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Patrick Nolan: Can lessons be learned from the UK’s agenda for austerity?

Dr. Patrick Nolan is the Chief Economist at the UK think tank Reform.

In August the Economist included a mocked-up photo on its cover of the UK’s new Prime Minister, David Cameron, sporting a punk-rock-style Union Jack Mohican. And the reason for this depiction of Britain’s new leader? The government’s embrace of tight fiscal policy. As the Economist noted “Britain has embarked on a great gamble. Sooner or later, many other rich-world countries will have to take it too.”

George Osborne, the UK’s Chancellor of the Exchequer, has written on this site about how fiscal responsibility is at the heart of conservatism and how this translates into the UK’s plans for eliminating the deficit. More recently Tim Montgomerie outlined ten key things about the UK government’s deficit reduction plans.

These plans have, not surprisingly, been controversial. Although most cuts are still to come into effect protests have begun in earnest. Parliament’s Treasury Select Committee (Members of Parliament responsible for examining the Government’s fiscal policy) has also undertaken an independent assessment of the proposals. As part of this assessment Reform (a non-party, center-right think tank) submitted written evidence which considered two questions:

• The impact of the spending cuts on the long-term growth potential of the UK economy?
• The decision to ring-fence (or protect) particular areas of public spending?

On the first question, Reform’s position is that reducing the deficit quickly is essential for improving the economy’s long-term growth potential. Although debate on the likely economic effects of a fiscal consolidation is unlikely to be resolved anytime soon there are several things we can say securely based on our work over the last several years.

1) Consolidation has worked. At Reform we have discussed the results of consolidation with figures from countries like Canada and New Zealand – which are both countries where consolidation has been seen to be a success. Ireland is sometimes used as a case against consolidation but while the Irish economy is going through a hard time things would have been even harder if they had not have taken their recent actions. Problems with the Irish economy stem from a public finance system that was too pro-cyclical and from not having an independent currency. The problem is not consolidation.

2) There are strong arguments for moving quickly. The costs of government entitlements in health and pensions are rising. The longer policy makers wait to reform these systems the higher the costs of change will be. High debt levels and an expensive welfare state may have been affordable (although perhaps not wise) when the working age population was young and growing but in the face of an ageing population this is not the case.

3) By reducing the need for tax increases, consolidation will improve the business environment which is crucial for growth. Encouraging private sector growth is an important route to reducing the output gap. Economic research on the Great Depression, for example, highlights that rather than purely being a failure in markets, policies that reduced competition and labor market flexibility made the Depression longer and more severe.

4) The consolidation process, run properly, should encourage policy makers to focus on the quality of public spending rather than just the quantity. Rather than just being an opportunity to develop a list of cuts, the consolidation process should be seen as an opportunity to have an honest debate on how to curb the over-reach of the state and what the future state should look like.

This need to focus on the quality of spending has implications for the second question. Reform’s position is that the UK government has been wrong to ring-fence areas of expenditure from spending cuts. This decision is a mistake at a number of levels. It sends a message to the decision-makers in these areas that they are insulated from the need to deliver reform and efficiency. This violates the principle that changes should reflect the performance (or value) of the spending in different areas. Low value spending should be cut first – no matter what budget it falls within. Otherwise more valuable spending will be sacrificed to protect less valuable spending. Lastly, by ring-fencing areas of spending the government fails to take a consistent approach to consolidation. This lack of consistency encourages groups to lobby for exemptions.

Undertaking a fiscal consolidation of the scale required in the UK requires hard decisions to be made. Efficiency savings and trimming budgets will not be enough. The real drivers of government spending will have to be addressed. This requires quality decisions based on quality policies, otherwise political capital will evaporate. In politics it is not enough just to do the right thing – you have to do the right thing in the right way.

When Congress turns a blind eye to global drug theft, people die

Dr. Roger Bate is the Legatum Fellow in Global Prosperity at the American Enterprise Institute. His papers are available at his scholar page. This is the first of a series of articles Bate will write on drug issues the GOP should be paying attention to in 2011.

Six years ago I first encountered the burgeoning black market in stolen drugs in Africa. Since then, as more and more of our tax dollars fund drugs for poor nations, criminals are making fortunes off our good will.

Last year, Dr. Stephen Malinga, the Ugandan health minister, described those stealing such drugs as "murderers, causing the deaths of hundreds of children" in Uganda. He knows Ugandan public sector drugs often end up in private shops in other countries, such as Southern Sudan.  Unlike his senior colleagues in other African nations, Dr Malinga has been bold enough to point the finger at the role of corrupt officials, although he insists the problem is with local government rather than those at the center. 

As a result of these thefts patients with malaria and other life-threatening diseases are going without the drugs they should receive for free. But additionally, black markets are flourishing, undermining legitimate suppliers and lessons from elsewhere show that traders happy to deal in stolen good may search for more reliable supplies often leading to counterfeiting; over time useless but well packaged fakes replace stolen legitimate brands, endangering patients and increasing drug resistance. 

While the situation is bad in Uganda, theft and diversion may be worse in neighboring nations of Kenya and Tanzania, where the governments are not acknowledging a problem. It appears tens of thousands of drugs have been stolen from central stores and sold in locations as far afield as Ghana and Nigeria. 

If my ongoing research, published today/tomorrow (Friday) by AEI, accurately represent the scale of diversion, out of the 100 million high-quality antimalarial dosages donated to Africa, approximately 30
million are diverted. About 20% of these drugs are informally diverted by individuals from clinics. More disturbing to taxpayers and humanitarians alike, the vast majority of diversion (80% or 24 million
treatments) takes place directly from government-run storage and distribution facilities, with either the support of local government officials-or at least without their interference.

The US Government's Agency for International Development has done better than any other bilateral donor at criticizing countries, notably Angola, that have stolen its donated products. Today, Angolan Government stores are banned from handling US donated products. But most donors, including the UN-backed Global Fund for AIDS Tuberculosis and Malaria, which receives a third of its funds from US taxpayers, is reluctant to admit that this is a problem. 

The majority of those in Congress, who recently supported increases in support for the Global Fund, have never even pushed for a proper investigation of the efficacy of these disbursements. Most of the supporters - 101 Democrats in the House of Representatives signed a letter of support in the fall - like the idea of supporting multilateral efforts like GFATM; it is the mantra of the Obama administration to do more with multilateral partners. But it appears that neither the White House nor Congress actually wants to know that their chosen method - multilateral distribution of funds - does not work very well. 

And the threat only continues to grow. If these practices are allowed to go unchecked by donors like the Global Fund, criminal groups will continue to gain a foothold as large-scale networks develop to distribute stolen and fake drugs. The long run impact on the distribution systems and available medicines could be severe, especially if drug resistance spreads, and while competence in many recipient nations remains so poor. 

The US Government should push for an independent review of practices at the Global Fund to ensure that drugs are used by those intended, rather than facilitating illegal parallel distribution systems in recipient
nations.

While they have a lot on their plates to begin the new year, congressional members - recently energized by an election that put a premium on spending constraints and government accountability - should put new pressure on violating countries and the Global Fund. Not only will that help ensure taxpayers' dollars are spent wisely, lives will also be saved.

Michael Magan and Dorothy Stuehmke: Wikileaks reveal North Korea is alone

Michael Magan, with Media Intelligence Partners in London, was former Special Assistant to the President and Senior Director on the National Security Council, and principal negotiator for the resumption of food assistance to North Korea.

Dorothy Stuehmke was the U.S. Government's Senior Advisor to the U.S.-DPRK food aid program (2008-2009), and served on the Korea Desk at the U.S. Department of State (2006-2008).

The release of classified U.S. material by Wikileaks has been characterized in a negative light – as an embarrassment to the U.S. administration and a threat to U.S. national security and the international community at large. As former U.S. government officials who worked on North Korea (DPRK) for the National Security Council and for the Office of Korean Affairs at the U.S. Department of State, it is crucial to underscore the impact these leaks have had on efforts to work with other countries to address common problems.  That being said, the latest revelations regarding China’s position towards the DPRK are revealing.

While Wikileaks may have jeopardized a new wave of thought in China with regard to how it views China-DPRK relations, as well as its evolving perception of the DPRK, the leaks may have also opened North Korea's eyes to a harsh reality: that unbeknownst to the DPRK, it no longer has the backing from China it historically has always had, and that during a pivotal time in DPRK history – one of internal political transition – it just may really be the most isolated country in the world.

Throughout history, China has long been viewed as a staunch supporter of the DPRK regime. The two countries share a border, and China along with Russia supported the DPRK against a U.S.-backed South Korea during the Korean War. Since the end of the Cold War, China has remained a steadfast ally of the DPRK, acting as a main source of foreign aid and trade as the DPRK became increasingly estranged from the rest of the world. Publicly, and to each other, China and the DPRK have maintained a special relationship, and China has always been noted as the country with the most political clout over the DPRK.

But in a major departure from this historical stance, China has recently been described in secret U.S. cables as having had a shift in policy and perception toward the DPRK. The cables reveal a growing frustration in Beijing over the DPRK's string of provocative and aggressive acts, ranging from nuclear and missile tests, the sinking of the Cheonan and death of 46 South Korean sailors, to the most recent attack with loss of life on South Korea's Yeonpyeong island.

According to these secret cables, a new, younger generation among Chinese Communist party leaders no longer regard North Korea as a useful or reliable ally.  In fact, Senior Chinese officials even referred to the DPRK as a “spoiled child.”

This week, China's response has been to exercise damage control; a senior Chinese official was sent to Seoul as part of what China called “emergency consultations,” and Choe Tae Bok, chairman of the DPRK Supreme People's Assembly, began a five-day visit to China on Tuesday, at the invitation of Wu Bangguo, chairman of the Standing Committee of the National People's Congress of China. The repercussions of this is that China will likely not feel too comfortable about sharing much of what it really thinks with other countries, out of concern that what is said is no longer “off the record.”

Beyond this, how do we use what is now public information to solve the DPRK puzzle?

The leaks could lead to more introversion from the DPRK. During our travels to the DPRK in 2007-2008 to negotiate the restart of the U.S.-DPRK food aid program, it was evident that some in the regime showed signs of more openness to change than others; there were also those who were adamant hard-liners.  With secret U.S. cables such as one that asserts Kim Jong-il's power has weakened after his stroke and predictions he will live no longer than five years, the regime now knows that the outside world has a wealth of information on the hermit kingdom.  Certainly, DPRK hardliners will use this to tighten their grip on power and keep the North closed to the outside world.

However, now that we know some in China support an “independent and peaceful reunification of the Korean peninsula in the long term” under the leadership of South Korea, this revealing information should be a shocking revelation to Kim Jong Il’s regime – that it does not even have what it assumed was always a constant – China's backing.

Sans China, Kim Jong Il and his son face a whole new paradigm.

Instead of standing by and watching China distance itself from the DPRK, the U.S. and other Western leaders should pressure China to leverage its influence over the DPRK to open its markets as China did five years ago.  China should be reminded that it is also in its' best economic and political interest to maintain stability in the region. There is a stark contrast between China, North Korea and South Korea and China needs to set conditions for the DPRK to halt its nuclear proliferation and hostile actions on the South and begin a transition to a market economy.

While relations with China may be experiencing Wikileak aftershocks, encouraging China to be more proactive in its influence over the DPRK remains in the interest of the U.S. and its allies. The leaks offered a level of transparency that should never happen again. They will create a huge obstacle for U.S. diplomats as they try to engage their counterparts and elicit open and unscripted dialogues and responses over pressing diplomatic issues.

However, as the U.S. prepares its legal response to the unauthorized leaks, (and the full force of the law should be exercised) the world has the opportunity to glance though a candid lens and observe how the U.S., South Korea, Japan, China and even the DPRK may view present day Northeast Asian relations. How the DPRK will behave, with the realization that China would not risk renewed armed conflict on the Korean peninsula, remains to be seen. But what the U.S. and its allies in the Northeast Asia region – namely, South Korea and Japan – should focus on in the immediate future is to show a unified resolve and pursue democratic change, monitored humanitarian assistance to the suffering people, and dialogue conditioned on a halt to the nuclearization of the peninsula.

Meanwhile, for the majority of North Koreans living outside Pyongyang, daily life remains a constant struggle. For a North Korean, a walk in Sinuiju in the dead of winter along the Yalu river that separates the DPRK from China, is a constant reminder of just how far the North has to go. Across the Yalu in China, North Koreans can see Dandong's buildings that soar high into the sky and bathe the city in a flood of glowing light, while North Koreans live enveloped in a cold darkness, with sporadic electricity and heat.  The time has come for change.

Herb London: How we deal with North Korea (and China) will show Iran how we will deal with them

Herbert London is president of the Hudson Institute and author of the book Decline and Revival in Higher Education (Transaction Publishers).

As Secretary of Defense Gates recently noted, any question about North Korea has only one response: “I don’t know.” There is indeed so little we actually know about this barbarian kingdom with nuclear weapons. Hence almost anything one does say is speculative.

As I see it, the nuclear facility recently disclosed is designed to be inflammatory. What it means is that North Korea can increase its supply of weapons and use them as negotiating instruments. Since there is nothing of value in North Korea, since the economy is moribund, since the government cannot supply basic necessities for the population, nuclear weapons – at least the threat of deployment – is a negotiating wedge for foodstuff, oil and hard currency. By any measure, this is an extortion ploy.

In a curious way, the Chinese government is complicit. China has the ability to clamp down on this backward kingdom, but it averts its gaze. From a Chinese perspective North Korea is an effective pressure point on the United States and its allies in Japan, South Korea, Taiwan. What the stalemate with North Korea demonstrates is the relative ineffectiveness of U.S. diplomacy and the obvious fact that the U.S. is an unreliable ally, perhaps even an untrustworthy ally.

What the U.S. cannot deliver – a stable east Asia – emerging Chinese military prowess in the region may. In other words, China uses North Korea as a tool to promote its regional dominance and, in the process, undermine U.S. influence.

This strategy has its advantages for China at the moment, but it could backfire. If Japan uses North Korean sabre rattling and Pyongyang’s deadly artillery barrage on a South Korean island as a catalyst to dismantle Article 9 of its Constitution and start producing nuclear weapons, China’s military dominance could be challenged. Anti Chinese sentiment in Japan should not be underestimated.

North Korean gamesmanship and Chinese cleverness are proceeding down a dangerous path in which an escalation scenario is quite plausible. The world waits to see how this situation will unfold with baited breath and the Iranian regime watches with intense interest. What the U.S. does in North Korea – or doesn’t do – is regarded as a portent of the U.S. position on Iranian nuclear weapons as well.

In yet another unfolding chapter in this tale of conflict, the United States and Seoul began joint naval maneuvers, an unmistakable message that sufficient force exists in the neighborhood to counter North Korean aggression. Moreover, even in South Korea, known for its restraint, there is increasing pressure to respond to Kim Jung Il’s unprovoked attacks. South Korean president, Lee Myung-bak told Chinese emissaries that now isn’t the “right time” to resume disarmament discussions. In fact, President Lee bluntly said Beijing should adopt “a more fair and responsible position” on Korean issues. Furthermore, President Lee said North Korea “would pay a price” for further aggression.

U.S. Admiral Michael Mullen, chairman of the joint chiefs, said, “It is hard to know why China doesn’t push harder. They clearly are interested in this – in the region not spinning out of control – so my sense is they try to control this guy, and I’m not sure he is controllable.”  Of course that is one man’s theory. There are others, including a China that benefits from the chaos by diminishing the U.S. role in the region and creating the impression with U.S. allies that only China can stabilize the unruly situation.

This is a scenario with dangerous implications, but strangely the world has seen it unfold before and diplomats seem to believe it will unfold again.

Joe Loconte: The President's National Security Strategy fails to recognize that a real, dangerous Islamic ideology lies behind today's terrorism

Joe Loconte is an assistant professor of history at the King’s College in New York City. He writes widely about religion and international politics.

It's a good thing that the FBI agents who thwarted a terrorist bomb plot in Portland, Oregon over the weekend didn't read President Obama's 2010 National Security Strategy (NSS). If they had, they never would have suspected the Somali-born teenager, Mohamed Osman Mohamud, of any unpleasant intentions or any link to radical Islamic jihad.

That’s because phrases such as “Islamic terrorism,” “radical Islam,” or “Islamic jihad” do not appear anywhere in the NSS. Instead, the reader is informed about “the dangers of violent extremism,” but those dangers are not placed in any larger ideological context. Thus: “Terrorism is one of many threats that are more consequential in a global age.” That’s right:  Terrorism—a tactic, not the political theology behind it—is no more fearsome than America’s dependence on fossil fuels, the threat of natural disasters, climate change, or the existence of global criminal networks. Yes, the Italian mafia is as worrisome as Al Qaeda.

This is what Team Obama calls our new strategic environment. This is not merely a blunt repudiation of the Bush administration’s national security assessment. This, we are told with fatuous contempt for reality, represents “the world as it is.”

Here is the world as it is: The 19-year-old Mohamud allegedly began exchanging e-mails last year with a co-conspirator with terrorist links in Pakistan’s northwest province, a hotbed of international Islamist radicalism and terrorist training.

Here is the world as it is: Under surveillance by authorities for about 15 months, Mohamud allegedly mailed bomb-making components to undercover FBI agents whom he believed were part of an international Islamist terrorist organization.

Here is the world as it is: Mohamud was arrested and charged with plotting to kill thousands of civilians at a Christmas-tree lighting in Portland’s central square—the signature act of barbarism by Islamist radicals who have repeatedly declared war on the West. As he was taken away by federal officials, Mohamud kicked his captors and screamed “Allahu Akbar!”—Arabic for “God is great”—the religious refrain of Islamic jihadists around the globe.

Here is the world as it is: Muhamud’s alleged plot fits the pattern of recent attempts by radicalized Muslims to kill civilians in the United States—from the Pakistani-born American arrested in a plot to blow up Times Square to the Pakistani-American accused of targeting the Washington, D.C., subway system to the Jordanian man accused of trying to bring down a Dallas building with a truck bomb. Religion—the religion of Islam—is at the toxic center of this new variety of the will to power.

It is true, of course, that most of the world’s Muslims reject radicalism and terrorism. Yet it is also true that the vast majority of terrorist acts since 9/11 have been committed by individuals using Islam to justify their deeds. They claim the sanction of the Quran and the moral inspiration of the Prophet Muhammed. They are sleepless in their determination to acquire the most destructive weapons possible to carry out the most horrific acts of violence imaginable. America’s overriding national security threat is bound up with a religious ideology that is itself bound up with Islam.

FBI agents would not have learned any of these facts from the president’s National Security Strategy. Team Obama finds such facts too inconvenient to contemplate. Yet this is the world as it is.