Avuncular American

Katanga Business

To lead the mineral-rich Congolese province of Katanga, you don't have to be named Moïse.  But Moïse Katumbi, the current governor and "star" of Katanga Business, and Moïse Tshombe, the leader who tried to break away from newly-independent Congo in 1960, have the French version of the name "Moses" in common.  And this: the ground they rule(d) is the source of international competition, a contemporary Scramble for Africa over precious cobalt, coltan, tungsten, and plain old copper.

Like the hero of Chinua Achebe's novel, "A Man of the People," Governor Katumbi is a "Big Man," the kind of African leader who, as long as he continues to distribute largess to his people, remains popular.  He's the guy - you guessed it - in the black cowboy hat on the poster.  Katumbi is a sort of reverse Obama; his father was a Jewish exile from Hitler's Europe who took refuge and thrived in then Belgian Congo.

Belgian documentary film maker Thierry Michel's latest work, just released in Belgium and France, is a "sort of economic parable via an industrial saga," according to the director.  Michel knows the Congo (DRC) well; he's been making films there on and off for the last 17 years, and shot Katanga Business over five separate trips.  Note to self: must go and rent DVDs of his other Congo films; two of the latest were Congo River and Mobutu, King of Zaire.

For francophones, the film's official website offers an interview with Michel, where he gives credit to Governor Katumbi for being a "modernist, extracting agreements from international mining companies to develop the province's agriculture," but at the same time calls him "an ambivalent figure, a capitalist/populist mix of Silvio Berlusconi and Hugo Chavez." Colette Braeckman, Africa correspondent of Le Soir, paints a lively portrait of the man's ambiguities here.

In an extensive interview with Fabienne Bradfer of Le Soir, Thierry Michel expands on his fascinating Governorator:

He's a wealthy businessman, who governs like he runs his businesses (like Berlusconi, he too has TV station and football club).  He was elected because he was very rich; for the Congolese, being rich means he's less likely to try to enrich himself and therefore better able to govern the province.  He's visionary, charismatic, and a communicator.

But Katanga Business is not a biopic of a provincial African governor, photogenic as he is.  It's about globalization, capitalism, and economic colonialism.  Thierry Michel turns Chinese wildcat investors, Belgian holdover industrialists, and Canadian "pension fund" investors into a rich mix, but none are caricatured as they might be in a Michael Moore film on similar ground.

The most dignified players - though some of them are reduced to begging for handouts from "papa" the governor - are the Congolese miners.  Creuseurs or diggers, they try their best to maintain discipline (it's their byword) in set-piece confrontations with politicians, employers, and police.  The odds are always against them - anyone would be intimidated by the armored, helmeted, and masked Congolese police, bearing down on the workers with tear gas, batons, and bullets.

Hemmed in between Chinese and Western investors, cajoled by politicians in suits or cudgeled by police looking like Samurai warriors, the barefooted miners have only one choice: work, for whatever pittance their masters deign to hand out.  The word "slavery" is used more than once - not by the narrator, but by the men who provide the world what it needs to keep its mobile phones charged.

In places from Katanga to Kazakhstan, "business" (often pronounced beeznis with a leering grin), is synonymous with corruption, exploitation, and destruction.  It's a long way from nostalgic Main Street notions of private enterprise.  In other words, a timely film, one that presents lessons beyond Lumbumbashi.

That Different Kind of Car Company? It's In China

Last Saturday, Thomas Friedman finally gave up on Detroit.  Not the city, but the American auto industry headquartered there.  Me too.  I give up.  How in their right minds can they throw this away:

Saturn's dealers, with laid-back salesmen and no-haggle pricing, often match luxury brands' scores in independent customer satisfaction surveys. Their locations could be a ready retail network for a foreign automaker to come to the U.S.*

Customer satisfaction - isn't that what building and maintaining a brand is all about?  I've written about Saturn before, and having owned two of them during stints in Washington, I was proud that the American car industry was capable of making such nice, affordable, and environmentally-sound cars.  But just like it showed when killing the electric car, Detroit's penchant for self-inflicted wounds is undiminished by the current economic crisis.

*Business Week wrote about the brand last week in "Saturn Seeks Another Carmaker as GM Casts It Aside," by Tom Krisher:

GM started Saturn in 1990 as a small-car answer to Japanese automakers and billed it as a "different kind of car company." Its new factory in Spring Hill, Tenn., had more flexible work rules than traditional GM plants and more autonomy for those who built the cars...

"More flexible work rules" may be interpreted as lower wages and fewer benefits than GM's other United Auto Workers (UAW) employees.  A lot of good that appears to have done the Saturn workers.  Note to the UAW negotiators: GM used their Saturn "autonomy" to make the brand so inconspicuous that they're now getting rid of it.  Trading away their wages and benefits appears to have purchased the Saturn workers absolutely zero employment stability.

Automotive writer Steven Cole Smith in the Orlando Sentinel put his finger on the problem:

Too bad... the Saturn products are caught up in GM's financial crisis.  There has long been the philosophy in the auto business that if you build good products, you will succeed. Saturn's woes suggest that is no longer a given.

Enter BYD.  Well, perhaps not (they didn't return Business Week's calls about possible interest in Saturn).  This Chinese company has its own product lineup of plug-in electric hybrids, which transformed the normally staid BBC business commentator Peter Day into an enthusiast - and he's apparently not alone:

In September [2008] there was a remarkable endorsement of BYD when even as global stock markets were plunging, the canniest American investor of them all, Warren Buffet of Omaha, Nebraska, paid $230 million for a 10% stake in the Chinese company.

Mr Buffett is a quite notorious investor for the long-term, not the quick buck, so he must recognise something in those initials BYD.

The company says they stand for "Build Your Dream."

I'm sorry that the American automotive dream has long since appeared to have gotten outsourced, but hell, that's what happens when Japanese and now apparently Chinese car makers successfully pick up on ideas that American car makers ignore.

President Obama believes that "the nation that invented the automobile cannot walk away from it."  Perhaps.  But unless and until Detroit stops shooting itself in the foot pedal, Americans will drive away from GM dealerships in droves.  I wish Saturn well.  Maybe it will be "adopted" by a wiser investor than its soon-to-be-former owner, where people like "Mr. Horsepower" are finally leaving.

Maybe when Detroit lionizes a "Ms. Fuel Efficiency" we'll know things have changed.

Asia-U.S. Cooperation Prosperity Spheres

The title of this post is perhaps unfortunate: "The Greater East Asia Co-Prosperity Sphere" was a wartime Japanese construct to rally captive Asian nations on a racial, "anti-colonial" basis against the Western Allies.  It was as short-lived as the Japanese occupation of much of mainland Asia and the Pacific islands.

These days the stress is on peaceful economic cooperation, as in APEC "Asia-Pacific Economic Cooperation," where heads of state and government get to wear the hosts' idea of national dress (bombardier jackets in the US, batik shirts in Indonesia) at annual summit meetings.  The forum, started in 1989, got a boost during the Clinton years.

Secretary of State Hillary Clinton's inaugural foreign trip to East Asia will of course include China, and as Glenn Kessler noted in Sunday's Washington Post, in many ways is about China.  He reminds us of candidate Clinton's remark:

"our relationship with China will be the most important bilateral relationship in the world in this century"

Yesterday's forum in Brussels therefore couldn't have had better timing.  The European Institute for International Relations (IERI) sponsors the "Academia Diplomatica Europaea," and the ADA program yesterday concentrated on Chinese diplomacy.  The guest speaker was Dr. Gustaaf Geeraerts, Director of the Brussels Institute of Contemporary Chinese Studies (BICCS), a joint venture of the Vrije Universiteit Brussel (VUB) and China's Renmin University.

Dr. Geeraerts firmly believes that Western attitudes towards China, and Chinese attitudes towards the West, are a matter of mutually reinforcing perceptions: negativity produces the effect you fear, positivity pays its dividends.  In the current world economic crisis of confidence, we are starting to see the self-fulfilling prophecy of deflationary protectionism, and nowhere is the interaction between China and the outside world more important than in the economic sphere.

But as Geeraerts underlined, China's leadership is painfully aware of the link between general world prosperity, internal Chinese development, and the continued legitimacy of the Chinese regime.  If I didn't know that "a rising tide lifts all boats" was either an Irish or an Irish-American aphorism, I'd say that it sounded like an old Chinese proverb updated by its "Communist"/capitalist (or is it capitalist/Communist?) leadership.

I'm reminded of a comment on a post of mine last autumn, when I was adding to the general level of worry about Chinese sovereign fund encroachment investment in US financial institutions.  A reader took issue:

It behooves us as a nation to keep them whole so that they continue to invest their money here. Reading the blogs one comes across a number of "let them go down" type comments,"why should we bail out the Chinese", etc. However, if [they] lose confidence in the U.S. and stop investing their money here, it will cause a world of hurt and our standard of living will take a real hit over many years.

Rising tides, bailing out, sink or swim - the analogies to The Flood are legion, and indicate the dire straits (yet another nautical phrase!) we're all in.  Yesterday, Dr. Geeraerts stressed the opportunities: engagement with a China that is feeling its way around international institutions (membership in the WTO and the IMF) as well as creating one of its own, the Shanghai Cooperation Organisation (SCO - logo above left).

The SCO bears watching, but I suppose that we should take comfort in its nomenclature.  Naming it after China's most populous city, its international "showpiece" of commerce, stresses the economic cooperation message that is designed to calm fears about a budding hegemon.  If the US set up an international organization in say, Chicago, wouldn't that be less threatening than in Washington?

Secretary of State Clinton, making her rounds tomorrow at the ASEAN (Association of Southeast Asian Nations) Secretariat, will further reinforce the importance of relations with the countries on China's periphery.  In all, it's a sign that the Obama Administration is cognizant of the central importance of China, Japan, and the "tigers" to prospects for world economic recovery.

China already owns some $700 billion in US Treasury securities, and if the US is going to sell a further $3 trillion over the next 30 months, we definitely want our main customers to be in a position to buy.  Carry on, Madame Secretary.

Reg. Peking Dept. Agr.

BEIJING - CHINA, which has weathered a series of scandals over food safety, has put 12 US food products on a 90-day import alert after they were found to contain a banned dye or excessive additives or preservatives.

The import alert comes as the US maintains a ban on imports of food from China, unless they can show they are free of dairy or free of melamine.

The compound, used in making plastic, was added to Chinese baby formula, killing at least six Chinese infants and making hundreds of thousands sick.

Earlier in the week, China's General Administration of Quality Supervision, Inspection and Quarantine (AQSIQ) impounded and destroyed Italian brandy, Spanish dairy products, Belgian chocolate and seasoning from Britain. -- REUTERS

Oh Lord.  It's the bit about Belgian chocolate that got me going.  Actually, I don't like the idea of destroying "Italian brandy" either - would that be grappa?  Seriously, this is one of China's sillier efforts in its tit-for-tat approach to international trade.  Anyone who knows Belgian chocolate (thanks to Chocolate.com for the above display) knows that it's among the world's purest - and tastiest.

In the United States, even before the Federal Food and Drug Administration was thought of, there was the Pennsylvania Department of Agriculture:

Over the years, many consumers across the U.S. have come to recognize the small print on many food product labels "Reg. Penna. Dept. Agr." (Registered Pennsylvania Department of Agriculture). Historically, Pennsylvania has been known to have some of the more exacting food manufacturing regulations in the U.S. If food manufacturers registered their products in Pennsylvania, this was indication they met requirements in other states.

That was before China's exacting standards became the norm.  Who knows, we may all have to add melamine to food to receive the "Reg. Peking Dept. Agr." seal of approval.  Maybe the Irish got their chemical substances confused when they added dioxin, and not melamine, to their animal feed.

As long as the Belgians don't cravenly cave to the Chinese, their chocolate should be just fine.

Mandarins & Vassals: China Deals With the West

This week:

• French President (and current EU Council President) Nicolas Sarkozy meets with the Dalai Lama today in Poland
• Because of the above meeting, the Monday 1 December EU-China Summit was postponed (by the Chinese)
• Treasury Secretary Henry Paulson attended his last US-China Strategic Economic Dialogue

The latter cannot have been easy for Paulson, who used to lecture the Chinese thusly: "healthy capital markets are absolutely critical to any nation's long-term economic success" (on the eve of his September 2006 inaugural meeting).

(Chinese character "west" from About.com)

Now, of course, China's continued investments in the very unhealthy US capital markets are key to US economic survival.  How far things have come.  But Paulson learned this week that the Chinese appetite for its piece of the US pie is not insatiable.  This, from the Wall Street Journal:

The head of China's sovereign wealth fund says he's lost the confidence to invest in U.S. banks, while China's central bank governor Zhou Xiaochuan didn't even stay in town. Instead, he flew to an international meeting chaired by Mr. Paulson's intended successor, Timothy Geithner.

Paulson shouldn't feel so bad: it's the same attitude that has people tuning out when his boss steps to the podium to "announce" that the US economy is in recession.  Thanks for telling us, now that it's up to your replacement to deal with it.

Back to the Chinese.  This was their week to show who is calling the shots.  Jean-Vincent Brisset, director of research at the Paris think tank IRIS (Institut de relations internationales et stratégiques) shared with Le Monde his thoughts on why China consistently overreacts to French initiatives (my translation)

The Dalai Lama issue is just a pretext.  China is punishing France, but in reality what it doesn't like is European unity. You hit the weakest link... just like in my Army company, when they used to say "you always pick on the same one, so that only one person complains."

China has had a bone to pick with France since 1989, Brisset explains, when France convinced the EU to impose an arms embargo after the Tiananmen Square massacre.  Brisset concludes that China sees French attempts at reconciliation as a sign of weakness, the way a "vassal" state would act under the old Chinese empire.

Whether France is a Chinese vassal state may be debatable, but there is no question that China has its acolytes in the West, including a number in Washington.  The always reliable Ken Silverstein, writing in the August Harper's Magazine ("The Mandarins: American foreign policy, brought to you by China"), catalogues the bipartisan China "expert" lobby's ways of hiding its business connections to the PRC.

Stonebridge [International, an advisory firm] might best be seen as a sort of one-stop shop for international fixers - a collection of former government officials who replicate, in privatized and miniaturized form, the official foreign-policy apparatus. Both the clients and the former officials benefit immensely from the exchange: for the latter, Stonebridge serves as a holding pen in which to draw a prodigious salary while awaiting a return to the State Department, say, or the Commerce Department, or the National Security Council. Stonebridge's cofounder is Sandy Berger, who before joining the Clinton Administration (in which he became the top national-security adviser) coordinated business lobbying for China at the law firm of Hogan & Hartson. He was perhaps the foremost architect of the administration's dramatic shift in China policy; which moved in short order from solidarity with the spirit of Tiananmen Square to the promotion of trade above all else.

Silverstein shows how China's "visa blacklist" shuts out the rare critical academic or consultant: the price of access to China is acquiescence to its mixed record on everything from human rights to environmental standards.  In the revolving door between government service and the private sector, individuals knowledgeable on China know which red lines not to cross.

A close friend with years of experience negotiating with Chinese once told me that an old trick was to get the visiting foreigner drunk, the better to embarrass themselves in front of their Chinese hosts.  It tends to put them at a disadvantage in the next day's bargaining.

(Chinese character "foreigner," About.com)

Right now the West - be it Henry Paulson looking for more Chinese investment, or Nicolas Sarkozy finally acceding to meeting with the Dalai Lama, well after the Beijing Olympics - is that drunken, stumbling foreigner, searching for the proper posture of submission before the potentates of Peking (sorry, but I am tempted by alliteration). 

Helena Cobban, in Just World News, captures the historic nature of the turnaround in her post "Paulson fails to melt Chinese hearts: "This is a huge, truly world-defining story."  But why is the West in this perilous position?  Here, you just need to remember what Charles Dickens' Mr. Micawber said in David Copperfield:

"Annual income twenty pounds, annual expenditure nineteen nineteen six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery."

Until and unless the US (especially) and the rest of the West get off their China habit of cheap goods and bountiful (but with a price) sovereign capital funding, we will be at their mercy when we come hat in hand.  And as Paulson just saw this week, they might just start acting like Mr. Scrooge.

US Diplomacy Is Also FDA, USDA, EPA ...

The United States has opened a Food and Drug Administration office in Beijing, as the first step in an FDA strategy to try to improve food and drug safety standards around the world.

VOA, 19 November 2008

Sounds like a no-brainer to me: amidst fears of melamine contamination, it's a bit more than a "do something!!" response to fears of what might be coming next in Chinese container ships.  Already, in response to fears generated by 9/11, we have had US Customs agents in huge overseas ports like Rotterdam as part of the Container Security Initiative.

Many people are unclear as to what "diplomacy" consists of, and generations of American Foreign Service Officers have tales of how they explain to friends and family that working for the "State" Department does not mean a dreary job in Harrisburg or Tallahassee or some other state capital.  "What do you do?" in an embassy, anyway?

Well, anything that the US Government does, to be concise.  In small embassies in small countries, that often entails a State Department FSO representing the interests of agencies not present.  In Mauritius, in the Indian Ocean, that meant me handling monthly US Air Force flights and occasional US Navy ship visits, since there was no Defense Attache at our embassy at the time.

In Beijing, the task of food inspection (or more likely, liaising with Chinese food inspectors) is much more technical than ensuring flight clearances, so it makes sense to send in the FDA.  In large embassies like Beijing, London, Cairo and elsewhere, the Ambassador's "Country Team" of US agency representatives is a veritable alphabet soup of specializations.

The State Department, in tandem with GAO concerns about the burgeoning presence at US embassies abroad, set up an Office of Rightsizing the U.S. Government (USG) Overseas Presence.  They even put together this handy "Guide for U.S. Agencies Planning Overseas Representation."

"Rightsizing" is an appropriate term.  Even in small countries, the US Embassy is often the largest one in town, since there is a kind of minimum staffing threshold below which the US does not seem to be able to conduct its business.  So, given longstanding American practice of having universal representation - an embassy in every country (some exceptions permitting) - what is the addition of a few more bodies in Beijing?

"Downsizing" the American presence overseas has sometimes been carried to extremes.  About ten years ago, I remember seeing a large empty space in the middle of the Economic Section in the US Embassy in London.  "Oh, that's where the Treasury people used to sit" was the explanation.  In one of the world's financial capitals - the home of The City, LIBOR, the EBRD - the US Treasury Department had decided to pull its people out.

Right after September 11 2001, when we were organizing a conference in Luxembourg on countering terrorist financing, we had the able assistance of the sole remaining Treasury official overseas.  He was based in Frankfurt, recognition by Treasury that perhaps the home of the Euro, the European Central Bank, should have someone to answer the phone.  Things appear to have improved since then.

When these FDA people settle into Beijing, I would hope that their colleagues from State, Defense, and the other more "established" foreign affairs agencies treat them like the genuine diplomats that they can become.  For if there is anything that should become clearer under an Obama Administration, it is that US engagement with the world must be inclusive and interconnected.  No more simple recourse to "bomb 'em" or "with us or against us."  Doesn't work in the international financial crisis.

American Embassies in a world where combating climate change is a central (inter)national security priority may require even more of an alphabet-soup presence: EPA attaches, NOAA counselors, etc.

When the Gulf War loomed in late 1990 and flared briefly in early 1991, the US Embassy in Algiers drew down, evacuating families and nonessential staff.  The skeleton staff remaining was tiny, but allowed the US to maintain essential operations.  One officer that the Ambassador insisted on retaining was the Agricultural Attache.  Why, when he sent away such key people as the consular and public affairs officers?  Simple: Algeria depended on imports of US grain to feed its people.  No US wheat: riots in the streets.  The agricultural trade relationship was a key factor in stability.

Next time someone asks what diplomats do, give a thought to the unsung diplomats of the USDA.  And the FDA, the FAA...

Capitalist Punishment, Toxic Communism

You've been pre-approved for a trillion dollar loan!!!  No credit check!  Not thru banks!!!  Gov't gteed!!!

How appropriate, now that nationwide loan-sharking excesses have metastasized into a "once in a century" event at the planetary scale, that some of the same loosey-goosey "self-regulation" will continue to apply to those masters of the universe who got us into our present pickle.  From the AP article on the Treasury rescue plan unveiled by President Bush:

While the proposal contains no requirement that the government receive anything from banks in return for unloading their bad assets, it would allow the Treasury Department to designate financial institutions as "agents of the government," and mandate that they perform any "reasonable duties" that might entail.

This would be the 21st century equivalent of the fox guarding the hen house. Feathers everywhere, blood on the chicken coop wall, and they say "Nice foxie?"

You may be forgiven if you no longer know what capitalism consists of: wild gyrations of irrational exuberance followed by vertigo in front of unfathomable numbers ending in illions?  Years of "government is not the solution to our problem; government is the problem" (Reagan, Inaugural address January 1981) which has become "government intervention is not only warranted, it is essential" (Bush, yesterday).

If Bush had been truthful (ahem) or 'umble (sic), he might have paraphrased "government intervention" to say "vastly increased borrowing from our creditors in Communist China."  But that might not have struck the right note.  But just like the Three Trillion Dollar War, it is rare that anything approaching candor applies to our national indebtedness to China.

Update: Here's a notable exception: Helena Cobban, veteran international correspondent who writes about the almost unnoticed visit to the Washington last week of Chinese Vice Premier Wang Qishan, checking up on his country's almost trillion dollar holdings of T-bills and Fannie Mae and Freddie Mac debt, as well as vast sovereign fund investments in private Wall Street firms.  In her blog Just World News, Cobban quotes extensively from a Washington Post article on the Chinese visit hidden in the business section, including this strategic heart stopper from Andy Xie, formerly Morgan Stanley's chief Asia economist: "If the U.S. is not willing to accept that [U.S. assets must be transferred to other countries' ownership] they will have to print money and the dollar will fall. And we will be headed toward a global financial meltdown."

But it was a bad week for our commie creditors too.  Something about toxic milk and baby formula.  Tends to make Chinese consumers hesitate before buying dairy products.  Not good for that booming economy (not to speak of the toll on your tummy).

Apologies to authentic Communists for my previous crack about "commie creditors."  There is about as much of true communism in the Chinese leadership as there is authentic capitalism among the Wall Street crowd with their hands stretched out to the taxpayer.  A couple of years ago, Jung Chang and Jon Halliday presented their monumental work Mao: The Unknown Story at a Washington bookstore.  I asked Jung Chang how China's leaders, who instituted capitalist excesses that even Upton Sinclair's worst villains might abhor, could still call themselves "Communist?"  What would Mao make of China's new economic hybrid of worker exploitation and conspicuous consumption?

Dr. Chang's answer was illuminating: Mao would feel right at home, because today's Chinese Communist Party exists for control, especially control of information.  Just think Beijing Olympics.  Remember the demonstrations in Tibet.  Think about Chinese censorship of the internet.  Communism is the umbrella, and if capitalist excess can bring in the bucks, it's OK, as long as the new masters of the moneymaking universe don't get any ideas about challenging authority.

If China is "Communist," is the United States "capitalist?"  My reference to Upton Sinclair earlier brings me back to our current day "Jungle" - the sub prime crisis.  If you want to read one thing about how the jungle looks at the Main Street end of Wall Street's crisis, read Paul Reyes' article in the October Harper's "Bleak Houses: Digging Through the Ruins of the Mortgage Crisis."  Here's a link, but you'd do better to buy the issue and keep it on your coffee table as a reminder of capitalism's punishment for those who fall short of "essential government intervention."

Paul Reyes' account of the human cost of the sub prime evictions is breathtaking.  The jungle of Florida returning - literally - to thousands of homes abandoned as if hit by the plague.  The world of "Cash for keys" and "trash-outs."  People on the edge, some trying desperately to hang onto their homes, wretched or not.  And this line, from a man whose home Reyes has just emptied:

Is there anything else they can do to me, as an individual? I know the house is gone...

Reyes doesn't have the heart to tell him that yes, they can come after him if he ever happens to earn any money.  But Reyes doesn't mention another thing that "they can do to him" - rob him of his vote.

Hitting people while they're down.  A toxic time indeed.