Monday, December 25, 2006

Merry Christmas 2006

and happy holidays or whatever greeting of the season ... We have a house full of family, not having gone away to North Carolina this year. Jean-Marie's parents and her sister and partner, plus Jean-Marie, Renee, and me. After some very lovely days - yesterday was gorgeous - today is a wet, cold, rainy day. Good for staying inside.

Jean-Marie would really like to go to the movies - we have not seen the new Bond, or anything else, for that matter. I, alas, am actually doing a fair bit of writing today - can't be helped, I have to turn this UN and global governance manuscript in to the editors the first week of January. It's also that once in the middle of editing and rewriting a chapter, it is very hard to let it go - it nags at me and makes it hard to concentrate on a movie or anything else. Jean-Marie got many gift cards to places like Barnes & Noble. And a number of Spanish grammars, reference books, and other things for her teaching over at St. Alban's school.

I am in the middle of rewriting a section on legitimacy as a concept that applies to a social order taken as a whole and only derivatively to particular political institutions within it. Essentially my point is that for a political institution to exercise the full political and social functions that require the legitimacy that inheres to a social order, it is not enough to be a particular political institution, you have to be part of a whole social order, in the sense of a "thick" domestic society. What "thick" society is the UN part of?

Which is why it is good that Santa brought me a pair of Boise silencer earphones - noise canceling, I guess, but also good for just listening. Santa is also bringing - not yet here - a very hard to find edition of some of my favorite Baroque violin sonatas in the whole world - Buxtehude (I mean the sheet music), op. 1, seven sonatas. I would like to transcribe the violin part for cello and play them with two cellos and continuo. The John Holloway recording of them is enchanting; I am completely enraptured by the Sonata No. 4 in B flat major; it begins with a chaconne and very equal parts between the violin and the cello (gamba). It is just as well that the sonatas won't arrive until after New Year, because I am way to busy even to open my cello.

Fourteen year old Renee was visited with clothes and clothing store gift cards. And chick flicks on DVD. But she also got a book that probably won't interest her, but will interest me - Brian Hayes, Infrastructure: A Field Guide to the Industrial Landscape. It is a massive photo and text book describing every kind of industrial infrastructure in the American landscape you can think of - water pumping stations, cellular and cable buildings, the air vents over the Holland Tunnel, you name it, it is there and explained in clear prose. I think of it as a Glenn Reynolds/Instapundit kind of book. She has been rereading, for the fourth or fifth time, Kazuo Ishiguro's Never Let Me Go (author of Remains of the Day). She's also been reading, off and on, T.H. Pearson's A Short History of a Small Place. I asked her to teach me to play poker for Christmas - playing cards were frowned on in my Mormon upbringing, and I never learned the game, but I'd like to know how to play. And a little handheld poker computer so I can practice.

Daddy also gave Renee a special present - a $100 account with the Iowa Electronic Markets, where you can learn to trade on a special educational futures market run by the University of Iowa business school. Real money, but limited to $500 dollars - no transaction costs - and you can bet on various political markets, such as the 2008 presidential election, or on the direction of interest rates. Of course you can just place straight bet on sites such as, but this is an actual futures market, and it has no transaction costs. Renee would not normally take to this, but I figuring her interest in the 2008 presidential race might make a difference to her.

Okay, best wishes to everyone.

Tuesday, December 19, 2006

The week before Christmas 2006

I posted a couple of Christmas tree shots below -I'll try to replace them with ones that are more in focus. Jean-Marie has collected ornaments since she was a child, and We Believe In Loading Up the Tree. So here we are, week before Christmas, Tuesday, 18 December. Jean-Marie and Renee are baking up a storm - pecan bars, almond crescents, lace cookies, chocolate chip, you name it, while watching chick flick movies in the kitchen. Uncle Jack is doing the cross word puzzle. It is 70 degrees out in DC today. I ... well, I am working away at my computer, blogging lightly if at all, not shopping, not doing anything except crank out my UN and global governance book manuscript, which I am turning in to my editors on January 2, with a note that says, don't worry, I'll rewrite. This is in fact the right way to spend this December. It is time to get the dang thing done. But you won't be hearing from me much at all. I'm ignoring nearly any Christmas shopping I can't do online from my computer. I haven't touched my cello since before Thanksgiving.

Truth is, I don't really know what to get anyone for Christmas. Jean-Marie gave me a list of a couple of books she wants, and I've ordered those - mostly Spanish language things related to her teaching at St. Alban's. I ordered her some expensive coffee beans from Coffee Fool. I would get her clothes, or at least gift cards for clothing stores, but I think shopping in Paris at Agnes B this past summer while I was teaching IBT in the WCL summer program made her think (gulp!) this is where she should always shop for clothes. Sober, good for a schoolteacher, very French, she says. She ordered a couple of DVDs and CDs which I will wrap and give to her. At some point it seems like the only way to say I love you is with a gift certificate.

As for fourteen year old Renee, well, she told me she still has birthday gift cards to Abercrombie & Fitch. But it's still a can't-go-wrong, as far as I can tell. Actually, I have excellent taste in 14 girls clothing, thank you very much, and Renee often agrees.

When I was in New York for a board meeting a couple of weeks back, I told her I'd bring her something - she said, some item of clothing I can't buy in a mall in DC. She is not clothes crazy and definitely not extravagant. But walking around with my beloved friend John Ryle, I saw a boutique called Penguin, which I vaguely recalled was an American label from the fifties and sixties - turns out it has been relaunched. So we marched right in - I saw a dress, very slightly fifties retro, but not costumey - just slightly retro - said, this is Renee, and got it. Jean-Marie had a conniption when she saw that I had spent $200 on an everyday dress for a fourteen year old, and in theory I agree, but does Renee really need college after NCS, anyway? Renee was exceedingly dubious when she saw it (I carefully didn't tell her how much it cost and I'll thank you not to let her know), but Jean-Marie ordered her to wear it to chapel when the girls have to wear a skirt or dress anyway - got so many compliments that now Daddy is a hero. Bravo to me and promotions all around. You can see the dress here.

We are not going as we always have to North Carolina where Jean-Marie's folks are - they are coming up here. So we have family here for Christmas. The Lindbergs, Tod and Tina and Abby and Molly, are coming over Thursday night. We're doing a mini- thing with Uncle Jack tonight as he leaves to go to his sister's tomorrow morning. Meanwhile, I am writing and writing and now I have to get back to it. More before Christmas. Christmas cards will be New Year's cards and I am doing them the first week of January. Actually, I may always do New Year's cards - it is a much easier time for me than before Christmas.

My favorite ornament - the Tabasco bottle ornament that I made for Jean-Marie ten years ago

The Anderson family 2006 Christmas tree - strong believers in ornaments and lights!!

Monday, December 18, 2006

Re-issue of Hillary Rodham Clinton's 'It Takes A Village'

I see that Hillary Rodham Clinton's 1996 book, It Takes A Village, has been re-released on its 10th anniversary. I am no expert on political campaigns of any kind, but I wonder if this is such a smart idea for Senator Clinton. That book championed what I described, in a long review in the Times Literary Supplement at the time it first appeared in 1996, as "liberal therapeutic authoritarianism" - the state entering family life in order to therapeutically manage intimate family relations. (You can download the TLS review free, here.)

I would have thought, for what it's worth, that Senator Clinton has come a long way toward remaking herself as a genuine moderate within the Democratic Party, and to gaining considerable new respect for herself across the partisan spectrum especially on foreign policy, even from people instinctively hostile to her. She has a very sensible and intelligent piece, with Republican senator John Ensign in today's Wall Street Journal, for example, urging an oil trust for Iraq. I don't understand why her campaign would want to remind even moderates and independents of why they didn't like her back in the mid-1990s. But what do I know?

I paired her book in the review with a second book, a history and interpretation by social historian Emmy Werner's Pioneer Children on the Journey West, which examined the letters and diaries of written by children who made the 19th century journey west, by oxcart, handcart, walking across America. Some of those letters and diaries - many written by girls, in the rising generation of common-school literacy - are truly extraordinary documents, and what they mostly do is touch an ethic of virtue and responsibility and interior resilience quite at odds with today's therapeutic society and liberal authoritarianism.

Let me say, as someone who is not a social conservative, but a small-l libertarian conservative, that obviously the right is fully capable of introducing governmental management of families. In the mid-1990s, however, people were less aware of the ways in which the American left had shifted from its liberal-libertinism of the 1960s and 70s, the "do your own thing" years, to a new political and social formation of liberal authoritarianism. I'm sure that's not a surprise for anyone today, but I think it was a little bit news back in the mid-1990s.

There is a lot of the late Christopher Lasch in my review; he had died young of cancer just a couple of years before. There is also reference to an outstanding - and devastating - essay on the book by Jean Bethke Elshtain, if I recall from The New Republic. And there is also a reference to a truly extraordinary essay by the great sociologist and social theorist Zygmunt Bauman - his description of today's poor as being different from the poor of yesterday, because today the poor are seen as merely "flawed consumers," from the critical theory journal Telos in the late 1980s. I didn't even refer in my review to P.J. O'Rourke's hysterically funny review from the Weekly Standard or someplace (not wanting to get upstaged).

And reviving It Takes A Village today also means noticing that it is featured, thinly disguised, as the basis for one of the books in Lemony Snicket's thirteen volume children's series, his magisterial disquisition on all the ways in which adults deal with children through passive aggression (and passive aggression, let's be honest, is the tone of It Takes A Village from opening paragraph to last; Clinton addressing with the American public as though a parent dealing with a child) - Snicket's A Series of Unfortunate Events - the volume titled, The Vile Village.

Does Senator Clinton really want to bring all this back again? Well, a bit from the review:

Children going west

Times Literary Supplement (London)
July 19, 1996


Hillary Rodham Clinton's book, It Takes a Village: And other lessons children teach us, purports to reassert the mutualism of the pioneer company at the level of America as a whole, so to remind us all that we live in a "village" that stretches from sea to shining sea. In Clinton's book, society is a village, but society is also the state. The state creates conditions of mutuality among society's consumer-citizens and additionally between these consumers and the contemporary poor, whom Zygmunt Bauman once tellingly described as suffering from the poverty of "flawed consumers". The principal task of this supposed mutualism is the raising of America's children, because, Clinton solemnly assures us, "each of us" - every person in the village - "plays a part in every child's life".

Clinton appears genuinely to believe this overheated rhetoric and to regard it as the basis for actual governmental policy. But, as Jean Bethke Elshtain has pointed out: Clinton tries to justify the extension of her metaphor by arguing that the village is evolving: "[it] can no longer be defined as a place on the map, or a list of people or organizations, but its essence remains the same: it is the network of values and relationships that support and affect our lives." Since this encompasses just about everything one can imagine, depending on how strenuously one defines "affect," what is left of the village? . . . Not a whole lot, I fear.

Nor does it ever occur to Clinton that the various state institutions in which she purports to locate a revived pioneer-style mutualism and community are nearly all "mediating" institutions, "clearing" institutions, deliberately constructed to provide not identification, but anonymity, as between donors and recipients, consumers and "flawed consumers". Clinton's village is not a village of shared, face-to-face interactions, but a universal commodities exchange of face-less, anonymous transactions. Commodity ex-changes have their virtues, as Clinton knows better than most, but affective bonds of the kind that matter to children are not among them.

Moreover, her world of institutions applied to children is not one of villagers confronting each other head-on about their gripes and irritations and disagreements, but instead an authoritarian world of strangers placing anonymous calls on toll-free hotlines to report alleged abuses of children to impersonal state authorities, who only by wilful suspension of disbelief and the complete elision of community and state can be counted as part of anyone's "community". The national consumer culture that Clinton mistakes for the national community does not want to deal directly with its neighbours, precisely because it is not a community: it wants an abstract authority (increasingly one to which it can report in secret) to do so and maintain order instead. Clinton's book is simply an elaborate way for her to raise her hand and volunteer for the job of chief authoritarian.

But if Clinton's flight to the fantasy of the village is meaningless, it is not unmotivated. She instinctively understands that while few would question the legitimacy of the state acting in its own name, for example, to fight a war, far more would question the legitimacy of the state, acting openly as the state, to determine how to raise their children, and to enter the home to see how the programme was being carried out. Hence her reach for soft ideologies, kindlier and gentler names for the state: she does not attempt to conceal the role she envisages for the state inside every family, but she does seek for it a specious communitarian legitimacy that she hopes will slide by as unassailable.

It Takes a Village is consequently, beyond the inadequacy of its central ideas, nearly unreadable, badly organized, platitudinous and noxiously pious. It would not be worth noticing - one wonders how, but for Clinton's exalted marriage, it would have found a publisher - except as a kind of index to the values of the bureaucratic-managerial New Class that Clinton embodies and which seeks in these kinds of inane materials a public ideology. It affirms everything and nothing, it is sensitive to everything but ultimately demands obedience from everyone.

Clinton's barely disguised message is that parents are agents of the state in raising children who, at bottom, belong to the state. It is a ringing surrender of the traditional (but, in America, always marginal) Left concerned with class power to the only widespread radicalism the United States has known in this century, the radicalism of the helping professions, the social-worker cops who are eager to sign up for, in Alexander Cockburn's words, the "therapeutic policing" of America's families, so to heal and nurture the body politic. Religion and God Almighty, schools, after-school programmes, day care, health clinics, Planned Parenthood, the Boy and Girl Scouts, and every non-profit organization able to put out a policy report on any subject can all be useful to the state's task of raising its children, Clinton tells parents - and mummy and daddy can be useful, too.

Clinton begins by saying that "whether or not you agree with me, I hope it promotes an honest conversation among us". It is quickly evident, however, that she intends a conversation with the parents of America in much the same way that my mother, when I was a child, intended many conversations with me - the conversation was not "honest" or "over" until I came to agree with her. Clinton's most strongly held belief is that biological parents are incompetent - as she repeatedly says, "parents . . . need 'expert' coaching" - and that unless they receive the training in parenting that she got through studying child development, and live under the "guidance" of social workers, medical professionals, child experts, and all the various "authorities" that Clinton promiscuously cites in her book, they will damage their children in endless ways, big and small.

Stated this way, of course, many parents are likely to object that, no, they feel perfectly competent to raise their children or, at least, feel they are no worse at it than the alleged experts. And so Clinton adopts the strategy of showing that she herself was hopelessly incompetent as a parent until she received the benefit of all these experts. The baldest example occurs when she recounts trying to breastfeed her daughter in hospital and being disturbed to find milk running out of the baby's nose: fortunately the kindly nurse intervened to point out that she was holding the baby in an "awkward way", ie, upside-down.

The consequences of Clinton's views for ordinary families are not trivial, and they ought to loom larger in the pre-election debate in America than they do now, especially given the increasing likelihood that Clinton will have four more years to lengthen her footnote in the history of the American family. For, relying largely on assertions of her own parental incompetence in order humbly to imply everyone else's, she proposes one state intervention after another directly into family life, such as mandatory home nurse visits to families with new babies. Ostensibly, such visits would be designed to offer unthreatening advice to new mothers and fathers: obviously the more fundamental purpose (which Clinton, with her characteristic economy with the truth, fails to mention) is to undertake surveillance directly within the home and report back to state agencies for possible further action. Such proposals, at bottom, are little more than passive aggression made public policy.

Doubtless Clinton would deny that she means any such draconian consequences, and, in any case, if a family has no shameful secrets to hide, then why should it worry about being watched over? Should we not be pleased to know that by this means all our children are protected? It is striking that after a protracted discussion of Bill Clinton's dysfunctional family, even declaring it a "legitimate family", Hillary Clinton never says whether, under her schemes of intervention, that same family today would be professionally re-organized via foster care or what the effects would have been on Bill, for good or ill, had his alcoholic step-father been imprisoned for wife-beating. She also never considers whether her own father, who "was not one to spare the rod", might not have been prosecuted on child endangerment or similar charges under the anti-corporal punishment laws of several American jurisdictions, of which her children's rights movement has been a strong proponent.

Middle-class American parents thus ought not to take comfort that such surveillance and intervention are aimed at the poor, at mothers on crack and the like, and surely not at them. Certainly Clinton intends no such limitation, if for no other reason than that her friend and president of the Children's Defense Fund, Marion Wright Edelman, would consider it racist. The great breakthrough of social-worker radicalism in the past two decades, which sets it apart from its earlier ferments in the early twentieth century, and one in which Clinton can take pride, if she likes, is the acceptance in social policy that child abuse, both physical and sexual, is pandemic across all families, of all classes, and not just among the poor. This assumption of the risk of incest by fathers with their daughters is the largely unstated basis for much family policy in the United States today. Since, according to contemporary therapeutic ideology, virtually any measure is warranted to weed out child abuse, and since it might occur within any family, no matter what the outward appearances (and denial is the surest sign of abuse), then the state must act to dismantle the wall of privacy behind which the family in this century has existed. It has extended by an act of ideology the management of the poor to the management of the middle class: Clinton is unapologetic about wanting to extend it still further.

There is, of course, a residual appeal to constitutional liberties to which the courts still sometimes refer (often only after, however, children have been removed from their parents, sometimes for years, while the courts and the social service agencies that Clinton regards as the backbone of the family consider such questions as whether a three-year-old unweaned child is sexually abused by suckling). But, in fact, liberalism's wall between public and private is a waning paradigm.

With the loss of privacy, however, also goes the very possibility of family intimacy. Just as every serious religion knows that there can be no sacred without a veil between the world and the inner temple, so too intimacy requires that it not be visible to the world. Despite their lip-service to the preservation of intimacy, in the eyes of the therapeutic classes this loss appears to be no bad thing, being yet another step on the road to eradicating abuse.

Thursday, December 07, 2006

Two recent articles on microfinance and the Yunus Nobel Prize

The Nobel Peace Prize will be awarded to Muhamad Yunus for his work with Grameen Bank in microfinance this coming Sunday in Oslo. I've already said some stuff about this, in an earlier post when the award was announced, here. But here are two recent articles on Yunus and microfinance, this one from the New Republic, and this one from the New Yorker (which also covers the borader topic of venture philanthropy).

Unfortunately I don't have time now to comment on them, although I think they are each problematic in different ways. I'm in the middle of a survey of recent books on microfinance to write a review for the Times Literary Supplement in January, and then a longer, academic review essay later on - it's a lot of reading. The last time I went through the technical literature systematically was back in 2002 around the time I was writing this article on microfinance and globalization, and there has been a huge increase since. Most interesting to me has been the entrance of formal economics into the field. Maybe I'll try to make some comments on all this, but in the meantime, congratulations to Mr. Yunus.

Why Nobel laureate Mohammed Yunus will doom microfinance.

Poor Vision

by Andrew Curry

Only at TNR Online
Post date: 12.07.06

By now, Mohammed Yunus's first loan--$27 from his pocket to a group of bamboo furniture makers in a Bangladeshi village--is a legend in the international aid community. Inspired by the results of his modest 1974 experiment, Yunus, an economist, went on to found the Grameen Bank, which today provides millions of Bangladesh's poorest with life-changing access to credit.
Yunus will be awarded a Nobel Peace Prize for his work this Sunday in Stockholm. The honor is proof that small-scale lending to "the bottom of the pyramid"--or so-called "microfinance"--has become the hottest idea for solving poverty to hit the development community in decades. But following Yunus's vision is the best way to doom a promising movement to failure.

The problem isn't Grameen's size or its borrowers, but its philosophy: Yunus is firmly anti-profit. "Maybe banks can make a profit from [loaning money to the poor]. ... But this is what loan sharks do," Yunus said after his Nobel win was announced in October. "We have enough enterprises generating money for profit. I would rather think that the rich can set up social enterprises." Yunus even objects to the term "microfinance," preferring the profit-neutral "microcredit."

This principled allergy to profiting from the poor may be part of the reason why Grameen still depends on NGO grants and its founder's incredible charisma to stay afloat. Indeed, Grameen is glorified philanthropy, not banking. If small-scale financial services are to be a long-term solution to the problem of poverty, they need to embrace profit.

The reasons lie in the realities of lending. Though Grameen and others have convincingly dispelled the notion that the poor are bad credit risks--Grameen's reported repayment rate is close to 99 percent, comparable to that of most commercial banks--microfinance still poses huge challenges. Big banks have traditionally shied away from loaning to tiny customers, because doing business on such a small scale is very expensive. Since small-scale borrowers are often illiterate, with little or no collateral and primitive or nonexistent bookkeeping, evaluating their creditworthiness is a labor-intensive process.

Take the case of Serbia's sole microfinance bank, ProCredit Bank Serbia. The bank's 330 loan officers visit two or three clients a day. Loans are evaluated based on business plans and capital, but personal behavior and family reputation can be equally significant. "These businesses don't have books--this isn't a corporation," says ProCredit Serbia executive board member and former loan officer Mirjana Zakanji. "We have to assess the potential of the owner of the business, because they're also the main employee." Eighty percent of the bank's 7,000 new loans each month are for less than $12,500. (The European Bank for Reconstruction and Development defines microcredit as any loan under $38,500.)

Given the intense--even holistic--work involved in each micro-loan, it's not hard to see why most banks would rather issue a single loan of $1,000,000 than, say, 10,000 loans of $100. Yet microfinance banks around the world have managed to turn lending to the poor into a profitable, sustainable business in the last decade, even at the very smallest loan levels. ProCredit Bank Serbia's German parent, ProCredit Holdings, has profitable branches in Haiti, Congo, Angola, and El Salvador. Indonesia's state-owned, commercial Bank Rakyat started offering micro-loans in 1984. Today, its smallest micro-loan unit has over 700,000 clients and turns a profit, despite a $33 loan average.

How can loans so small make money? Microfinance banks are forced to charge high interest rates just to cover costs--and even more to make a profit. In a study of South American microfinance banks published in April, Harvard Business School professor Michael Chu found interest rates ranging from 21.76 percent at Bolivia's Asofin to 87.5 percent at Mexico's Compartamos. In India, microfinance banks typically charge at least 30 percent a year.
Compared with Grameen's rates (between 10 and 20 percent per year, about what Americans pay for their credit cards), that's high. And that's what bothers Yunus. High interest rates have drawn increasing fire from other quarters, as well, with the spread of micro-lending. Last year, Indian officials used a spate of rural suicides as an excuse to shut down microfinance bank branches and threaten interest rate caps of 10 percent, a level that would put most of the country's microlenders out of business.

But the profit motive isn't necessarily bad for poor borrowers. Profit breeds competition, which in turn lowers interest rates, as microfinance banks compete for clients. In markets where multiple banks have gotten into the microfinance business, interest rates have dropped significantly, and the banks have grown. Chu cites Bolivia's example. When the first micro-lender opened there in 1992, it charged 35 percent interest. Intense competition in the years since has driven the average interest rate down to 21.23 percent, South America's lowest.

"There are all kinds of prejudices and value judgments when you talk about profits and the poor," says Chu. "Those are just knee-jerk reactions. The prejudice against profit is a judgment made by emotion, not efficacy." And for-profit microfinance banks are still a bargain when compared to the only other option available in many parts of the world: traditional moneylenders and loan sharks, who normally charge 10 to 30 percent interest per month, or more than 1,000 percent per year.

Moreover, if financial services to the poor are to grow, they need to be able to do more than cover costs. When microfinance banks make money, they earn the capital necessary to expand, making more credit available to more people. And, whereas Grameen's transparency leaves much to be desired, commercial banks are held to a higher standard of accountability. "To develop this type of business to a high level, it needs to be financially stable and sustainable," says ProCredit Serbia's Zakanji. "There are thousands of NGOs rushing around the world without clear goals. Commercial institutions with demanding shareholders will be more successful in the long term than most of these guys." Indeed, after three decades, the sector is finally on the verge of becoming an attractive investment. In the last year, major funds like TIAA-CREF and banks like Citigroup have announced plans to invest in microfinance operations.

That's why the worst thing that could happen at this stage is for profitable banks to be undercut by subsidized competitors like Grameen. To be sure, it may be difficult for some commercial banks to reach the "poorest of the poor," as Grameen does. Banks like ProCredit serve mainly micro-entrepreneurs, poor people with skills or businesses who need capital to grow or stand alone. But, any financial institution--even Grameen--requires that borrowers pay the money back, with interest. A strong case can be made that, instead of taking on debt, the truly destitute will always need the help of charities.

There's no doubt Yunus deserves his prize. His work has been instrumental in changing the lives of the poor in Bangladesh, and his success has given the microlending effort invaluable credibility all over the world. But, while Yunus has described his vision as a panacea for poverty, it's not a universal solution. If the idea is to succeed, the development community must set aside its distaste for profit and embrace the market.

Andrew Curry is a freelance writer in Berlin, Germany, and a former Fulbright journalism fellow.

Thanks to Sanford Levison for coming to Hoover DC to talk

On December 4, 2006, my dear friend Sandy Levinson came over to Hoover DC's offices at Dupont Circle and talked about his new book, Our Undemocratic Constitution. Tod Lindberg, editor of Hoover's Policy Review and I host these meetings, which are always very small, just a group of interesting people talking around a conference table. But this particular discussion was very good - it had perhaps more of a comparative law and political science flavor to it, with Mark Plattner, editor of the Journal of Democracy, leading off with a response, and then other people such as Bill Galston and Fernanda Nicola (an expert on the EU from my law faculty) and Steve Rickard from the OSI DC office and the writer Michael Lind and Amanda Frost (a federal courts and constitutional law scholar also of my faculty) and Volokh Conspirator and GMU law school professor Ilya Somin weighing in. A great discussion, my thanks to everyone for participating, and a particular thanks to Sandy for coming to do it.

Donald Horowitz warns against partition in Iraq (in WSJ)

Duke University law and political science professor Donald Horowitz is one of the very smartest people I know, and is one of the handful of the world's leading experts on ethnic conflict - his Ethnic Groups in Conflict remains, after twenty years, the leading study, and I strongly recommend his 2001 book, The Deadly Ethnic Riot. Professor Horowitz has written several important pieces in the Wall Street Journal on ethnic strife and the political risks and possibilities there. His most recent piece appeared on Monday, December 4, 2006 in the WSJ opinion page, and I strongly recommend it to anyone trying to figure out Iraq war policy. Here in the WSJ. A bit of it:

The Iraq Alternative

Wall Street Journal
December 4, 2006; Page A16

Just when you thought the midterm election results had weakened President Bush's hand in Iraq, it turns out the opposite is true. The president has been liberated from a stay-the-course policy that the Iraqi government could pocket as an open-ended commitment. The voters have given Mr. Bush a chance, perhaps a last chance, to turn Iraq in a new direction.

The Iraqi government does not want the U.S. to leave now, but the American electorate has said that the choice is to show real progress or draw down the troops. For the first time in many months, the Bush administration has a credible weapon to use on the Iraqi government and its Sunni opponents, who increasingly see the U.S. as their last line of defense against Iran and against Shiite militias.

* * *
Many of Iraq's current problems stem from the Kurdish-Shiite attempt to carve the country into a confederation of three regions with a very weak central government. The result would be to leave the Sunnis, who strongly favor an indivisible Iraq, with a rump region in the center, devoid of most oil revenue. The deal would also leave minorities, large and small, stranded in zones dominated by their opponents and their respective militias. Sunnis hate this deal, and so should we. They fear it will make Iraq an Iranian satellite. If regionalization deteriorates into partition, they will likely be right, at least in the south, where pro-Iranianism, although contested among Shiites, shows signs of winning.

Partition would bring horrific bloodshed as minorities are targeted and forced migration purifies territories. The regions could very well go to war with each other over contested boundaries and people left on the wrong side of a border. Smaller groups will organize to resist, and outside forces will surely be drawn in. Turks may aid Turkomen in the north, as they have already threatened to do. Sunni states, especially Saudi Arabia, are deeply fearful of growing Iranian influence on their own Shiite minorities, and they will probably aid the large Sunni minority in the south of Iraq and those stranded in the center. The position of Islamic radicals will be strengthened.

If Iraqi politics does not change, this is the most likely outcome. Since it threatens all the Sunni states in the region, partition also means the danger of a wider war. Even though the violent partition of Iraq is not in America's interest, the U.S. will be blamed for it. Or, in the paranoid version, this is what the "Zionist-imperialist conspiracy" planned: division of an Arab country, accompanied by mass killing.

How does the Bush administration use its new leverage to prevent this? If the Iraq Study Group thinks the road to peace in Iraq runs through Iran and Syria, it has missed the point. Neither country has had any interest in fostering stability at a price we would or should be willing to pay. The only chance for peace in Iraq lies in changing the Kurdish-Shiite deal so that the Sunnis are incorporated into an undivided federal Iraq with a real central government, limited regional autonomy, and a new agreement on the distribution of oil revenue.

The odds may not favor such a new dispensation. The violence and distrust have gone too far, and strong measures against militias will be necessary. Still, the Sunnis know that if American forces leave Iraq, they are vulnerable to brutal repression. They would prefer a unitary state to a federal Iraq, but they have been coming around to accepting a federation that is not loaded against their interests, as the current arrangement is. Shiites also have reasons to reconsider. The Maliki government has not been able to put down either the Baathist or the Islamist insurgency. The former is particularly well organized and hard to defeat. Not all Shiite elements in the Iraqi regime are friendly to Iran, and they must understand that foreign Sunni states might just fill a vacuum left by departing Americans.

There is a process in the Iraqi constitution to produce the amendments demanded by Sunni opinion before the 2005 constitutional referendum, but Kurdish leaders and Shiite advocates of an autonomous south have made clear their opposition to fundamental changes. A parliamentary committee was duly appointed to consider amendments; it has wasted months squabbling over trivia. By contrast, last month the Iraqi parliament narrowly approved, over a strong boycott led by Sunnis, secularists and some Shiites, a law prescribing the procedure for the regionalization of the country. So things are going in the wrong direction. The U.S. needs to turn this around.

The Maliki government should have a choice: progress on real Sunni incorporation in the regime, or progress on phased American withdrawal. Sunni incorporation would need to begin with a revitalized and serious constitutional amendment process to avert the de facto partition of the country. To convince Sunnis that this was genuine, the government would have to discuss a Sunni agenda, make serious constitutional proposals in the amendment committee, work harder to cool down Shiite militias, reverse the most extreme de-Baathification purges in the civil service, and possibly reshuffle the cabinet. If it did all this earnestly so that Sunnis were drawn in -- as they would have every reason to be -- the Baathist part of the insurgency might either decline or be less warmly received in the Sunni heartland. Recall that even the Saddamist insurgent Ibrahim al-Douri recently called for a truce. External supporters of the Sunni insurgency would have good reason to urge Sunnis to participate in the new initiative to empower them, and if Sunni insurgents were less active, Shiite revenge killings would probably decline.

Shiites who are not pro-Iranian could find the proposals congenial. These would include some in Mr. Maliki's own Dawa party; supporters of the Fadhila party, which is strong in some southern provinces and opposed to a single, nine-province region there (in which they would be in the minority); and even followers of Muqtada al-Sadr, whose base is not in the south. All are wary of the largest Shiite party, the Supreme Council for the Islamic Revolution in Iraq, and its leader Abdul Aziz al-Hakim, the main proponent of a strongly autonomous south with close ties to Iran. There is a more complex politics in Iraq than the one that has formed the basis of U.S. policy thus far.

If such an initiative failed, there is another option for the Iraqi regime. The Maliki government has periodically complained that the Americans have tied the regime's hands in dealing with insurgents. If we pulled back or drew down our troops, government forces could be expected to deal brutally with Sunni insurgents and the hospitable civilian population in which they flourish. The results might or might not favor the government, but either way they would not be pretty. If the Islamic radicals were defeated and prevented from making a comeback, that short-term result would be congenial to our interests, but it is hard to believe that the U.S. could stand by and watch the brutality that made it possible.

Furthermore, if the Maliki government did succeed in repression on this scale, a truly authoritarian regime would likely emerge, with a Shiite region in the south, forcible Shiite occupation of the center, and de facto independence in the Kurdish north. This would be a kind of reverse Saddamism, but without its secular features and with strong Iranian influence. Like partition, this would be a decidedly poor outcome for the U.S.

* * *
There are three main options facing Iraq. One is gloves-off repression. The second is protracted conflict, gradual partition, large-scale ethnic cleansing, and the prospect of external intervention or even outright warfare among states in the region. The third is a last-ditch political effort to reconstitute an Iraq that keeps it whole and includes Sunni interests. This alternative aligns the U.S. squarely with ethnic inclusion and territorial integrity, both worthwhile causes, and with Iraqi political forces whose agenda happens to coincide with ours.

The third course may not have a high probability of success, but it is low risk and, if it succeeds, offers great benefits to Iraq and the U.S. This approach recognizes the large area of overlap between Sunni interests (and those of our regional allies, Jordan, Turkey and Saudi Arabia) with our own. It also offers the prospect of attracting Baathists and isolating al Qaeda insurgents, and it recognizes important differences among Shiites, aiding those who do not wish to see Shiite Arabs subordinated to Iran.

This third course probably will not produce a full-fledged democracy, but it could produce minority guarantees and impediments to a nasty, ethnically exclusive autocracy. In the short run, it will not produce complete peace either. But it should still reduce the violence, and eventually could produce a stable regime that limits Iranian influence, Kurdish provocations of the Turks, and terrorist domination of the Sunni areas.

Keeping all the contending groups attached to Iraq would be a major achievement. If, however, this plan fails, nothing will be lost over and above what is already lost. For the U.S. administration, the plan is an attractive option, for it offers what the electorate demanded: real progress or a drawdown of troops. President Bush's newfound power, paradoxically produced by an election loss, makes this a serious option and the threat underlying it credible with the Iraqi regime. There is no reason not to go down this road.

My fall 2006 International Business Transactions final exam

Like a lot of other professors who teach international economic law, I have been thinking about pedagogy in international economic and business areas at a time when it seems many law faculties are thinking about the role of international and comparative law in the ideal law school curriculum. One thing that characterizes my IBT classes is that I draw for material very frequently on the pro bono development finance practice I have through my work with a leading NGO in the field, the Media Development Loan Fund. I find that working with MDLF means that I have available to me a wealth of private deals that arise in the developing world - in media, in this case, but covering print, TV, radio, and internet - requiring a lot of creative financial thinking to overcome many obstacles such as political risk, lack of a firm rule of law, lack of public capital markets, lack of very many good exits from transactions, etc. This year, like last year, I have drawn on recent activities of MDLF in Africa for the final exam in IBT. I don't think the question is as good as last year's on post-war reconstruction and conflict diamonds - here - but, still, it does address a real, live business problem for many African newspapers, the availability of newsprint. Here is the exam that was distributed as a takehome this morning. (I am giving students the full exam period, about two weeks, to complete it. It is page limited to 16 doublespaced pages.)


Question 1
50% - 8 Pages
Newsprint in Africa

You are the General Counsel to the Africa Fund, a for-profit investment fund based in Washington DC that seeks to find profitable investments in sub-Saharan Africa that will both make a profit and, in broad economic terms, increase foreign investment in African countries. The fund has a combination of private and public investors; the private investors include such major private investment players as the Blackstone Group and the public investors include different aid agencies of the United States, the EU, and Japan. Although the Fund has a broad development goal in mind which has caused the various aid agencies to invest, it is nonetheless a fully for-profit venture, expected to make a commercial return on its investments.

The managing director of the Fund, Philippa Foot, has just returned from a trip around various countries in the region looking at various new investment possibilities. She has just been in to see you about one of them and has requested a memorandum from you outlining what you see as the possibilities, limitations, financial structures, legal structures, and legal issues involved in a possible undertaking, including the possibility that what she is describing might be a very bad idea. You are mulling over the conversation and sitting down to write the memorandum she has requested. Ms. Foot demands that anything put in writing to her (especially from the legal department) be well thought out, well organized, concise, and never, never, never merely rambling. Because you live by this rule, you have been the General Counsel for the past five years while three of your predecessors were fired.

In South Africa, Ms. Foot had conversations with Trevor N., the proprietor of a large newspaper conglomerate in South Africa and Zimbabwe (his paper in Zimbabwe is the last semi-freely published newspaper in that country, and although Trevor is himself Zimbabwean, he does not dare travel back for fear of being imprisoned – again). Ms. Foot had asked him what his biggest financial concern was and whether investment could profitably be made in his newspaper chain. His answer had surprised her. She had expected that he would talk about the difficulties of getting advertising in a difficult market, the need to improve printing facilities through investment in new printing equipment, political pressures, and the need to reduce staff to reduce costs.

Instead, however, he had stressed that his biggest headache was the exorbitantly high cost of newsprint – the paper on which the newspaper is printed – and that sometimes it was not to be had at on the market at all. Asking why, Ms. Foot was told that newsprint was at a premium in international markets, and that large enterprises in other parts of the world had long term supply contracts with producers, particularly farmed paper mills in places like the US Pacific Northwest, Finland, and other producers of newsprint. The result was that long term supply was locked up in long term contracts by large users of newsprint, and places with relatively smaller needs found that they had to buy newsprint at the most premium “spot” price of what was left over on the world market.

Trevor N.’s question for Ms. Foot was whether there was a way in which the Africa Fund could invest in creating a capacity for purchasing newsprint on a long term basis to assure supply at a lower price than premium world market “spot” prices. She told him she didn’t see how, exactly, since his problems would simply be her problems if the Africa Fund tried to buy newsprint on his behalf. She then continued her tour in Africa. What she found, however, was that in every country she went and met with newspaper owners, the complaint was the same – Angola, Mozambique, Senegal, Botswana, Kenya, and other places. Newsprint was very expensive, hard to come by, and the supply was often insecure.

Ms. Foot gave this a lot of thought, and one question she asked everywhere she went was, is the problem that you simply cannot afford the world market price of newsprint – is the problem that you could only afford newsprint if the price was well below market? The consistent answer – one she has sent a team of sharp-eyed accountants and financial analysts to determine for sure – from the newspaper owners in these various countries and markets is that they could afford to pay the same price that global purchasers operating on long term contracts were paying. She wasn’t entirely sure that was true – she thought some of the owners in some countries were being overly optimistic, but for purposes of her current analysis, she is willing to assume that is true.

Ms. Foot’s question for you, as General Counsel and strategic advisor, is whether you see a way in which the Africa Fund could somehow, some way, bring together the different businesses in the different countries to gain greater market power together and so get better prices and more assured supply of newsprint. At the same time, she wants to know what the role of the Africa Fund might be, on the assumption that it is willing to put up some amount of capital, but wants its participation to be no greater than 25% of the total of capital put into any investment arrangement, with no more than 25% of the risk and 25% of the return – but an absolute veto on any decision to enter into binding, long term contracts with any newsprint producers. She is open to the idea that the Africa Fund might not put in straight cash into an investment arrangement, but might put its cash in another way that might be used to anchor the first purchases of newsprint from sellers. Trevor N., for his part, has the strongest media conglomerate and can afford a higher price than the other media owners – they, on the other hand, are highly concerned that they might get themselves stuck in an arrangement in which they are committed irrevocably to a price they cannot afford to pay. Ms. Foot would like something that takes these concerns into account. She also notes that one of the Kenyan owners is a larger paper aiming to maintain market share in Nairobi with a small but aggressive competitor – she suspects that the larger Kenyan paper might actually prefer a higher price because it might hurt his competitor more than it hurts him, and she wonders how an arrangement might deal with that, or if it even can.

She has been burned before in joint ventures and although she is willing to entertain a possible JV arrangement, she wants to know how in fact it would really work and solve the problems posed. She is also concerned that in several larger countries – Kenya and South Africa, for example, some of the potential participants in the newsprint purchasing scheme are also competitors with each other in their own markets – how, if at all, should this affect the analysis, or is it irrelevant? Her ballpark estimate of how much total startup funds from everyone combined would have to be in order to negotiate seriously with international newsprint vendors is US $2 million; she wants to be sure that the Africa Fund gets back its investment and a reasonable return. This is not, as she pointedly says, charity work.

Draft that memo to Ms. Foot, giving a structuring scenario and explaining how it solves the financing issues, and further explaining how it works from a legal standpoint, stating the documentation necessary to make such arrangements work and identifying the most essential terms that need to be specified in the documents – not the run of the mill stuff, but the terms critical to this deal. Be both strategic advisor and lawyer.

Question 2
50% - 8 Pages
The International Newsprint Vendors

Same facts as above question. Congratulations – Ms. Foot liked your previous memo and you are still employed!! She has set up a structure based on your scenario, and the investment arrangement is now prepared to go forward with purchases of newsprint.

The Africa Fund, acting as negotiator on behalf of the various newspapers, is now entering into negotiations with several different, independent newsprint sellers in different places in the world. The Africa Fund, using the structure you created earlier, has at its disposal US $2 million, 25% of which it has contributed in some fashion. It can use that money any way it sees fit, but the fundamental issue is that it needs to acquire commitments for $6 million of newsprint to be delivered in equal installments over a three year period. It does not have $6 million dollars to simply pay for newsprint over three years. It needs a way to spread the payments over the three year period in which the newsprint will actually be used, while ensuring that the obligation to deliver at a set price remains good.

None of the vendors is very happy about going into a long term contract with the African parties when they could use the same newsprint to go into contracts with much more financially stable companies such as the New York Times or Le Monde. Ms. Foot originally did not understand why the vendor should care; if the purchaser did not make payment, then the seller could stop shipment, but apparently the shipments must be made in bulk, a year’s worth of newsprint in order to make the shipping economical, so the vendor really does care about getting paid. For their part, the African companies are worried about the quality of the newsprint – the Finnish vendor is reputable, but if the quality of the paper is not good, the new and expensive color printing presses that several of the newspapers have recently invested in will not be of any real use, because the paper won’t take the color inks.

The Finnish vendor is willing to consider a lien against the best assets of the African purchaser group – meaning, Trevor N.’s printing presses in South Africa and Ken’s printing press in Nairobi. Neither is wild about this idea, but each would consider it since between the two of them, they would receive the bulk of the newsprint in any case, and at a much more favorable price than they currently pay. They worry, however, that the failure of the five other, much smaller, financially weaker newspapers to pay their share could force them to make up the loss in order to avoid losing their presses; furthermore, Trevor and Ken would only do this knowing that the other one was doing it as well. They therefore want to find some arrangement that, while granting liens on the presses, gives them some protection. The Africa Fund is willing to consider an additional investment, beyond its current participation, to protect against this possibility, provided that it is limited to 50% of the additional risk involved.

Ms. Foot wants you to provide her with a memo proposing a way to structure a deal with the Finnish vendor, understanding that there are many contingencies on which you may have to simply state some assumptions in your memo. She wants to know how you would structure the overall transaction with the Finnish vendor, and any subsidiary arrangements that need to be made by or with other parties. She wants to know, of course, what the Africa Fund’s particular role will be, both in directing the use of the existing $2 million, and the additional risk commitment that she has indicated that the Africa Fund might be willing to make. In offering a strategy, act as both strategic advisor and lawyer and give a plan for how legally to document the arrangement, focusing not on the standard clauses of any relevant documents, but the ones that are essential to this deal.