyone concerned about the health of the military profession.” Bacevich sneers at an army psychologist’s conclusion that Westhusing possessed a “surprisingly limited” ability to understand that some people sought to profit from war and instead believed “that doing the right thing because it was the right thing to do should be the sole motivator for businesses.” That

some seek to profit from war has been a fact of life since well before the American Revolution; it should surely not have been news to a highly educated army colonel in 2005, let alone so at odds with one’s worldview as to prompt suicide.


Yet, despite the fact that Westhusing’s own report cleared the contractor in this instance, his death was somehow “the fire bell that rang in the night” and demonstrates that “in forging its lucrative partnership with defense contractors, the army to which he had devoted his life had sullied itself.” Bacevich’s solution: “Limit the nation’s ambitions to those that a relatively small professional army can manage (which implies giving up on globalism) or . . . revive the citizen-soldier tradition (with globalism becoming contingent on a popular willingness to participate in war).” But these are not the only choices. Indeed, the more obvious response would be to expand the size of the professional force such that the tasks could be performed by uniformed troops subject to the chain of command, the Uniform Code of Military Justice and the law of war.

P erhaps the most disquieting passages in Bacevich’s book appear toward its close.

He says, “U.S. national security policy in-creasingly conforms to patterns of behavior pioneered by the Jewish state.” He charges that the United States is “mimicking Israel” by treating relatively powerless foes as major threats, often through the preemptive use of force. He describes the bipartisan post–Cold War approach as a “quest for global military

dominance” in which “the United States stumbled willy-nilly into an Israel-style con-dition of perpetual war—with peace increas-ingly tied to unrealistic expectations that adversaries and would-be adversaries will comply with Washington’s demands for sub-mission.” Consequently, armed intervention went from occasional to commonplace.

While the United States intervenes abroad militarily far too often, the evidence that a “quest for global military dominance” is the root cause is dubious. As Bacevich himself notes in The New American Militarism, “With the end of the Cold War, the constraints that once held American ideologues in check fell away.” As the world’s sole superpower, it should not be surprising that America’s new status came with increased demands, both domestically and internationally, to “do something” whenever a major global crisis erupted.

While the author musters a lot of evidence that there is something wrong with how many wars America fights and how it fights them, he never demonstrates that restoring a draft would solve any of those problems. Indeed, as evidenced by the recent showdown over Syria, Americans, weary from wars in Iraq and Afghanistan, seem to be addressing the fundamental issue all on their own by pressuring their representatives in Washington to shun avoidable wars. n

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