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10 Years of Chirac ...

  ... or the Betrayal of the French Social Model

[I probably will not be around much in the next 36 hours (am currently in the airport lounge) but will reply tomorrow might when I am back.]

1. The Referendum and the French Political and Social Context

One of the essential reasons why the "non" vote on the European constitution is so strong in France is that the economic outlook in France these days is not so great, with persistent unemployment, insufficient growth, and a general restlessness. And especially, there is a lot of resentment against Chirac.

A lot of that general disaffection is linked to how the most recent elections played out. As you may remember, Chirac was reelected in 2002 with 82% of the votes in the second round because he was facing Jean-Maris Le Pen, the extreme right-wing populist, instead of Lionel Jospin, the socialist candidate, which came third (because he ran a boring campaign, because the left dispersed its votes on too many candidates, because Chirac ran a nasty campaign on fear of crime and insecurity). Chirac was elected with the lowest ever tally in the first round for an incumbent (less than 20% of voters, less than 14% of potential voters) and was then voted in with as many votes from the left as from the right, and promptly ignored that extraordinary situation by choosing a hard right Prime Minister, Jean-Pierre Raffarin, and then leading on a hard rightist policy, focusing on reducing taxes, undoing the social laws of the previous Jospin government (such as the infamous 35 hour week), and trying to reform the pensions system. In late 2002 and 2003, the international situation allowed Chirac to strut on the world stage playing statesman by opposing Bushco and to take the attention away from the dire domestic situation, where unemployment was increasing once again.

In 2004, local elections took place, and the right of Chirac and Raffarin took a trouncing, losing all the regions they controlled, except one, and having one of their lowest percentage of votes ever. What did Chirac do? Ignore the votes again and keep Raffarin as Prime Minister. Then came the decision on how to ratify the EU Constitution. It was widely expected to be done via a parliamentary vote, which would have yielded an overwhelming majority, both the majority UMP and the Socialists being in favor. Then the socialists started to split on the issue, with a vocal hard-left faction leading the combat against the "libéral" Constitution and asking for a referendum (as were, more traditionally, the sovereigntists on the right). Chirac, seeing a good opportunity to splinter the left opposition, decided to have a referendum. Then something strange happened: François Hollande, the not very charismatic leader of the socialists, launched an internal debate and started an internal vote on what the official position of the party should be. He was widely mocked, and expected to lose, but, defying expectations, he got 60% of socialist party members to vote in favor of the "oui", with a very strong turnout. Chirac then decided to use the momentum of that vote to get the referendum quickly. The "non" partisans amongst the socialists, despite having lost that internal vote, and showing a lot of respect for that democratic procedure, decided to keep on campaigning for the "non" and to surf on the otherwise growing restlessness and unhappiness about Chirac. Suddenly, all the ills of the French economy and society were caused by Europe, and this was repeated on and on with increasingly outrageous claims about supposed European rules or regressive decisions...

2. The French Model

Now I'd like to step back and bring some perspective on the current situation in France.

The French economic model has been built on quite different bases than the anglo-saxon capitalist version. To keep it simple, you could call it a "competent paternalistic State". The State plays an overwhelming role in France, and it is strongly centralized. Thus all decisions can be taken by a smallish group of top civil servants and politicians often coming from the same backgrounds. The State runs the economy, either directly through a big public sector, or through explicit or implicit guidance on the private sector. strategic sectors like energy, military or banking were very directly run by the State or its representatives.

The French State took decisions for all, based on what the small elite group saw as the long term interests of the country. The counterpart to this overwhelming power is that the State provides for everybody - decent wages, pensions, access to public services (with an extensive definition of that), with strong representation for unions, able to fight for workers so long as they adhered to the culture of progress and technical excellence pushed for by the leadership. This arrangement worked because it delivered the goods for a long time, and it worked, among others, because, in a virtuous circle for the State, it was prestigious to work for it and thus it had the pick of the best minds of each generation (selected through the entrance exams to a few elite universities like ENA (for administrators) and Polytechnique (for engineers - full disclosure, I am an alumni of that school). Such arrangements brought to life the high speed trains, the nuclear program, Airbus, and industrial groups like Total (the only non anglo-saxon oil major), Renault (the car maker that now controls Nissan). it also built the European Commission to its model. The workers were proud of what they did and were decently treated, and their commitment to technical excellence and the duties of public service (like 24/7 availability of electricity or trains, typically) provided good value for society.

That model has been threatened by two things in the past 30 years: the choice made by France to go through the crisis of the 70s by tolerating unemployment and compensating unemployed people at a high level instead of making the labor market more flexible and authorizing lower paid and less stable jobs, and the relentless pressure of the dominating Anglo-American capitalist model, with its focus on the exclusively monetary short term expression of economic performance.

3. The Black Stain of Unemployment

Unemployment has had the terrible effect of destroying the social contract for a number of people. As it was hard to leave the working world, it was correspondingly hard to join it, so if you left it, you fell out of the system. Companies started creating a less protected sector in parallel to their core employment: all new hires would be temporary or otherwise unprotected (internships, foreign subsidiaries under different rules) and these would bear the brunt of any downturn when these would come. So, contrary to all beliefs, the French economy is not less flexible than others, but the flexibility is borne by a much smaller portion of the overall working population, basically the young (who take years to get a "real" job"), the old (who were encouraged to leave early, in the best case for an early retirement, in the worst case, for irreversible layoffs) and other more vulnerable populations like immigrants or women. Meanwhile, the "core", still heavily  protected, sees what happens to those that drop out, to their kids or parents, and they fight even harder to keep what they have (especially if they have to care for less lucky members of their family) - creating that impression of overall rigidity of the economy, making it impossible to find a global solution, and making it painfully obvious to all the the French economy was not functioning on the soundest basis. The fact that the "core" workers are, for a large part, in the public or quasi public sector or in the still-well unionized large companies has made them an attractive target for right wing ideologues. and in the meantime, French companies regularly beat productivity records, as they tend to avoid to hire, invest in machinery or other efficiency-enhancing processes, and get more output per unit of labor than in other economies.

Politicians have never acknowledged that early "strategic choice", and never explained it, presumably initially hoping that unemployment was temporary and that growth would solve the problem eventually. As it did not, it became a permanent stain on the social fabric, encouraging, among other things, the protest vote à la Le Pen, an accessible solution for people who feel that they have been abandoned and that the "system", represented by the main stream parties of the left and the right which have been in power in turns, has failed them and needs " a kick in the balls". That has been a strong trend in all elections in the past 20 years.

But politicians have tried solutions to bring back flexibility to the labor market to try and solve unemployment. The problem is that these solutions have never been really explained as such, and have always been partial, and hidden. Thus precarity was introduced into work contracts, temporary and unstable jobs were encouraged, thus creating a new category of working poor but not solving unemployment as companies have gotten used to functioning with less labor, and still see that the "official" line is to not tolerate layoffs and punish them politically for any adjustment they may need to make to their "core" work force - so they limit the number of real hirings they do.

Unemployment is the big black stain on France's otherwise pretty good economic performance, and it has discredited the elites which were previously trusted to run the economy with limited outside interference.

4. The Terrible Temptation of Money

The pressure of laisser-faire ideology has been as relentless on France, and it has worked in two ways:

one is the permanent pressure of  the English-language press, which is always happy to write bad news about France, especially on the economic performance front, or in their also-permanent war against the European Union, which they widely associate as a French plot. With English the dominant language of world business, all the horrible "truths" about France propagated by the British press become the common wisdom of the worldwide business world, and these opinions seep through into France, where we slowly convince ourselves that we have a rigid, archaic, hopelessly static, etc... country. When peaceful demonstrations are systematically called "riots" in the British press, unions and labor action are reconsidered and seen exclusively through the lens of "a pampered few" fighting for their extravagant privileges... That relentless barrage does have an effect. I find myself defending France (like now) and explaining basic things whereas I am usually a lot more critical...

the other effect has been to seduce the elites with promises of plenty of money, to replace the social recognition that they received in their jobs in France. Those that left to the private sector set a tempting model for those that stayed; thus reducing slowly the quality of the civil servants that do stay on as the best ones are attracted to the private sector;

a more devious effect has been the temptation by the elites to use "market constraints" and market discipline to impose additional efforts on the workforce of the big French companies in the name of efficiency and profitability, thus introducing a nasty imbalance in the French model, as workers were asked to make new sacrifices with no obvious gift in return. The worst part is that such efforts were supposedly "forced" upon them by outside forces (the "markets", "Europe") when it was a decision of the elites to push for reform but hide it behind such outside forces. It was an easy target, as French workers do have "privileges" and advantages that look extravagant from the perspective of the capitalist model of enterprise, but made sense in the French context. However, that French model was NOT sold outside of France as a full package, or only in a partial way that made it look like French leaders were fighting a rear guard action for obsolete privileges. And of course, French workers, and the unions that represent them, did see through that smokescreen as invoking "Europe" to force changes upon them. Quite clearly, the French elites were hoping to have their cake and eat it too, i.e. have French levels or productivity and work quality without paying for these as they did before.

The most amazing thing is how far the elites have been able to push this, which shows how much they used to be trusted in France: when they invoked the "greater interests of France", and invoked the requirements to be competitive, they were followed, and the French workforce has made tremendous efforts, which come through in the fact that France has world-class companies in many sectors of activity, has great infrastructure and work productivity, and is an attractive place to do business (you'd never believe from all the press that France is consistently in the top 3 destinations of foreign direct investment, along with China or the US).

But that "march forward" has taken its toll as the French population sees that it is making all the efforts, while the elites get stock options or cushy government jobs and blithely talk about competitiveness while betraying them by not defending enough the French system in Brussels or elsewhere (or defending in an inefficient way, making noise about "acquis sociaux" but not fighting for a coherent whole), and instead using Europe to distort the existing model.

Of course, this is a slight exaggeration, and there still are many dedicated civil servant and executives fully aware of what the French social model is, and defending it a smart way internally and externally. But the 20 years of unemployment and the growing size of the working poor sector have created strains which are impossible to paper over, and many people feel that the sacrifices made by the French were not worth it, and worse, were not fairly shared. Thus the reaction of the protected sector to keep in place what's still there, and the skepticism against the elites which broke the old social pact for no good reason and at their personal profit.

5. Chirac is the Embodiment of All That's Wrong Today

So where does Chirac fit in there? Well, he has been instrumental in the drift of the French elites that I described above. He is the master of show over substance, and has been a great specialist at making noise over issues instead of solving the underlying problems. He has been the specialist at fighting rearguard, delaying fights that piss off France's partners for a temporary result (see typically his fight over the agricultural subsidies); in France he has never had any long term policy, always acting in emergency mode when protests get too loud, and thus making short term fixes to the symptoms and never working on the causes of problems.

He is the quintessential politician, always running for the job but never actually doing it. You'd never guess that he has been President for 10 years from hearing him, he's still playing the underdog, promising things that he will do in the near future instead of actually doing them, playing public opinion with short term populist language.

His relentlessness to get the job made him sympathique, and people felt that it was "his turn" in 1995, but he has always disappointed people after 2 years; his talent has been to make people forget his past episodes in power, and reincarnate himself into a new Chirac, who has learned and talks about the real problems of the French - except that he has no solutions, and that he has been instrumental in the betrayal of the elites I described above:

he is the symbol of the elite making money off their public position. He has literally stolen millions. People have known it for a long time, and felt in earlier days that it was part of politics as usual, but by 2001, this was really dragging him down, and only 9/11 and his own focus on international affairs and his blatant campaign on domestic insecurity and crime allowed him (with the complicity of tamed TV networks) to make that issue disappear

as a politician, he has been an adept at using "Europe" as the scapegoat for policies requiring sacrifices, but this has begun to ring hollow now, and people are increasingly seeing through this fluff. People realize that reforms are necessary, and that changes need to be made (to fight unemployment), but they don't accept anymore that sacrifices must be borne by the same people again and again, and Chirac's easy fixes, calling for sacrifice imposed by "globalization", don't work anymore;

blinded by the apparent success of market capitalism as sold by the Americans and Brits, he has not tried to sell the French model as a whole, only trying to defend the apparent privileges of the French workers because they were there and not as an important part of a coherent whole, thus leaving that defense open to the criticism that he was only fighting for outdated (and damaging privileges) - see for instance that Financial Times editorial today on that topic that typically smashes him for that.

He has not used his 10 years for any real reforms, and for any coherent policy to adapt the French model to new times, and in his half baked efforts, he has not sold the French model as an attractive model (only as a pain in the ass for others, trying to scrounge off stuff off the backs of others), he has wasted France's credibility and standing within European institutions and on the world scene, and he has allowed the drift of the elites who take advantage of the capitalist system and of the existing French infrastructure for their personal gain.

Shame on him, and shame on us for tolerating him for so long.

Posted by Jérôme à Paris on May 9, 2005 at 06:33 AM | Permalink | Comments (18)

Yours

News, views, opinions ...

Posted by b on May 8, 2005 at 03:47 PM | Permalink | Comments (44)

And Where It´s Going

lifted from a comment by Lupin:

Where the US of A is and where it's going.

Please feel free to jump in and pick apart my short-hand graphs.

Domestic: It seems the NeoCons have either successfully staged a coup or are in the process of (cf. stolen elections, twice, filibuster, Bolton, etc.)

Economy: Don't understand much, but it's going to tank, not if, but when and how much? Oil: lasting emergency. Dollar sinking? Depression threatens.

Society: The very rich will grow richer (what better time to buy assets than in a recession?) while the growing poor (bankruptcy bill etc.) will make excellent cannon fodder (want a green card? your debt written off?) or will worry too much about their survival to be a nuisance. Complicit media (as always) will keep the population entertained.

Religion: As always in such periods, growth/return of Orthodoxy Faith in force, growth of intolerance, concomitant decline in Science & Innovation. US no longer "world leader".

Foreign: Overt domination of tde Middle-East sought (oil); increased antagonism towards rival powers (EU, China). As economy tanks, brute military force takes over as leverage. Add to the mix: passive opposition/sly undermining from rival powers (fearing US might) plus revenge-driven Arab para-military (so-called terrorist) strikes, pushing the US further into decline.

Psyche: Enormous disconnect/denial in US population between self-image and reality; plus historical inability to compromise; will break rather than bend.

Conclusion: This reminds me of the Pre-Fall of the USSR, with better TV. I need not elaborate here. Worse in some respects because of oil (or lack thereof).

I think the US is already on a course that cannot be reversed. Or can it? I don't think so. Most of the factors listed above are already set.

So we are watching the beginning of the Fall and Break-Up of the USA in real time, as we watched that of the USSR 20 years ago.

What Russia became - oligarchs, broken military, disguised autocracy, massive pauperization, ec. - is likely the future of the US of A in the next decade.

As even Ukraine eventually chose to split, I'm not even taking the option of some States (California?) seceding off the table.

Planet-wise, I'd guess there'll be massive reorganization of all flows following large-scale disruptions.

Posted by b on May 8, 2005 at 07:37 AM | Permalink | Comments (37)

Archaic Concepts

Steve Clemons of The Washington Note (aka Bolton central) reports:

The word is out.

The Senate Foreign Relations Committee will not get the much-wanted National Security Agency intercepts in which John Bolton expressed so much interest during his tenure as Under Secretary of State for International Security and Arms Control. Under Secretaries with questionable intentions can get the transcripts -- but Senators with Constitutional oversight responsibilities seemingly cannot.

Bolton was successful in requesting the names of Americans who where part of international communication the NSA intercepted in at least 10 cases.

It is unknown why Bolton asked for these names to be revealed to him, but it seems likely that he did use them to undermine those persons reputations or their politics.

If the Republicans on the Committee cave in to the Executive's stand by consenting on Bolton for the UN ambassador position without knowing the NSA transcripts, the names revealed to Bolton and the reasons for Bolton's requests, they will lose the last bit of their autonomy and authority in the US government.

But then, why should should they hang on to such archaic concepts like seperation of powers?

Posted by b on May 7, 2005 at 12:29 PM | Permalink | Comments (6)

Friday Art

kONTRAdICTION plays unplugged, THC influenced, energetic reggaehiphoprock&roll on the roads of Europe. As they often perform at the local marketplace here to promote their Saturday night club gigs, some people changed their Saturday shopping time to the late afternoon - just in case the band might be there ...

Princess (mp3) is one of the few studio pieces they ever did. Piece State (mp3) is a club recording of a song based on a local 'chartbreaker' written 1911 by Ludwig Wolf.
(Some may know Dan Wolf of the bay-area band Felonious who is the great-grandson of Ludwig and was part of a recent film and music project woven around the original song.)

Some background on kONTRAdICTION by Yeshua, the bands poet from Utah. Pictures and other stuff can be found on their (flash infested) website.

Posted by b on May 6, 2005 at 07:48 PM | Permalink | Comments (9)

Billmon: Chicken & Egg II

The Chicken and the Egg, Part II

I think there is a global “glut” of savings, one which has made it possible for the United States to finance its gluttonous appetites at interest rates I would never have believed possible when I first started thinking about this topic more than a decade ago.

However, I agree with Roubini that the Fed is whistling past an economic graveyard if it thinks the savings glut will allow America to continue sucking up 70-80% of all global capital flows for many years to come. The financial conditions that made that possible are on artificial life support.

Part I; Part I - Discussion

Posted by Jérôme à Paris on May 6, 2005 at 04:15 PM | Permalink | Comments (19)

Strategy Paper

The number of US soldiers killed in Iraq has reached about 1,600. In the Vietnam war the number of local casualties was about 50 times the numbers of Americans killed.

The protection and medical care for GIs is now more advanced. If we assume a likely factor of 75 for local casualties at least 120,000 Iraqis have died in the war by now.

But aside from these painful  numbers, the United States will lose this war, the Iraqis will win. I was struck how well this (shortened and adapted) resistance strategy paper I read today fits the situation.

America's manpower, her raw materials, and her financial resources are all inadequate and insufficient to maintain her in protracted warfare or to meet the situation presented by a war prosecuted over a vast area.

Added to this is the anti-war feeling now manifested by the American people, a feeling that is shared by the junior officers and, more extensively, by the soldiers of the invading army. Furthermore, Iraq is not America's only enemy. America is unable to employ her entire strength in the attack on Iraq; she cannot, at most, spare more than half a million men for this purpose, as she must hold any in excess of that number for use against other possible opponents.

Because of these important primary considerations, the invading American bandits can hope neither to be victorious in a protracted struggle nor to hold a vast area. If we can hold out for three or more years, it will be most difficult for America to bear up under the strain.

In the war, the American brigands must depend upon lines of communication linking the principal cities as routes for the transport of war materials. The most important considerations for her are that her rear be stable and peaceful and that her lines of communication be intact. She cannot disperse her strength and fight in a number of places, and her greatest fears are these eruptions in her rear and disruption of her lines of communication. Another important American objective is to profit from the natural resources, finances, and manpower in captured areas and with them to augment her own insufficient strength.

Certainly, it is not to her advantage to forgo these benefits, not to be forced to dissipate her energies in a type of warfare in which the gains will not compensate for the losses. It is for these reasons that guerrilla warfare conducted in each bit of conquered territory over a wide area will be a heavy blow struck at the American bandits. Experience has absolutely established the truth of this assertion.

The Americans are waging a barbaric war along uncivilized lines. For that reason, Americans of all classes oppose the policies of their government, as do vast international groups. On the other hand, because Iraq's cause is righteous, our countrymen of all classes and parties are united to oppose the invader; we have sympathy in many foreign countries including even America itself. This is perhaps the most important reason why America will lose and Iraq will win.

The progress of the war for the emancipation of the Iraqi people will be in accord with these facts. The guerrilla war of resistance will be in accord with these facts, and that guerrilla operations will produce victory is the conviction of the many patriots who devote their entire strength to guerrilla hostilities.

It is obvious that the resistance in Iraq follows the above analysis. Disrupt the American lines of communications, deny America any occupation benefit (oil) and bid for time to turn the public mood in America and elsewhere against the war. I do not see any possible way for the American war machine to successfully counter this strategy.

Sheik Mao Abu Tse Bin Tung will win.

Posted by b on May 6, 2005 at 01:53 PM | Permalink | Comments (19)

Billmon: The Grand Delusion (cont.)

Billmon's Whiskey Bar piece The Grand Delusion has by now generated some 350 comments.

(You may want to download this PDF file (760 KB) (right-click and 'Save as..') with Billmon's piece and the first comment thread.)

For a continued discussion here, alabama's recent remarks might be a good hook:

Call me unimaginative, citizen, but I find it inconceivable that Strauss could be compared to Marx in any way. To Weber, perhaps, or Durkheim--but then I don't see the point of comparing these two founders of sociology with a classical scholar who bases his occasional put-downs of sociology on his understanding of the Hebrew Bible. When Strauss takes an occasional shot at sociology, which he really doesn't bother to study.

Unlike Strauss, Marx and Nietzsche are major minds,working on the level of Kant and Hegel.

They've read everything, and have carefully studied, and understood, the "everythings" they've read. The work they do is incalculably rigorous, comprehensive and inventive, and they are unrelenting in the pursuit of this work. They go further, faster, harder and stronger than anyone, on any subject whatsoever. It's a matter of magnitudes--of intellectual reserves--and I like to believe that all honest writers understand this.

Strauss himself understands it. Yes, he denounces Machiavelli for "blasphemy"--one of the strangest moves I've ever seen anywhere--but this is a dogmatic value judgment of the sort that many of us tend to make when we're in over our heads, and Strauss, in his readings of Machiavelli, is definitely in over his head (something that could never be said of Marx and Nietzsche: their respective comments on Machiavelli, few and far between though they may be, show a thorough and lucid understanding of Machiavelli's project).

What, then, does Strauss do well? Well, for one thing, he's done valuable work on Maimonides, Al Farabi, and the whole Medieval Andalusian reading of Aristotle. He writes with great confidence and patience when dealing with these figures--no doubt because they give at least the appearance of a pre-scholastic (non-Christian?) reading of the Greeks. Because Strauss really doesn't like Christianity! This is a limitation that has to be recognized and respected if we're to have any success in reading him at all (and

I accept the fact that some folks don't want to, and perhaps wouldn't know how to, read his more technical contributions). As for his American political context, we all know very well that Strauss was appalled, and even somewhat terrified, by the McCarthyism that burned through our universities during his years in America.

I'm no intellectual historian, but I hope I'm not wrong to think that this context calls for some linkage to Strauss's career in Germany and France during the thirties. I believe that if we can accept the guy for his own magnitude, successes and limitations, we get a much clearer picture of how truly mediocre, tendentious and anti-intellectual his supposed acolytes really are, and this, in my opinion, is a discrimination that truly counts.

But then I've never felt a need to demonize intellectuals in my take on the political scene, because I think the Masters of the Universe never read. They certainly don't think. People who used to think, and then gravitate toward the scene of economic and political power relations, quickly lose the capacity to study ideas and concepts, and rarely, if ever, retrieve that capacity. They end up cutting deals and fabricating lies.

This is not an unusual fate in our world, but it's completely removed from the career of Leo Strauss--who, I repeat, never rises to the level of Marx or Nietzsche (but then who does? maybe Freud?)

Posted by b on May 6, 2005 at 06:19 AM | Permalink | Comments (79)

Capitalist Locusts

An interesting discussion has started in my home country: Germany in throes of class debate

Germany's debate started last month when Mr Müntefering [chairman of the ruling Social Democrat Party] condemned the "anonymous faces" of capitalism.

He accused international investors of being "capitalist locusts" chewing up and then spitting out companies.

"I am criticising all those who think they can pick whatever they need out of any company ... and they do it without thinking about the employees and all the people who are affected by their decision".

Chancellor Gerhard Schröder also entered the fray by speaking out against an "unrestrained neo-liberal system".

Of course Müntefering and Schröder do some electioneering here and should be asked what they have done during the last six years of their ruling to stop the "locusts" and to "restrain the neo-liberal system".

But anyhow - sentiment polls show some 73% agreement to this and the discussion is heating up. It will put some restriction on a further move to the economic right and if France and the Benelux countries pick up on this, it could result in a sea change in Europe.

Or maybe I am not yet disillusioned enough to still believe in real change.

Posted by b on May 5, 2005 at 10:18 AM | Permalink | Comments (14)

Open Thread 05-44

News, views, opinions plus a link to the elder one.

Posted by b on May 4, 2005 at 12:27 PM | Permalink | Comments (92)

Foreign Debt Museum Opened

WASHINGTON DC (RBN) - Three years after staging the largest debt default in modern history, The United States on Monday opened what may be the first Museum of Foreign Debt to teach people the perils of borrowing abroad.

The subject is heavy, but the museum's creators have tried to make the mood light and the displays accessible to everyone, especially schoolchildren.

In one corner, a pink, doll-size play kitchen represents the recipes of the Federal Reserve Bank, which Americans blame for encouraging the heavy borrowing in the early 2000s that led to the catastrophic economic collapse in late 2006.

"We chose a play kitchen because we are always so innocent and believe in magic recipes from abroad," said museum designer Edgar Lopen. "Look, we open the freezer and the oven and there is no food."

But the museum at the Georgetown University economics department doesn't dwell only on this latest debt crisis: It goes back to Americas first catastrophic financial crisis in the late 1920s and gives a detailed account of the last 30 years when the country's foreign debt woes snowballed.

Visitors can delve into a spongy "black hole" -- the place where all that borrowed money ended up.

"I liked best the black hole with everything the debt swallowed -- education, families, jobs," said Fabian Jader, 34, an opening night visitor. "I feel anger and pity for the people, but above all helplessness."

Americas's economy has recovered at a healthy clip in the last two years and the country is on the cusp of ending its default of some $6 trillion in foreign debt.

But 40 percent of the population in the once-wealthy nation still lives below the poverty line, many of them in the crime-ridden former hightech Silicon Valley near San Francisco.

"People know absolutely nothing about how we accumulated all this debt, they only know about the misery they have seen lately," said museum director Simon Pristupin, who dreamed up the idea in 2006 and struggled to convince sceptics.

"I think this museum is going to become very important, but right now it's just a little bird."

Pristupin said his favourite part of the museum is a golden cart sculpture made out of cardboard.

"It symbolizes Americas's reality: everything's golden, but it's made of cardboard and that reminds us of all those people who today collect cardboard for recycling."

***

Reality Based News source

Total National Debt
Foreign Debt

Posted by b on May 4, 2005 at 06:15 AM | Permalink | Comments (5)

Killing Journalists

Reporters Sans Frontières (Reporters Without Borders), the media freedom watchdog group is noting that it is already 20 years old and today, on the occasion of the 15th "International Press Freedom Day", is publishing a couple of reports on freedom in media around the world.

One is its Annual Report on 2004 (see the press release and the full report (pdf, 370 kb)

The other is a report on the gruesome toll for journalists of the war in Irak. see the press release and the full report (pdf, 12 pages)

Here's a graph from the Iraq report:

One third of journalists whose cause of death is known were killed by US forces

Here are some quotes from their 2004 report:

At least 53 journalists were killed in 2004 while doing their job or for expressing their opinions, the highest annual toll since 1995. Fifteen medias assistants (fixers, drivers, translators, technicians, security staff and others) were also killed.

In 2004 :
53 journalists and 15 media assistants were killed
at least 907 journalists were arrested
1,146 were attacked or threatened
and at least 622 media censored

In 2003 :
40 journalists and 2 media assistants were killed
at least 766 journalists were arrested
1,460 were attacked or threatened
and at least 501 media censored

On 1 January 2005 107 journalists and 70 cyber-dissidents were in prison around the world

And here's what they had to say about the US (and France, for balance!):

As we spend a lot of time on blogs criticising bad journalists and hacks, let us also remember those that take greats risks, including to themselves, to bring us the information without which we would be nothing.

Posted by Jérôme à Paris on May 3, 2005 at 06:26 PM | Permalink | Comments (26)

Bush Scapegoats Myers

Q: Do you feel that the number of troops that you've kept there is limiting your options elsewhere in the world?

BUSH: The person I asked that to - the person I asked that to, at least, is the chairman of the Joint Chiefs, my top military adviser.

I said, Do you feel that we've limited our capacity to deal with other problems because of our troop levels in Iraq? And the answer is no, he doesn't feel we're limited. He feels like we've got plenty of capacity.
Text of Bush Press Conference
April 28, 2005

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Joint chiefs boss says terror war has put military at risk of ...
Salt Lake Tribune, UT
Wars risk military activity elsewhere, top officer says
Contra Costa Times, CA
US military stretched taut, Myers reports
Arkansas Democrat-Gazette, AR

US admits stress of wars leaves risk of not meeting goals
Boston Globe, MA
Military's Readiness at Risk, Report Says
Los Angeles Times, CA
Iraq, Afghan conflicts limit US military
Houston Chronicle, TX
Pentagon Says Iraq Effort Limits Ability to Fight Other Conflicts
New York Times, NY
Iraq, Afghanistan Wars Preventing Proactive Moves
Los Angeles Times, CA
Report: War on terror cuts into US readiness
OCRegister, CA
Two Wars Are Costing US Military
TheDay, CT
Wars on terror costing US military flexibility
SunHerald.com, MS
Military feeling strain of 2 wars
Baltimore Sun, MD
many more alike headlines available via news.google.com
Mai 3, 2005, 10:00am EDST

Never would this President lie to the public. Ergo, Myers must have lied either to Bush or to Congress. He ought to be fired immediately.

But wait, Myers is already scheduled to retire this summer? Let's wave him goodbye, but watch how Bush kicks his ass on the way out. Retires makes such fine scapegoats and Bush is such a fine boss. I wonder when the military brass will start a revolution.

Posted by b on May 3, 2005 at 10:19 AM | Permalink | Comments (33)

Billmon: Chicken & Egg I

The Chicken and the Egg (First in a series)

And when the dollar bubble finally bursts . . oh man. If you’ve ever heard the joke about the pig, the monkey and the cork, you have some idea what to expect. Which is why hopeful talk about a “soft landing” or a “smooth adjustment” makes me laugh.

Posted by b on May 3, 2005 at 01:43 AM | Permalink | Comments (30)

Billmon: Being There

Being There

Even by the state's contemporary standards, though, Allen is a dunce. One of the few politiicans, in fact, who could make people refer to John Warner as "the smart one." Which, needless to say, could make him a hot prospect for the GOP presidential nomination.

Posted by b on May 2, 2005 at 03:32 AM | Permalink | Comments (10)

'The Economist' on Oil - the Corporate View on Peak Oil

The Economist has published in its most recent edition a survey of oil, which I promised to review. As it is behind a subscription wall, the links (below the jump) are unlikely to be accessible to most of you, so I have tried to summarise its content before critiquing it.

Source

The survey is an interesting contrast before good insights on the oil markets, the behavior of the oil majors, and the importance of government regulations, and a deliberately optimist take on "peak oil" and the likelihood for alternatives (especially fuel cells) to replace oil use in transport.

In a nutshell, this is the well-informed, but deliberately rosy official view of corporate America.

Now complete with comments on second part

The survey is actually quite short for the Economist; it comprises 6 articles which I will go through in succession:

Oil in troubled waters (Intro article)
Not so shocking (about oil prices)
Global or National (about the threats to the oil majors)
The incredible shrinking companies (about how oil reserves are booked)
The bottomless beer mug (about peak oil)
Consider the alternatives (the conclusion - there will be alternatives).

1. Oil in troubled waters

In this introductory article, the currently high prices are described, and explained, for the most part intelligently:

- the initial cause is a conscious decision by the Saudis to track inventory levels in the West, and to lower production whenever such inventories rise too much from their perspective. (That decision followed the ill-timed 1997 OPEC decision to increase quotas just as the Asian crisis started, thus causing the painful - for them - fall in prices of oil to the low teens or worse);

- demand growth has been stronger than expected, lead by both the US and China, and this, despite the significant rise in oil prices in recent years;

- the geopolitical premium, linked to instability in Irak, the de facto re-nationalisation of Yukos and other nationalistic and/or anti-private sector policies in Russia, and Chavez's stridently anti-American tone;

- some speculation on the financial markets, which the Economist dismisses as it has actually been declining since March 2004 (as measured by net "long" positions, i.e. the amount of bets that prices will increase).

The result has been that spare capacity has reached record lows, as shown in this graph:

The Economists thinks that demand growth will slow down (China's demand growth being "unsustainable") and links to a disputed CERA (Cambridge Energy Research Associates, a respected consultancy in the sector) study that "rivers of oil" are about to come on stream from fields under development in the next few years, adding up to 13 mbd of new capacity (net of declines elsewhere).

They conclude this first article by saying that prices could just as easily go to 100$/b or to 10$/b. While this may be a chickening out, I personally think that the simple acknowledgement that 100$ oil is very much possible is a very strong message from them, even if it is an indirect one.

2. Not so shocking

Their second article goes on to say that oil prices are not so important anyway, as their impact on the economy is much less than it used to be.

It tempers that optimism by noting that we may be getting close to levels where further increases could hurt the economy, and that oil-importing developping countries are suffering already. Also, the dependence of our transport sector on oil has been underlined more starkly than ever.

Nothing new or objectionable in that part.

3. Global or national?

This part, which is about the oil majors, is probably the most interesting of the whole study. After noting the exceptional profits of the big oil companies, it notes that:

the chief factor behind today's profits is the surge in the oil price. And beyond that mountain of profits, the industry faces challenges that could ultimately wipe out some or most of these firms, once venerated as the Seven Sisters.

The biggest firms may be running out of good ways to invest their money. Oil bosses such as BP's Lord Browne and Exxon's Lee Raymond vigorously deny it, but it seems that the majors, though cash-rich, are opportunity-poor, just when their dwindling reserve base badly needs topping up.

“Oil is a depleting asset. Every day, if we don't spend money and find more oil, we lose assets. Most oil companies, by doing nothing, will shrink to one-fifth today's size.”

Oil majors's existing assets (first of all in the North Sea, Alaska or the Gulf of Mexico) are "entering periods of rapid decline", and they are now facing the challenge of having to go seek more difficult and more expensive reserves in places like ultra-deep offshore in the Gulf of Guinea, the landlocked Caspian basin or unfriendly countries like Russia or Venezuela. Worse, most of the remaining reserves are in countries that are totally closed off to them.

This table, which I find the most significant of the whole study, shows who controls today's existing reserves (supposing that the numbers are correct):

It's pretty unusual to see a table where Exxon, BP or Chevron are near the bottom, right? Well, that's the reality of today's oil business, and a worrying one for all of us. Big Oil is running out of places where to invest, and the national oil companies have no real incentive to invest in new production capacity (it costs money "better" used by their governments, and it puts downwards pressure on oil prices, thus reducing the value of their current production).

So the oil majors are turning to "drilling on Wall Street" (i.e. buying rivals to boost their reserves), to unconventional fuels (like Canadian tar sands) and to natural gas, with uncertain prospects in temrs of the volumes required.

(As a side note, the Economist says that this is bad news for the environment, as national oil companies are much less responsive to pressure form NGOs than the oil majors are).

At this point in the survey, there is nothing really objectionable. It presents a reasonably balanced view of the oil markets and the factors influencing it (although it glosses over the Iraqi war), of the short term economic consequences of more expensive oil, and it has a good perspective on the challenges faced by the oil majors, many of which I agree with and have pointed out in previous diaries.

4 The incredible shrinking companies

As the above table shows, the reserves of what we call the oil majors are actually tiny compared to those held by national oil companies of a number of countries, and are actually behind the reserves of the semi-private Russian oil&gas companies (note in that respect that Gazprom holds one quarter of the world reserves of natural gas, so the number for them is incorrect - they should be above 100,000 mboe and thus in the top 5 of this list).

This fourth article focuses on the recent reserve reevaluations that have occurred in the past year, most publicly in the case of Shell, which had to reevaluate its reserves downwards significantly.

The article essentially describes how the SEC requirements, which drive the reserve disclosures of the (quoted) Western oil majors, are imperfect and cause arbitrary changes in reserve bookings:

For example, oil companies are required to recalculate the viability of their reserves each year, using the oil price at year-end. Never mind that no oilman plans his investments using that arbitrary price. In 2004, the price of heavier grades of crude oil collapsed at the end of the year. Even though that proved a brief and unrepresentative blip, firms listed on American stockmarkets had to write off vast quantities of reserves on paper.

The Economist also laments about the fact that new technology (such as sophisticated seismic studies) is not taken into account, and, to their credit, that there is little transparency in how each oil company books its reserve. It suggests that the oil industry provide what the mining industry does, i.e. a public database of all fields so that independent assessments of reserves can be made. This would of course require the big reserve-holding nations to cooperate, which they have so far been unwilling to do.

Although the arguments presented by the Economist are reasonable, the article does not go into the details of the reasons why reserve estimates may be wrong or not in various countries, and sounds like the whining that comes from corporates unhappy to comply with rules that give out unpredictable results that may surprise the capital markets...

This leads us to the most interesting article of the survey, that on peak oil, whose title says it all:

5. A bottomless bear mug

The Economist does not believe in peak oil. They do mention it, and provide some links to serious websites about peakoil (such as http://www.peakoil.net and http://www.hubbertpeak.com/), but the whole article is meant to contradict them.

I'll give you a taste of their arguments:

[T]his argument is wrong both on a philosophical and a practical level. The philosophical problem, says Michael Lynch of EnergySEER, a consultancy, is that the pessimists treat the level of recoverable oil resources as fixed—like the amount of beer in that mug. In fact, expert estimates on the ultimate recoverable resource base have consistently grown over the past few decades, even though the world has been guzzling oil as if there was no tomorrow (see chart).

Peter Odell of Rotterdam's Erasmus University points out that “since 1971, over 1,500 billion barrels have been added to reserves. Over the same 35-year period, under 800 billion barrels were consumed. One can argue for a world which has been ‘running into oil' rather than ‘out of it'.”

What makes the estimates go up continuously is a combination of economics and innovation. The IEA explains the process this way: “Reserves are constantly revised in line with new discoveries, changes in prices and technological advances. These revisions invariably add to the reserve base.”

A few decades ago, the average oil recovery rate from reservoirs was 20%; thanks to remarkable advances in technology, this has risen to about 35% today. But despite this improvement, two-thirds of the oil known to exist in reservoirs is still abandoned as uneconomic, leaving room for tomorrow's discoveries or innovations to lift recovery rates and magically push the global Hubbert's peak even further towards the horizon.

It is a bit sad to see the Economist use an argument which is fully covered by the peak oil analysts, i.e. the difference between total physical reserves and economically recoverable reserves. There have been significant improvements to the second category, through the use of new technology or cost savings, and it is likely that durably higher oil prives will allow to increase that number again by making previously too costly reserves economical under the new price conditions. But that misses the point that physical reserves do not change, and that the discovery rate HAS been declining.

Saying that we squeeze more of what we know we have is fine, but does not really contest peak oil, it just moves it by a few years. Focusing on the date only obfuscates the underlying reality.

(Focusing on improving recovery rates to say that we still have time to move in an orderly way to another organisation of our economy, not based on cheap energy anymore, is another point, but that's certainly NOT what the Economist is saying.)

They then focus on under-explored areas of the world, such as Russia, some of the Persian Gulf countries and ultra-deep offshore. They quote the head of exploration and production at Total, the French oil giant:

Total's Mr de Margerie points to frontiers that will be opened up by technology: “There may not be any more glamorous Ghawar fields, at least onshore, but there is tremendous opportunity if we look at ‘deep horizons'.” He believes that there are large deposits 10,000 metres (32,800 feet) or more underground. The snag is that they are usually under very high pressure or very hot, and may be extremely acidic. But as technology improves, he thinks, “these very strange hydrocarbons” will become economic.

It is ironic in that Total is the only one of the big oil majors to have acknowledged peak oil and to have actually put a date on it - around 2025 (see a comment I wrote on Kevin Drum's blog last June about it) - and they are also one of the few to have made more actual discoveries than they produce. So Mr de Margerie is essentially saying that all the technology that they are using or expect to use will be useful for another 20 years or so at most (the Economist quotes him only as saying: “The peak will come, but we can keep the plateau for a long time with technology.”

Of course, the problem is that a plateau is not good enough at times of growing demand, and it does not negate the concept of peak oil.

The Economist goes on to discuss who controls the technology that will allow to exploit more reserves, and makes the more interesting point that a lot of that technology is not controlled directly by the oil majors themselves, but by the oil serivce companies liike Schlumberger and Halliburton:

That points to the most explosive criticism levelled at the oil majors: that they no longer have the capacity to innovate. A few decades ago these firms were fiercely proud of their proprietary technologies, which they believed gave them a competitive edge. But during the 1990s most majors slashed funding in this area, leaving service firms such as Schlumberger and Halliburton to pick up the slack.

“Ten-dollar oil killed upstream research,” says one executive. Ivo Bozon of McKinsey, a consultancy, reckons that the majors slashed upstream R&D spending from $3 billion in 1990 to below $2 billion in 2000 (both in current dollars). Over the same period, the service companies increased their investment in research from $1.1 billion to $1.7 billion. The sharpest cuts, adds Mr Bozon, were made by American companies.

“These guys need to explore, but they don't know how to do it any more,” complains Roice Nelson of Geokinetics, which makes reservoir visualisation software for the oil industry. Mr Nelson helped found Landmark Graphics, an industry pioneer in imaging software, so his criticism stings. He notes that the industry sacked many of its best-qualified technical staff, and that relatively few college students now are going into petroleum engineering. “We'll be working till we're past 80,” he sighs.

The majors now realise that this shift away from technology, once their core strength, was a mistake that has benefited three groups of rivals: the service companies, the “mini-majors”, and the NOCs. Mr Lesar at Halliburton is delighted: “There's been a fundamental shift in ownership and development of technology from the majors to the service companies.” The problem is that the service companies are less capable of investing for the long term, because their balance sheets tend to be weaker than the majors'. Moreover, they need their customers to adopt those technologies to make them commercially viable—but the majors have proved gun-shy.

So, a Halliburton conspiracy to keep everybody happy? Probably not (as I wrote elsewhere, Halliburton et. al. make more money from governments than from big oil), but it does point yet again to the unwillingness and/or unability of big oil to invest. This time, it was the focus on their short term balance sheet which can be blamed. This is a more general lesson (which the Economist does not really make, celebrating instead the "independents" that take more risks and supposedly fill the gap: quarterly results make companies risk adverse and makes them limit their investments.

Again, the Economist provides some valuable perspective for the short and medium term management of the big oil companies, but provides really a really rosy vision of the long term, based on the firm belief that technology and good ol' American entrepreneurship will solve the problem.

6. Consider the alternatives

In the last section, the Economist tries to mix all issues to find a conclusion. It provides contradictory insights:

- oil use has been pretty much narrowed down to transportation in the West, but that has made that sector even more vulnerable to oil prices, not less;

- government intervention in the oil sector works (gasp! The Economist is usually like the WSJ Op-Ed pages on that topic): CAFE standards worked, pollution requirements have worked, urban planning would work, and there is a strategic rationale for governments to intervene (dependency on potentially unreliable imports)

- they indirectly underline the difficulty to reduce petroleum demand with this Chinese example:

As soon as ordinary Chinese become wealthy enough to buy a car, they happily abandon public transport. Shanghai's economic boom has been accompanied by an annual rise of 15% in the number of cars in the past few years, which explains the city's miserable traffic and smog. Officials have tried to curb this by introducing an auction system for new car permits, but have been taken aback by the demand. The price of new permits has shot up past $5,000 per car and is still rising.

In short, public transport is vitally important, but it will never dislodge the car. For the world's aspiring billions, it is the ultimate symbol of status and freedom, even if it perpetuates mankind's addiction to oil.

People are willing to pay a lot to drive, so they must be forced to pay A LOT MORE not to drive is the unstated conclusion...

The Economists then cursorily examines alternative fuels, such as biofuels (polluting and a poor or negative EROEI) and GTL (gas-to-liquids, gasoline manufactured from natural gas) and ends up with an ode to the fuel cell, and to GM's efforts in promoting it.

Strangely, they conclude by publishing this graph from Exxon which shows that alternatives will not amount to much, and yet concluding as follows:

Even the most powerful man in the oil patch, Saudi Arabia's Mr Naimi, seems to acknowledge that his world is changing. Five years ago, when asked about the prospects for hydrogen, he immediately replied: “Hydrocarbons will remain the fuel of choice for the 21st century.” Asked the same question again recently, he reflected before replying. He had been surprised by the size of the investment the global car industry is making in fuel cells, and he was concerned about efforts to tackle climate change, which he believed would hurt oil. Most revealingly, he said that his country was now looking into carbon-sequestration technologies. Eventually he got back to the question: “Oil will still dominate for the next 30-50 years, because there are no meaningful substitutes.”

Old lags in the industry have long quipped: “The stone age did not end for lack of stone, and the oil age will end long before the world runs out of oil.” Nowadays that sounds less like a joke and more like a forecast.

(yeah, that's their actual final words)

So basically: don't worry, be happy, the big companies will save the day with new technology, so we won't need more oil, but there is enough oil anyway should we need it...

It's pretty disappointing, but not surprising really. As a part of the Establishment, The Economist plays a role in setting the meme for the global corporate elite. This is clearly a very professional, interesting "don't rock the boat" piece. will it be overtaken by facts quickly or will it help perpetuate out countries noxious blindness on the topic of energy?

If you think this is too severe, a final note: the only time the issue of conservation is raised, it is to bring up Dick Cheney's sentence: "Conservation may be a sign of personal virtue, but it is not a sufficient basis, all by itself, for a sound, comprehensive energy policy."

I'll do one more diary on their article on the energy bill, which is actually a lot more critical, but overall, it's still disappointing.

Remember where the oil goes:

Posted by Jérôme à Paris on May 1, 2005 at 03:03 PM | Permalink | Comments (28)

FY Convenience

Open Thread ..

Posted by b on May 1, 2005 at 06:55 AM | Permalink | Comments (61)

Billmon: 04/30

I. Social Surrealism

It should be obvious by now that Bush and the Rovians don’t give a rat’s ass about the poor – except when they can be used as decoys to funnel federal money into their religious patronage machine or provide the appropriate background for a few quick photo ops. As Matt Yglesias and others have already pointed out, their Social Security plan only “aids” low-income retirees if you ignore the trillions in general revenues that still would have to be poured into the trust fund to subsidize Shrub’s precious private accounts. Yet redirecting those same revenues into the existing system (without the private accounts) would leave all retirees better off than what Bush is proposing. If Robin Hood had tried pulling a bait and switch scam like that, I think Friar Tuck would have excommunicated him.

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II. Oil's Well That Ends Well

Posted by b on May 1, 2005 at 05:43 AM | Permalink | Comments (11)