Issues, Ideas and Insights by Atul Singh

Nothing reverberates more powerfully through the soul of a nation than the day of its independence. It is a day which marks liberty from an oppressor and the discovery of a people’s identity. Nations mark it through celebrations, speeches and, perhaps most importantly of all, national holidays.

Experiencing the Fourth of July, 233 years after a group of idealistic men signed a convention in Philadelphia still has a sense of immediacy, poignancy and involvement not seen elsewhere in the world. What is it that makes that the fourth unique?

The writer first experienced the fourth celebrations in Seattle in 2004. It was one of those rare clear days in that rainy city and, as a tourist exploring America for the first time, it was fascinating to observe how the whole city seemed to be in a celebratory mood. People were wishing each other Happy Fourth, hosting barbecues and going to concerts. On the waterfront later that night spectacular fireworks lit up the night skies to the sound of music.

This year, the writer experienced the Fourth of July celebrations for the second time. The venue was Novato, a small town in Marin County, which lies to the north of the city of San Francisco with the Pacific on its west and the Bay on its east. It is a spectacularly beautiful county which is clearly affluent though currently suffering from the recession increasingly affecting the daily lives of most Americans. Yet on the Fourth, Novato put its troubles out of mind in a celebration that was uniquely American.

So what is it that makes Happy Fourth unique? For a start, it is the highly community oriented nature of the celebrations. Families lined up on Grant Avenue in Novato, children, parents and grandparents all waving flags and enjoying their day in the sun. The parade had 102 entries – local schools, sports clubs, war veterans, fire fighters and businesses all joining in. This is typical of most towns across America and the parade is an occasion where civic pride in such communities comes to the fore. In towns in other countries, governments orchestrate such celebrations while, in Novato, the Fourth of July celebrations have always been organized by local residents. Kathy Nickel, the Chair of the Parade Committee, is not a government official but an involved citizen and so are all the other members of the committee. This is also the case in countless small towns across America which is evidence of the fact that community involvement in this great country is unrivalled by any other.

In France, Bastille Day, the fourteenth of July, is the equivalent of America’s Fourth of July. It is the day that people stormed the Bastille prison and started the French revolution. Celebrations are held across France involving parades, dances and fireworks marking the event. They are invariably organized by the local Mayor instead of local citizens. Similarly in India, it is the local official who presides over stale celebrations with little or no community involvement. The annual speech by the Indian Prime Minister is a mere ritual which no one cares about and people treat the day like any other holiday.

Another unique feature of the Fourth of July is that a general air of celebration takes hold over America. People wish each other and passers-by Happy Fourth. Families wave US flags, gather together for barbecues and watch fireworks. For all the pride in other countries, there is no annual occasion where citizenship is affirmed by families in a national celebration. This is extraordinary; even highly nationalistic China has no equivalent of Happy Fourth. All over the world, families get together on occasions like festivals and weddings which help in community bonding, fostering values and forging identities. America celebrates the Fourth of July as a national festival. It is a celebration of being American. Achievement is honored, civic values extolled and people in smalls towns all over America come together to forge community ties.

Radio stations across America interview war veterans and other upstanding members of the community. KQED, the Californian radio station, interviewed Major Nicole Malachowski and Jean Harman, a World War II Women’s Auxiliary Service Pilot (WASP), celebrating the WASP contribution to the war effort and their subsequent shabby treatment at the hands of the US government. There were endless talk shows about the significance of the day and the music, dialogue and sense of history was inescapable. Again, this was not government orchestrated with a national channel blaring tunes of patriotism but a people affirming, discussing and celebrating their nationhood through every available medium.

Finally, what marks out the Fourth of July is its inclusiveness. Everyone is invited to the party and everyone is assumed to be American. The foreigners standing on Grant Avenue in Novato yesterday were as much a part of the occasion as the people who grew up in that town. Candies were handed out, bands marched and kids of all hues and backgrounds mingled together.

No other independence celebration in the world is so inclusive. It is a fitting tribute to the first modern revolution – it preceded the French one by thirteen years, acted as an inspiration for the rest of the world and set up a remarkable constitution that thrives to this day. America has been far from perfect. Indeed, it has seen discrimination and division in many forms but its welcoming inclusivity, manifested most visibly on occasions like Happy Fourth, makes it special.

The looming recession in America is not a part of the normal boom-bust business cycle but marks the end of an era. The curtain is coming down on the “Goldilocks economy” of low interest rates, low inflation and unfettered consumption, and rougher seas lie ahead .

The current problems in the American economy have deep roots. In the 1990s, the world changed radically. The Berlin Wall fell and the Soviet Union collapsed. Hitherto communist countries in Europe now entered the global market. China’s integration with the world economy gathered pace and socialist India started liberalising its economy in 1991. This led to a huge increase in the world’s labour supply which decreased the worldwide rate of inflation. Consumer goods as wide ranging as socks or microwaves could now be manufactured more cheaply by Indian or Chinese workers. The central banks, however, continued to target a rate of inflation based on historical experience. This rate was higher than the new changed rate of inflation. As a result, more money started sloshing around the economy than was needed. In hindsight it is easy to see how things changed in the 1990s but, at the time, central banks missed the change. As a result, to quote Bernard Connolly, an economist with AIG, “the horse bolted and since then central banks have been scratching their heads as to what to do”.

It can be argued that the loose monetary policy of the Fed was a contributory factor to the dotcom bubble. A more widely held view is that American monetary policy was too loose for too long after the collapse of the dotcom bubble in 2000 and the terrorist attacks of September 11, 2001. This view is held by the highly regarded economist, John Taylor of Stanford University who came up with the famous “Taylor Rule” often used to determine the appropriate rate of interest for an economy.

In earlier times, loose monetary policy led to inflation but in recent times inflation remained low leading to what has been called a Goldilocks economy. This was because the global supply of labour had expanded dramatically. The Chinese, Poles and Indians, amongst others, were working to produce things at cheaper and cheaper prices. Consequently, the money in the economy led instead to an appreciation in the prices of assets. House prices all across the world rose dramatically. As during the dotcom bubble, people assumed that prices of the assets they purchased would only move up. When people started buying houses in the expectation that they could refinance their mortgages at a profit, the bubble started looking dangerous.

Added to this loose monetary policy was the incredible financial innovation that gathered pace in recent years. New products like complex derivatives were being constantly created using mathematical formulae which were increasingly opaque to both investors and regulators. A liberalised financial system provided not just opportunities for extraordinary profits but also the mad rush into new financial products which no one properly understood. The financial innovation and gung ho risk taking added to the credit expansion in the economy and increased asset prices further. Higher asset prices in turn justified still more credit expansion and yet higher asset prices. At the height of the bubble, American banks lent to “ninjas”, people with no income, no job and no assets, on the assumption that houses which they held as collateral would only increase in value.

The players in the financial system took increasing risks on the assumption that the Fed would step in to help if the system itself was at risk. In fact, markets across the world were buoyed by the belief that central banks would ride to their rescue and increasingly started taking unsustainable risks. Furthermore, the regulatory authorities were increasingly unable to calculate the risks in the market. They started relying on the banks themselves for the information regarding their financial products. Rating agencies did the same. Consequently, worthless products were given first rate credit ratings and the bubble in the economy inflated further.

Adding to the cocktail of loose monetary policy and explosive financial innovation were the massive flows of capital by emerging economies and oil exporters to America. Central banks of relatively poor countries like China started gobbling billions and even trillions of dollars. They did so because they wanted to keep their own currencies cheap vis-à-vis the dollar so that they could boost exports, keep up the growth rates of their economies and continue generating employment to peasants flocking to cities, even at the cost of subsidising American consumers by lending their own capital. The oil exporters did so because of fears of instability in their volatile region and also to buy American support for their shaky autocratic regimes. By buying dollars, these countries propped up the value of the dollar and provided the capital for American consumers to live beyond their means as reflected in the huge current account deficits over the past few years.

Fiscal irresponsibility on the part of the American government worsened an already bad situation. It spent far more than it earned. Its tax cuts were not matched by cuts in expenditure and the wars it waged sucked out a lot of money from the American economy. Furthermore, the Bush administration’s pork barrel politics of expediency and short term patronage greatly exacerbated the fiscal situation.

The Fed has cut interest rates twice and the Bush administration is trying to push through a hastily designed fiscal package. It is doubtful if any of these measures will have much effect on the economy. The Fed’s ability to stimulate the economy and bail out the financial system is much weakened these days. The rate cuts are unlikely to have the same effect as in the past and, in the future, any rate cuts might feed into inflation. Prices of oil, food and other commodities have been rising. Furthermore, the cost of labour has been rising in economies like China and India, which in turn will also feed into the prices American consumers pay for their goods and services. When inflation rears its head again, the Fed shall no longer be able to cut interest rates quite so merrily.

There is an external dimension to cutting interest rates. Beyond a certain point, the dollar will come under renewed pressure and will start falling in value. Other countries will be less inclined to hold it in the same quantities. They are already sitting on a depreciating asset and at some stage they will lose their appetite to buy more dollars. In case they start selling some of their reserves, the value of the dollar could fall dramatically and its position as the international reserve currency might be at risk.

The American economy has deep longstanding problems which do not have a quick fix. Given the ingenuity and resilience of the country, the economy has the potential to bounce back. But to do so it has to rediscover the old virtues of fiscal conservatism and monetary restraint. There is no alternative to earning more and spending less, both for American consumers and the American government.

The rise of China dominates headlines around the world. It has extremely high economic growth, foreign exchange reserves of over $1 trillion and is preparing to host a most spectacular Olympic games. China is changing at breakneck speed, new cities are sprouting up, old cities are livening up, and the country as whole is experiencing an industrial revolution of a scale and speed unprecedented in world history. And yet, in some ways, there is nothing extraordinary about the rise of China. All we are witnessing is a return to historical normalcy. According to Angus Maddison, economic historian at the University of Groningen, between 1600 and 1900, China’s share of the world GDP ranged from 25% to 33%. During this period China’s agriculture was more advanced than the West’s, its cities were bigger, urban literacy was higher and its ruling classes were more meritocratic. The Middle Kingdom is still a long way from achieving those levels.

Like the Americans and the French, the Chinese have a sense of manifest destiny. It stems from their long history, prolonged periods as a large empire and their humiliation at the hands of foreign invaders in the 19th and 20th centuries. The Chinese want their country to be rich, powerful and respected in the world. They feel they are a unique people with a history unrivalled by any other civilization and, therefore, aspire to attain their rightful place in the world. As China’s economy grows dramatically it is being able to project financial and military power to achieve that goal. China is a powerful player not only in South-east Asia, Central Asia and North Korea but also in Africa. Its rise in Africa has been most dramatic where it is building infrastructure, buying commodities and lending to governments on a scale reminiscent of European powers in the 19th century. China is also an enthusiastic participant in the WTO and, with a trade-to-GDP ratio of around 70%, is one of the world’s most open economies.

For many, especially in the US, China’s rise is causing alarm. Many wonder how far China will go. It is increasingly acquiring economic and military strength but money and guns alone will not be enough for China to become a great global power. It will also need ideas and this is its Achilles heel. China offers no new ideas or paradigms to the world. It is merely trying to adapt to the world as it is but has little vision of what it would like the world to be.

Academics on both side of the Atlantic often comment on lack of creativity that they find among their Chinese students. In the words of a German professor, Chinese students tend to be smart but not bright; they reproduce answers but do not ask questions and find it difficult to think in new ways. Numerous academics and professionals who have worked with the Chinese have come to similar conclusions. During a recent visit to Paris the writer stayed in a youth hostel and in the evening a group consisting of Australians, Americans, Argentineans, Poles and Indians started talking about world issues ranging from the middle-east to climate change. However, none of the Chinese joined the conversation or exchanged pleasantries with us. They kept to themselves and were sightseers rather than open minded inquiring travelers. In the writer’s experience this behaviour forms a pattern and the Chinese are the most difficult community to reach out to. What explains Chinese insularity and lack of curiosity? It is partly cultural snobbery and partly poor English language skills but the key explanation lies in China’s authoritarian system where people prefer the known to the unknown and lose their spirit of inquiry.

China’s attempts to control the flow of information to its citizens are reminiscent of Soviet methods in the Cold War days. Any visitor to the Xinhua website will find that while the Spanish football league is reported better than in the BBC, the rest of the news is barely fit for adolescents. The Chinese are served propaganda instead of news. During the writer’s first visit to Shanghai, he was shocked to find that credible news websites like the BBC were blocked by Chinese authorities. It is not just news which is censored; all forms of expression are controlled. Furthermore, even the past is off limits for any enquiry. June 4th was the 18th anniversary of the suppression of the Tiananmen Square protests and June 8th was the 50th anniversary of the “anti-rightist movement”, launched by Mao to crush dissent. However, there was hardly any reflection on, leave aside re-evaluation of, the two historical episodes in recent Chinese history.

Since the 1980s China has increasingly embraced the market. It has jettisoned communist policies but continues to pay lip service to communism. It is trying to build a capitalist economy in a society where the Communist Party monopolizes power. The party is forcing China to live a lie. Theory and reality do not match. No principles underpin China and a moral vacuum lies at the heart of Chinese life. Abuse of power and corruption are endemic. There is no rule of law or accountability in the country. Corrupt officials are engaged in a massive land grab as property rights remain nebulous and ill-defined. Guangxi, the Chinese word for connections, is all important. The urban elite do not question anything because the party has allied itself with the elite’s interests. Furthermore, members of the elite draw a distinction between themselves and the party, and shrug away social responsibility. Most are too busy getting rich and, if they feel altruistic, they establish charities rather than raise uncomfortable questions.

In some ways, the Cultural Revolution has shaken the core of Chinese society. Intellectuals talk of the loss of an ethical anchor and a moral compass in today’s China. A generation of spoilt single children, little Emperors, is now coming of age which only believes in conspicuous consumption. The Chinese have a valid reason when they say they do not want to commit to carbon dioxide targets as they are trying to industrialize and their development concerns outweigh environmental ones. But they have no excuse whatsoever for not controlling the exploding demand for tiger bones or ivory which is putting endangered species to risk. The elephant, the tiger and the lion are all at risk because of obscene and irrational Chinese greed.

China’s meteoric rise is creating both external and internal tensions for itself. Japan, Russia, India and smaller Asian nations are all wary and, at times, scared as China seeks to expand its influence along its huge borders. At the same time, internal problems are mounting. The gap between the southern coastal states and the rest of China is widening, there is a huge divide between urban and rural areas, income inequality is acute and the peasants in certain areas are getting restive. Given its one child policy, China faces the spectre of turning old before it becomes rich. The Middle Kingdom’s external challenges will be manageable. As long as it does not invade Taiwan, China will not find its envious rivals clubbing together to hammer it down. Its power shall grow and, although it will never be a credible challenger to the US, it shall be the dominant Asian power for some time to come. Internal problems shall test China more. Will corruption, repression and inequality lead to an upheaval? What will happen in a downturn? How will it deal with its ageing society? And most important of all, as it increasingly becomes a market economy, how long can it continue to live a lie?

A profound shift has taken place in France, la grande nation. Nicolas Sarkozy, the son of a Hungarian aristocrat and a Greek Jewess, has taken over as President. Seven of the 15 members of his cabinet are women and one is the daughter of a North African cleaning lady. Interestingly, only two members of his cabinet went to ENA, the elite Ecole Nationale d’Administration, which has hitherto been the cradle for the French political elite. In fact, Sarkozy himself is the first non ENA president of the 5th Republic.

Perhaps even more striking has been Sarkozy’s appointment of ministers cutting across political lines. The new defence minister was until recently a key adviser of Francois Bayrou, the centrist presidential candidate. Furthermore, four men of the left are in the cabinet; the most famous among them being Bernard Kouchner, a founder of Médecins sans Frontières and a champion of humanitarian intervention. By putting Kouchner in charge of foreign affairs Sarkozy has sent a clear signal that he is interested in reaching out to everyone. His cabinet is a broad church with members from all shades of French political life, unprecedented in the history of French democracy.

As president, Sarkozy has got off to a sensational start. The media is saluting what the Economist called his “artful mix of political inclusiveness, policy creativity and symbolic renewal” in naming his cabinet. Opinion polls say that he is the most popular newly elected president since de Gaulle. And on June 17th, when the French vote in the second round of their legislative election, his party is expected to win a thumping parliamentary majority. Sarkozy, a short hyperactive man with boundless energy, seems to be riding high but it is still unclear whether France is ready for him.

In France, the socialists may be scattered but socialism remains a powerful idea. The French state accounts for 54 per cent of the GDP and has an overly generous welfare system. Any casual visitor to France might think the country was doing well. It has great healthcare, good infrastructure and some of the best known companies in the world. But the French system rests on shaky foundations. The French work too few hours, a bare 35 per week. Heavy taxation destroys the incentive to work and has driven droves of French across the Channel and even across the Atlantic. Economic growth has been pathetic and unemployment has remained stubbornly high. The infamous French bureaucracy throttles entrepreneurship and makes life extremely difficult for small businesses. Furthermore, the education system is in crisis. It stifles creativity and rewards rote learning. Even the Grande Ecoles, the highly selective and prestigious French schools, do not compare to the top Anglo Saxon universities. The Eiffel Tower is emblazoned with the names of great French scientists and thinkers, counterparts to them do not exist in today’s France. For all its intellectualism and extremely high level of culture, la grande nation is in intellectual decline but is unaware of that fact.

Many of France’s current problems can be traced to May 1981 when the left seized power under Francois Mitterand. The ENA elite dominated and, apart from decorating Paris with yet more beautiful architecture, it did little to prepare France for future challenges. At a time when Britain experienced the Thatcherite revolution and, as a result, emerged as a dynamic economy, France slipped towards statism and decline. Chirac’s election did nothing to change the situation. Though nominally a man of the right, he was a populist without principles interested only in power for power’s sake. An ENA man himself, he shied away from crucial reforms and continued with the policies of the 1980s which were clearly not working. Although he came to power on a promise to mend “social fracture” he is leaving France as divided as ever.

Sarkozy, to his credit, is one of the few politicians acutely aware of France’s problems. He is promising a slew of reforms which, if implemented, will shake up the country. He proposes to exempt workers from tax and social-security charges for hours worked above the 35-hour week, let mortgage-interest payments be deducted from income tax; tighten immigration rules; and stiffen sentences for young and repeat offenders. He also wants to guarantee minimum service on public transport during strikes, loosen the legal right of the big five unions to represent all employees in a workplace, introduce a single job contract with progressive rights and reform unemployment benefit. Other plans include making 50% the top limit on all personal taxation and social charges, reducing inheritance tax, reforming special pension privileges of employees in the public sector and granting universities more autonomy to set fees and recruit staff and students.

The big question is how a France used to the status quo will respond to such changes, many of which will be painful. The unions will go on strike. Students, buoyant from last year’s victory over de Villepin and who voted overwhelmingly for Sego Royal, will take to the streets. Insiders in the famously obstructive French bureaucracy will do all they can do to impede change. Already the Socialists have seized upon the proposed rise in VAT from 19.6 to 24.6 per cent, a rise of five percentage points, and made it a campaign issue. The French have yet to wake up to the fact that the sums in their economy do not add up. Their overly generous welfare state has to be trimmed down and the tax burden has to be redistributed. Bringing these changes shall bring people on the streets, a formidable French tradition since the days of the revolution. France faces turbulence in the coming days which will be reminiscent of Britain in the early Thatcher years when she took on the unions.

Sarkozy’s victory is likely to prove to be a turning point as significant as Mitterand’s election. Then the country made a leftward lurch and now it has moved in the opposite direction. French voters realising the significance this year’s elections have voted en masse. In the presidential election, voter participation was 84%, much higher than 64% in the US and 61% in the UK. Sarkozy campaigned for “rupture” with the past and he now has a mandate to achieve it. The million dollar question is whether France understands what “rupture” entails and whether it has the stomach for change?

In America, it is now fashionable to talk about energy independence. When both Barack Obama and George W Bush start mentioning the same subject then it is an indication that a fundamental shift is taking place in the world’s largest economy. The rage these days is ethanol and corn is the main crop used for its manufacture. Demand for corn has, therefore, gone up and US acreage devoted to corn in 2007/08 will be the highest since 1944. According to most experts, corn is not a very good fuel crop and yet the US government is handing out subsidies for corn based ethanol.

In fact, sugarcane is a much more efficient fuel crop and Brazil produces sugarcane based ethanol at a little over half the price of American ethanol. But the US imposes tariffs on ethanol imports from Brazil and refuses to allow free trade. This means that Americans end up paying higher prices for ethanol. American production of ethanol increases demand for corn and pushes up corn prices. This in turn pushes up prices of meat. Also, more acreage for corn comes at the expense of other crops like soybeans and wheat, pushing up their prices as well. So energy autarky ends up impoverishing the average American consumer and harming the Brazilian sugarcane and ethanol producers.

Another example of the move towards autarky came on Friday, the 30th of March when the Bush administration declared that it would reverse more than 20 years of a free trade policy and impose potentially steep tariffs on Chinese manufactured goods. Its justification for doing so is that China is illegally subsidizing some of its exports which is leading to widening trade deficits, the figure last year reaching a record $232.5 billion. The unspoken reason is concern over the loss of jobs in American manufacturing which is increasingly unable to compete with counterparts in developing economies. Again, the tariffs shall harm American consumers. They will end up paying higher prices for goods they could have purchased more cheaply. The tariffs shall also lead to continued investment in American industries which otherwise would not have survived. This investment shall not be efficient as it could have been invested instead to retrain workers, improve schools and develop globally competitive industries.

Autarky is seldom a good option and, in a global economy, it can have severe consequences. If the Chinese retaliate and impose duties on Boeings or Windows, American workers and Chinese consumers would suffer. The ensuing “tit for tat” trade war might end up beggaring everyone in the process.

Why are Americans, erstwhile champions of free trade, turning against their own idea? The reason for it lies in the internal political economy. While the economy has grown over the past few years, the gains of that growth have accrued primarily to owners of capital. Workers have lost jobs as companies have relocated overseas or been unable to survive foreign competition. Since healthcare benefits have been associated with jobs, the loss of employment has been traumatic for the individuals concerned. For politicians, the easy solution is to blame the foreigner instead of carrying out fundamental reforms to improve competitiveness. By imposing tariffs on Chinese goods, politicians can grab votes from workers of threatened industries along with campaign donations from the owners. When considering America’s fixation with ethanol it might be useful to remember that the top 10 corn-growing US states hold nearly 40% of the electoral college votes required to secure the presidency. Championing corn based ethanol helps the economy of these states. It also wins votes and campaign funds apart from burnishing an eco-friendly image.

With so much to gain, American politicians are being tempted to raise the barricades but they should remember that it is by being an open economy and an open society that America has become America.

Over the past few months some developments in Russia have been extremely worrying. Anna Politkovskaya, a fearless investigative journalist, highly respected both at home and abroad, was brutally murdered on 7 October 2006 in Moscow. A fervent supporter of human rights and the rule of law, she was highly critical of the pro-Moscow Chechen Prime Minister Ramzan Kadyrov and his overlord President Putin. In fact, there were widespread rumours that Kadyrov was behind Politkovskaya’s murder which was intended as a birthday gift for Putin. These rumours might be nothing but a figment of imagination but what is worrying about Russia these days is that critics of Putin tend to meet violent premature deaths. The sensational murder of Alexander Litvinenko through polonium-210 radiation poisoning in London barely three weeks after Politkovskaya’s murder demonstrated that Russian violence was moving beyond Russian borders.

Apart from such murders, the Russian government has been gradually acquiring increasing powers, weakening democracy and diminishing individual liberties. Tycoons who have fallen out of favour with the Kremlin are either in jail, exile or even dead, and their properties have been confiscated by the state. The government has acquired greater control of the media and independent reporting has suffered greatly. Russia has torn up contracts with foreign companies and interfered in the internal politics of its neighbours. It has also threatened to cut off gas supplies to countries who fail to do its bidding and Putin himself has lashed out against America at the Munich security conference.

Today, an alarming phenomenon in Russia is the rise of jingoism tinged by xenophobia and racism. According to Sova, a group that monitors racist violence, 539 people suffered racist attacks last year, of which 54 died. It is a curious change from the Soviet era when Russia became famous for promoting “friendship between peoples” and hosting large numbers of students from the developing world. Increasingly in recent times, the dominant sentiment in political establishment is “Russia for Russians”. The government banned foreign workers from retail jobs on 1 April this year despite its declining population and skills shortage. Human rights activists described the legislation as state-sponsored racism.

Stemming from this jingoism is Russia’s determination to control its restive regions. The collapse of the Soviet Union has been publicly regretted by Putin, a former KGB colonel, and he does not want the huge and disparate Russian state to unravel further. Ever since Putin came to power he has been tightening his reign on the regions and, two years ago, he replaced elected regional governors with his own appointees, a move which was a further blow to a young Russian democracy. Earlier this year, he appointed Ramzan Kadyrov as President of Chechnya and, this week, Kadyrov is throwing an extraordinarily expensive bash to inaugurate his Presidency. Kadyrov is a violent 30 year old nicknamed as “little Saddam” because of his extreme brutality. Suspected of murdering Anna Politkovskaya, this is a man who runs a private militia, is suspected of personally torturing people sometimes by burning them with a blow torch and is foisting a Stalin-like personality cult upon Chechnya. Despite Kadyrov’s well documented brutality and criminal past, Putin is backing him as the man who can secure Russian control over Chechnya.

What is happening in Russia does not bode well for the world. The criminalisation of the world’s biggest country is a scary prospect especially in the context of its xenophobic nationalism. Difficult though it will be, it is now time for the world to tame the Russian bear.

1. Why is Merkel reviving the EU constitution?
She is not exactly reviving it. She has recognised that the term constitution is offensive to some Members but she may yet try to agree a new consolidated treaty based on the constitution text. This could be justified on the grounds that it would be a clearer and more structured exposition of the EU’s legal framework, and domestically she would stand to gain considerable political credit as the German population is still overwhelmingly pro-EU.

2. The constitution has been rejected by referendums in the Netherlands and France? Why is she staking her political capital on a seemingly lost cause?
She is not – so far she has not been very clear in saying what type of text she favours, and most States agree something needs to be done to reform the EU.

3. Is her attempt necessary and is its timing right?
Yes, I think the decision-making processes need to be reformed, qualified majority voting should be extended now that membership has practically doubled in three years. With national elections never far off the agenda timing is rarely right: in fact the 2nd half of 2007 immediately after the French Presidential election and well ahead of the UK election is probably the best timing there will be for some time. (Qualified Majority Voting (QMV) is a voting procedure employed in the Council of the European Union for some decisions. According to the procedure, each member state has a fixed number of votes. The number allocated to each country is roughly determined by its population, but progressively weighted in favour of smaller countries.)

4. What difference shall the constitution make?
The Constitution did not radically extend the EU’s powers except in relation to Justice and Home Affairs legislation. Far more important wd have been the acceptance of the term ‘constitution.’ Such acceptance is now virtually impossible.

5. Do you think referendums should be held to approve the constitution?
Difficult to say, the answer depends on whether one thinks generally that referenda are appropriate ways of determining major political issues.

6. What do you think about the opposition to the constitution especially in countries like the UK and Poland?
I cannot really comment as an officer of the UK parliament.

7. What do you think of the Polish attempt to include God in the constitution?
The Constitution contained and was designed to contain central values which have determined Europe’s intellectual and political life, the Christian tradition is extremely important in this respect, and for this reason it is not immediately obvious why it should have no place, divisive as any statement of religious allegiance may be nowadays. This is purely my personal view.

8. Do you think the upcoming French elections would have a significant impact on the constitutional process?
Yes, most certainly, Royal is likely to be more sympathetic to its revival but Sarkozy will not necessarily be opposed. France in spite of its Non to the Constitution is not anti-European.

9. Why are many Europeans uncomfortable with the idea of a constitution?
For different reasons including opposition to immigration, political alienation, perception of unaccountability as much as a genuine fear of amalgamation. The Constitution provided an opportunity to express dissatisfaction when there are not many and when most electorates are regularly presented with indistinguishable options in national elections.

10. How do you envisage the outcome of Merkel’s initiative?
This is difficult to say. The timing is probably right, and there is widespread agreement that something. needs to be done. Much will depend on how realistic she is. And if anything she has proved to be a realist in her political career so far.

On the 25th of March 2007, the EU celebrated its 50th birthday in Berlin. The German Chancellor, Angela Merkel, used the occasion to push for an EU constitution and declared that Europe’s leaders risked making an “historic error” if they were unable to sort out their constitutional wrangling. Rescuing the constitution has become the focus of the German six-month presidency of the EU and Merkel has set an aggressive timetable to achieve this goal. She wants a “short and concentrated” intergovernmental conference to agree to a new treaty by the end of this year and the ratification process to be over by spring 2009.

The EU constitution began with high hopes. In 2001, EU’s national leaders vowed to make the EU “more democratic, more transparent, more efficient” by creating a constitution. Prolonged wrangling followed and it was only in June 2004 that the constitution was finally created.

The current constitution consolidates all European treaties into a single document and for the first time proclaims the primacy of EU law over national law, a principle which so far has been established only by the jurisprudence of the European Court of Justice. It creates new jobs like the President of the European Council and a foreign minister, and gives the EU formal legal personality for the first time, enabling it to sign international treaties. At the same time it retains national vetoes and adopts a new double-majority voting system that shall enable laws to be passed if 55% of countries representing 65% of the EU’s population approve. Finally, the constitution can only come into force once it has been approved by each of the 27 member states.

Proponents of the constitution argue that an expanding EU simply cannot work unless it comes into force. On its 50th birthday, the EU is a 27 member club which might expand further and its institutions as well as its rules are under severe strain. The EU, therefore, has become more clumsy and bureaucratic. The constitution is the way it will become both more workable and more democratic. Furthermore, as Merkel has declared, the constitution would give Europe a higher profile on the world stage.

Opponents of the constitution see it as another example of “Eurocreep”, the process through which more and more control is ceded to the bureaucrats in Brussels. They fear that the EU is acquiring the trappings of a superstate and feel there are other ways to reform the EU.

20 of the member countries have ratified the current constitution while the other 7 have rejected it. Since Germany took over the presidency of the EU Merkel has been trying to restart the constitutional process. Earlier this year, on the 26th of January, the countries that have approved the constitution gathered in Madrid to breathe new life into the dead document. Having ratified the constitution, they talked up its virtues and stated that they wanted the document to be more ambitious, giving the EU a bigger role in social policy, fighting climate change and immigration. This alienated at least 5 of the remaining 7 countries, judging from the fact that Britain, Sweden and Denmark sent only junior diplomats to monitor the Madrid meeting while France and the Netherlands sent none at all. Even the Berlin Declaration to commemorate EU’s 50th anniversary proved to be a highly contentious affair. The declaration is supposed to be a document reaffirming EU’s values and outlining future goals. However, this fairly innocuous and bland document provoked disputes. Vaclav Klaus, the Czech President, criticized the “untransparent” way in which the declaration had been drafted. Such was the extent of the disputes that , the 27 heads of government were not even asked to sign the declaration to avoid the risk of embarrassing refusals.

Merkel’s attempt to revive the constitution is deeply flawed. The raison d’etre for a constitution was to remove the democratic deficit of the EU. However, the constitution has not caught the fancy of many nations. The French and the Dutch have already rejected it in referendums in 2005. The constitution evokes strong feelings in the UK and Tony Blair was forced to accept the idea of calling a referendum on the issue. It was only the No votes by the Dutch and the French that saved him from an unpleasant and unwinnable referendum. Meanwhile, Vaclav Klaus has declared the current constitution to be “not usable and acceptable” and a new one as not a priority, a view shared by his Polish counterpart who has already dismissed Merkel’s timetable as unrealistic. Merkel’s ambitious timetable will impose early political tests for a new British prime minister and a new French president; both countries will have new leaders later this year who will have to convince a deeply eurosceptic public.

Merkel’ unstated plan is to trim the constitution, make it appear less ambitious and allow the leaders of the remaining 7 member countries to sidestep public opinion and ratify the document with parliamentary votes. The plan makes three grand assumptions. Firstly, that Nicolas Sarkozy would win the French Presidential election. His rival, Segolene Royal, has promised a referendum on the constitution and demanded a social protocol focusing more on workers’ rights and less on economic liberalization. On the other hand, he is in favour of a slimmed down document which would be approved by the parliament. The second assumption is that Gordon Brown would succeed Blair and, as he is averse to a referendum, the constitution would be approved by the British parliament. The final assumption is that once these two heavyweights approve, other countries like the increasingly euro-sceptic Dutch, the idiosyncratic Poles and the cavalier Czechs will follow.

Not only are Merkel’s assumptions flawed and unrealistic, her project to revive the constitution is unacceptable in principle. Europe’s elite has so far built the EU without consulting its people and, so far, the people have pulled along. However, something like a constitution is by its very nature an expression of the people’s will. In modern democracies, people deserve the right to say inconvenient Nos to their political bosses, even on the issues dear to the bosses’ hearts. The French and the British have the right to vote on the constitution while the others have a right not to be cowed down into accepting a document they dislike.

Finally, there is a possibility that European voters might not take kindly a constitution imposed upon them by their political leaders. In a recent opinion poll reported in the Financial Times, the majority in many European countries had an unfavourable view of the EU. Imposing a constitution will not add to EU’s popularity and, lest Merkel forget, the constitution for the first time creates the right for countries to leave the EU.

Late last year, one development caught the attention of the world. On the 6th of November 2006, the Chinese State Administration of Foreign Exchange announced that its foreign exchange reserves had grown to $1 trillion. At the same time the US current account deficit over the last 12 months reached $838.1 billion, 6.6% of the US GDP. While the Chinese have been hoarding reserves the Americans have been piling up debt. The big concern for the world economy is that these imbalances built over the past few years might start to unwind.

The Bush economy has seen soaring deficits and extremely low interest rates. The combination of both fiscal and monetary stimuli at the same time is likely to have long term consequences for the US economy. Government spending under the Bush administration has grown by 3.1% per head annually, a figure exceeded only under Lyndon Johnson when he embarked upon the creation of the Great Society. At the same time, the Fed has kept interest rates at a historic low and the easy availability of money has led to a boom in house prices. People have felt richer and kept up their spending by borrowing largely against the value of their houses; their savings rate has fallen below zero into negative. At the same time, the American government has run huge deficits, piling on debt. Worryingly, Americans have used the money gained from their debts unwisely. The government has dispensed pork for opportunistic short term electoral gains while the households have used it to keep up consumption.

At first sight, the American economy appears in good health despite grave news from the housing sector. On the 20th of November 2006, the construction company DR Horton admitted that the US housing sector was caught in a “death spiral”. However, Carl Tannenbaum, President of NABE (US National Association of Business Economists) stated on the same day that despite the hindrance of the housing correction, the economy would continue to gain ground in 2007. So far, that seems to hold true. As of now, the American economy appears to be robust. Since it came out of recession in 2002, it has recorded four years of over 3% growth. Unemployment has also fallen to a low 4.6%. American equity markets have soared and corporate profits have reached a record high at 13.6% of the GDP. But like all figures, these numbers hide as much as they reveal.

Despite the good news, most Americans are worried about the state of their economy. The median American household is earning less than it was in 2000. Jobs are less secure. Although Americans who lose their jobs find new ones quickly, according to the Bureau of Labor Statistics, their average pay is 17% below what they earned previously. What is hidden from the statistics is that 2 million people have dropped out of the labor market altogether and are not recorded as unemployed. These are predominantly women who previously contributed to dual-income households. Costs of healthcare are outstripping inflation at a time when employers are increasingly paring back health benefits that were hitherto tied to their jobs. Lacking universal health care unlike people in Europe, Americans are worried about losing their jobs because it often means the loss of health insurance and the ability to pay their children’s college fees.

Rumblings of concern abound in America. Some blame illegal immigration, others unfair trade competition from developing economies like China and some others globalization itself. The Democrats have profited handsomely from the concerns of the American voter. Sherrod Brown, the newly elected Senator for Ohio, is also the author of a book Myths of Free Trade. He rails against free trade which rewards US companies who create jobs overseas rather than at home. Others like the iconic Senator Barack Obama and the former tort lawyer John Edwards have also hitched their wagons to this bandwagon. They tap into a popular feeling that wages of US workers will increasingly be driven down because workers in poorer countries will do the same jobs for $2 day. In fact, Obama’s stirring speech in the Democratic National Convention in 2004 resonated with the American public because he talked about loss of jobs due to companies relocating overseas, the cost of medicines and students not having enough money to go to college.

While America’s growing sentiments for protectionism might be worrying, a longer term cause of concern is that its increased debt has come at a time when the bulk of its baby boomers are about to retire. Although America’s population is now over 300 million and it does not face the demographic crisis of Europe, it nevertheless faces the prospect of an economy where fewer people will be working to support a growing number of dependants. In a number of articles, economists have argued that America’s long term economic growth rate might be about to slow down. In this scenario, the debt accumulated by America might prove to be a larger burden than is envisaged today.

America has so far had the benefit of cheap debt. The reason for that is not only China’s accumulation of a war chest of foreign reserves in dollars but also a similar accumulation by Japan, South Korea, Taiwan and Singapore. East Asian economies make up 5 of the 6 biggest holders of US dollars. By buying dollars these economies have propped up the value of the dollar and held down American interest rates providing cheap credit to both the US government and the American households. China’s accumulation is especially spectacular given the fact that large parts of the country are still poor. By buying American bonds it is subsidizing the rich American economy while China’s health care, education and social safety net are starved of funds. At first sight, China’s policy seems incomprehensible if not down right insane.

China, however, is caught in a bind. If it shifts money out of dollars into euros or yen it would push down the dollar and suffer a capital loss on its remaining dollar reserves. Furthermore, it is committed to a fixed exchange rate vis-á-vis the US dollar even though the yuan has risen 7% against the dollar since September. Buying any other currency would make the yuan appreciate relative to the dollar and threaten its rampant export led growth. So China continues to accumulate dollars and persist with its atrocious investments. The key question is why it continues to do so.

To understand China’s economic policy one has to look at its politics and history. It has a deep desire to be acknowledged as a great power and it is paranoiac about losing face. Therefore, symbols, form and appearances matter far more than in more mature nation states in the world. That is the reason why despite Taiwan being a de facto independent nation, China goes to such great lengths to maintain the fiction of “One China” policy. Despite China’s opening up to market forces and frenzied economic growth, it is still far from being a market economy. The Communist Party rules the country like a latter day emperor and frequently tries to control the economy through fiat rather than fiscal or monetary tools. It has so far co-opted the middle classes in its urban areas through relentless economic growth. The middle classes have been set free to make money and their living standards have risen dramatically. The country has seen the largest and the fastest industrialization in human history, emerging as the world’s factory. However, like the American economy its economy also has its losers. Unlike America though, they have no voice. The Party bulldozes all opposition in its relentless pursuit to make China a great power. But at the same time the Party feels insecure. It feels compelled to censor all criticism, control all media and keep the economic juggernaut at full steam. The Party is haunted by the spectre of 800 million peasants rising in revolt. It is keen to continue creating employment and opportunities through rapid economic growth. Since domestic consumption is low, exports and investments drive the economy. To keep up exports and investment, the Party prefers a fixed exchange rate and keeps buying dollars to stop the yuan from appreciating.

This pursuit to become a great power is also a reason for the stupendous levels of investment in China that according to some reports is nearing 50% of GDP. The central government wants to transform a country of peasants into a modern urban economy. It often operates the “build and they will come” principle. This principle was first implemented in Pudong, a swamp near Shanghai, where Zhu Rongji built a futuristic city that is now a boomtown. However, it is important to remember that Shanghai had the advantage of being a port city with a history of trade and commerce, and this approach is unlikely to work everywhere. Unfortunately, the Chinese have followed the Pudong model blindly and this has led to building booms in many cities which are almost hallucinatory. Vast government complexes and futuristic stadiums are being built all over China and one wonders whether they could be put to use in the future. Urbanization has acquired such a momentum partly because it has become a get-rich scheme for many officials. Because there is no legally enforceable right to private property, corrupt officials often seize land from peasants and grant it to relatives or friends for urban development. Protests are often put down with an iron fist using strong-arm tactics. The aims of local officials are aligned with the grand schemes of the central government. Beijing claims it is addressing the problem of corruption. In the first six months of 2006, it convicted 1,608 officials for taking bribes in construction projects, sentencing many to death. Such heavy-handed measures are ineffective and cosmetic because the source of corruption is the concentration of power in the Party’s hands. There is no free press or independent judiciary and corruption is often a charge used to boot those who fall foul of Beijing, as in the case of Chen Liangyu, the once high profile Mayor of Beijing. Unfortunately, the truly powerful in China are untouchable and the country’s big problem is the lack of rule of law.

Another reason for staggering levels of investment is the Party’s fixation with grand projects, a fixation they might have inherited from the Chinese Emperors of the past. Some projects even rival the Great Wall of China in their scale and grandeur. The “South-to-North” transfer project is potentially the most expensive public works project in Chinese history. It aims to pump water along channels from the Yangtze River to the north of the country including the Yellow River. Instead of recycling or conserving water, controlling water pollution or pricing the water to reflect its true cost, the Party has decided to embark on a spectacular endeavor based on flawed assumptions. Already the dams and dikes on the Yellow River have pushed the river bed alarmingly high. The sediment carried down by the river deposits on the river bed and pushes up water levels which in turn keeps pushing the dams and dikes upward. In fact, the bottom of the Yellow River in much of Henan Province already runs above the level of the surrounding countryside, so transporting water into it will be difficult and expensive. It is also likely to be environmentally catastrophic. The fact that the central government is implementing the project is a sign of the extent of over investment in China.

Both over investment and corruption have led to another of China’s problems, the bad loans of its banks. Despite their red hot Initial Public Offerings (IPOs) on the Hong Kong Stock Exchange, Chinese banks are flawed institutions. Run not on market principles but on state directions, they are subject to massive political interference and have been over exuberant in lending to unprofitable projects. The amount of bad loans is estimated to be about $1 trillion, about the same as China’s foreign exchange reserves. Although the central government has recognized the problem of bad debts, it is still trying to control the situation through executive fiat instead of implementing much needed reforms. Paradoxically, the success of its IPOs and the strength of its reserves have made it complacent and it does not recognize the gravity of the problem or the need for urgent reform.

Along with over-investing, the Chinese have also been pouring money abroad. Sometimes they have done so for commercial reasons but foreign investments have frequently been a means to acquire global prestige. The trend began with Chinese companies attempting grand foreign acquisitions often at the direction of the state. The TCL-Thomson venture has just gone down in smoke and Lenovo is thought to have overpaid for IBM’s PC business. Now China is pouring money into Africa. In November 2006, it organized a huge diplomatic event, the China-Africa forum which was attended by political leaders of 48 of the 53 African countries. It was a summit to impress; the city was painted with images from Africa and daily life was brought to a standstill. The summit was a demonstration of Chinese might on a global scale. Chinese businessmen and engineers are now operating from Nigeria to Sudan selling goods, building railroads, developing telecoms and drilling for oil. Trade with Africa is growing rapidly and is expected to reach $50 billion by the end of the year. China is attempting to secure African supplies of oil, iron ore, copper and cotton while rolling out generous aid programs, low-interest loans and other gifts. Similar to the Europeans in the 19th century and the Americans and Russians in the 20th, the Chinese are attempting to dominate Africa in the 21st. At first sight, it seems that Chinese investments would be good value for money but it is easy for investments to be made for non-commercial reasons when political factors are involved as the recent troubles at Airbus demonstrate. Since much of Chinese investment in Africa is by state owned companies there is a distinct probability that it might turn out to be unprofitable.

The situation today is reminiscent of the 1980s. The US was running budget deficits and current account deficits while Japan seemed to be rising inexorably with its foreign exchange reserves and foreign acquisitions. It turned out that Japan was investing too much, building roads it did not need and buying assets overseas at inflated prices. Its banks were also lending unwisely and had too many bad debts on their portfolios. The bubble burst in the 1990s when it sunk into a recession from which it is only now beginning to emerge. China’s situation today is eerily similar to Japan before its recession. It is being talked up as the new economic superpower but fundamental weaknesses exist and not enough is being done to address them. Although China has a large labour supply and a lot of catching up to do, its growth might still slow down sooner than most people think, especially if external demand for its goods drops. What marks out the current world economic outlook from the 1980s is that the US economy is not as robust as it was then. In the 1980s, Paul Volcker ran a tight monetary policy, the baby boomers were reaching their peak productivity and the average household was not in the red. Today, Americans are consuming too much, have substantial amounts of debt, the baby boomers are about to retire, average incomes are declining despite strong growth and the long term growth rate is expected to drop. The Chinese are investing poorly, buying dollars to keep their exports cheap, trying to grow at a frenetic growth rate and become a great power again. The elephant in the room is that both the Americans and the Chinese face formidable problems. So far, these problems have cancelled each other out. America has continued to consume merrily while China has continued to export heartily. In the process, one has sunk into debt while the other has invested terribly. The imbalances in their economies are at a tipping point and might soon start to unwind. At best, the global economic growth will slow down as these economies correct themselves. At worst, the world economy might go through a recession. The elephant is about to trumpet and we shall all have to take note of it.

America is a curious country.  It is at the same time the scientific powerhouse and the evangelical  stronghold of the world.  And this curious country is going through an interesting phase.  In California, a Republican Governor is promising universal health care and, in Illinois, a Democrat Presidential Candidate is promising a new kind of politics.  What has made such developments possible?

The last 6 years have been a difficult period for America.  While Pearl Harbour occurred in faraway Hawaii, the 9/11 attacks targeted iconic buildings in the heart of America.  A country that had felt secure with two oceans separating it from the rest of the world suddenly felt vulnerable.  And there was an outpouring of sympathy and goodwill for it across the world.  NATO invoked Article 5 for the first time in its history and all of America’s allies were ready to battle for its cause.  Soon though, this goodwill was lost.  An arrogant and inept American government burnt bridges with friends and created new enemies, especially by unilaterally going to war in Iraq.

The Iraq war has turned out to be a historical blunder.  It is ironic that a President who dodged the draft and shirked duty in Vietnam led America into a similar war.  Iraq is turning out to be bloodier and messier than Vietnam and is likely to have more severe consequences for the region and the world.  The scenes of mayhem from Iraq that light up TV screens fan global resentment against America.  America’s Iraq strategy is in tatters, its reputation is sullied and its government is discredited.  However, like an ostrich burying its head into the sand, the President has refused to accept reality and insists America is winning the war on terror.  He has just asked for nearly $700 billion from the Congress in new military spending, the biggest boost since the Second World War.  It is difficult to believe that America faces a bigger challenge than the Soviet Union at the height of its power but the President apparently feels otherwise.

In addition, America faces other problems.  A resurgent Taliban in Afganistan, a China demonstrating that it can shoot down satellites, a Russia attacking American foreign policy, huge deficits, mountains of debt, a declining dollar and a flight of capital from New York are all cause for concern.  Furthermore, Americans are increasingly insecure in a globalised world.  They perceive their jobs to be at threat from oriental hordes.  The Chinese and Indians seem willing to do the same jobs at much lower wages and, even worse, they seem to do better in science and math.  A country that began the 1990s in an ebullient mood has lost confidence and is uncertain about the future.  In the light of these developments, it is easy to think of America as a declining superpower losing moral and economic clout in a fast changing world.  However, this is an exaggerated perception and America is on the verge of renewing itself after 6 divisive and distasteful years of the current administration.

America is in an introspective mood and it is confronting problems it has so far ignored.  Increasingly, Americans are turning against the continued presence of US troops in Iraq.  They feel the loss of lives and resources are leading to nothing.  They thought they were ridding the world of a dictator and would be greeted as liberators.  Instead, they have to live with the ethnic violence their invasion has unleashed and the fact that the only thing the Shias and the Sunnis seem to have in common is their hatred of Americans.  After years of uncritically accepting whatever their government asserted, the Americans are thinking about Iraq.

They are also thinking about other issues like schools and healthcare.  The world’s largest economy does not do well in teaching its children.  For instance, the OECD study of performance of 15 year olds in mathematics found that the average American score to be 485, surprisingly below the average international score of 500.  Leading countries like Finland and Japan do significantly better.  Similarly, the world’s richest country spends 16% of its GDP on healthcare, twice the average of other rich countries and yet 47 million Americans miss out on any healthcare altogether.  Finally, after ignoring such issues for a number of years politicians across party lines are trying to address them.

Americans are also concerned about the their social fabric and their civic ideals.  Hurricane Katrina shook the nation and lowered not only its self-esteem but also its reputation in the rest of the world.  Even poor countries like Sri Lanka and Indonesia do better during natural disasters, and the Tsunami that hit them did not result in scenes like those witnessed in New Orleans.  TV brought the abject poverty and crime of inner cities into middle class suburban homes, and, to many viewers, New Orleans appeared uncomfortably similar to Iraq.  Americans do not want another Katrina to occur.  They expect their politicians to help bridge social divisions and tackle problems in rundown neighbourhoods.

The last two Presidents have been divisive figures and have polarized opinions across the country.  Election campaigns during this period have been about attacking opponents and appeasing supporters, instead of reaching out to the vast majority of the middle of the ground voters.  Culture wars have been fought over abortion and gay marriage while other issues have been sidelined.  After four Presidential terms of bitter polarization, America yearns for a healer who is willing to work with everyone and not merely zealots from his own party.

The bold and the brash years of the past are over.  In the face of its challenges, America is acquiring more humility.  In the 1960s, the horror of Vietnam led America to face up to longstanding issues like segregation, poverty and the state of its universities.  Today, the nightmare of Iraq is forcing Americans to confront their problems again.  The next 10 years will see a less cavalier American foreign policy.  America shall withdraw from Iraq and will have less appetite to wage wars.  During the next 10 years, the country will focus on schools and healthcare, come to terms with globalization, absorb Hispanic immigration and deal with other problems at home.

America is still the most dynamic country in the world with great universities, booming businesses and a culture that fosters innovation.  The administration of the current President has caused it great damage and it is true that the country’s stock has rarely been lower over the last sixty years.  At the same time, Iraq has jolted America out of its comfort zone and made it think about issues it has ignored for decades.  America is on the verge of a great renewal, one that will take time and cause pain, but the resilience of this remarkable country shall surprise those anticipating its decline.