S P EC I A L E N T R E P R E N E U RS H I P I S S U E

JANUARY/FEBRUARY 2015
JANUARY / FEBRUARY 2015 • VOLUME 94 • NUMBER 1 •
SCHUMPETER'S HEIRS

F O R E I G N A F F A I R S .C O M
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 Volume 94, Number 1

Schumpeter’s Heirs
The Man Who Sells Everything 2
A Conversation With Jeff Bezos

The Art of the Cell 8

A Conversation With Marcelo Claure

She, Robot 16
A Conversation With Helen Greiner
c ov e r i l l u st r at i o n: a n t h o n y p e t r i e

Africa Calling 24
A Conversation With Mo Ibrahim

Much Ventured, Much Gained 32

A Conversation With Michael Moritz

The Nordic Model 40

A Conversation With Niklas Zennstrom

Januar y/Februar y 2015

 Dr. Bohn is the director
of the Global Information
Industry Center and is
an expert in technology
management, big data
educating leaders in international and product development.
He teaches courses on
business and social entrepreneurship operations management and
product design.
Career tracks in management, economics,
development and nonprofit management, Roger Bohn
environmental policy, public policy, and politics
Dr. Lyons is an expert in
organizational economics,
the intersection between
technology and strategy,
and entrepreneurship.
She conducts research
in developing countries,
and teaches courses
on organizations and
international management.
Elizabeth Lyons

Dr. Schaede is the executive

director of the Center
on Emerging and Pacific
Economies and heads the
International Management
track. She teaches courses
on strategy and negotiation,
and international business.

Ulrike Schaede
Kyle Irwin, MPIA ’13, took
her love of travel and the
outdoors to start F.E.A.T.
(For Education, Adventure
& Travel), a company that
partners with local nonprofits
to lead running and hiking
adventures in South America.

Kyle Irwin
School of International Relations
and Pacific Studies Collin Laverty, MPIA ’12,
founded Cuba Educational
irps.ucsd.edu Travel, organizing over 100
educational programs in
Cuba for U.S. universities,
think tanks and professional
associations. It is quickly
becoming the largest policy-
focused company providing
legal travel to Cuba.
Collin Laverty
 Start-Up Slowdown 47
How the United States Can Regain Its Entrepreneurial Edge
Robert Litan

The Anti-Innovators 55
How Special Interests Undermine Entrepreneurship
James Bessen

The Innovative State 61

Governments Should Make Markets, Not Just Fix Them
Mariana Mazzucato

The Power of Market Creation 69

How Innovation Can Spur Development
Bryan C. Mezue, Clayton M. Christensen, and Derek van Bever

Thinkers and Tinkerers 77

The Innovators Behind the Information Age
James Surowiecki

Essays
The Calm Before the Storm 86
Why Volatility Signals Stability, and Vice Versa
Nassim Nicholas Taleb and Gregory F. Treverton

Europe Reborn 96
How to Save the European Union From Irrelevance
Matthias Matthijs and R. Daniel Kelemen

Leaving the West Behind 108

Germany Looks East
Hans Kundnani

Januar y/Februar y 2015

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Under the Sea 117
The Vulnerability of the Commons
Robert Martinage
Darkness Invisible 127
The Hidden Global Costs of Mental Illness
Thomas R. Insel, Pamela Y. Collins, and Steven E. Hyman
The G-Word 136
The Armenian Massacre and the Politics of Genocide
Thomas de Waal

REVIEWS & RESPONSES

Generation Putin 150
What to Expect From Russia’s Future Leaders
Sarah E. Mendelson
How to Think Like Edmund Burke 156
Debating the Philosopher’s Complex Legacy
Iain Hampsher-Monk
Exit Music 162
Did Obama Bungle the Iraq Withdrawal?
Lawrence J. Korb; Rick Brennan
Friends Without Benefits 165
Is the U.S.-Indian Relationship Built to Last?
Robert Boggs; Nicholas Burns

on foreignaffairs.com
Lauren Harrison on Jamie Metzl on the Kim Yi Dionne on how
German mediation in the revolution in genetic Obama can do more to
Middle East. engineering. fight Ebola.

Suki Kim on teaching Alan Greenspan on Joseph Chinyong

at an elite boarding why Beijing is buying Liow on ISIS’ plans in
school in North Korea. gold bullion. Southeast Asia.

Januar y/Februar y 2015

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Who Lost Congo? 169
The Consequences of Covert Action
Herman J. Cohen; Charles G. Cogan; Stephen R. Weissman

Haters Gonna Hate 174

Does It Matter That Heidegger Was a Nazi?
Christian Madsbjerg; Gregory Fried

Nuclear Waste 177

Why Are American Nukes Still in Europe?
James Blackwell; Barry Blechman

Recent Books 180

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Volume 1, Number 1 • September 1922

Januar y/Februar y 2015

January/February 2015 · Volume 94, Number 1
Published by the Council on Foreign Relations
GIDEON ROSE Editor, Peter G. Peterson Chair
JONATHAN TEPPERMAN Managing Editor
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 contributors
A decade out of Harvard, JAMES BESSEN wrote the first
“wysiwyg” desktop publishing software in 1983 and then
founded a software company that he sold in 1993. Bessen’s
first book, Patent Failure (co-authored with Michael
Meurer), threw a light on the problems of poorly defined
property rights. His forthcoming book, Learning by Doing,
explores the link between innovation and inequality.
Now teaching at the Boston University School of Law,
he argues in “The Anti-Innovators” (page 55) that
established interests are stifling American innovation.

Born in Italy and educated in the United States and Mexico,

MARIANA MAZZ UCATO now holds the R. M. Phillips
Chair in the Economics of Innovation at the University
of Sussex, in the United Kingdom. Mazzucato regularly
advises governments on how to promote innovation—a
subject she tackles in her latest book, The Entrepreneurial
State. In “The Innovative State” (page 61), Mazzucato
argues that contrary to conventional wisdom, governments
are in fact behind some of the world’s biggest innovations.

HANS KUNDNANI studied philosophy at Oxford and worked

as a writer in Berlin before becoming the research director
at the European Council on Foreign Relations, where he
specializes in German foreign policy. His first book, Utopia
or Auschwitz, examined Germans of the so-called Auschwitz
generation, whose parents were directly or indirectly
responsible for the Holocaust. His next book, The Paradox
of German Power, contemplates Germany’s future in Europe.
In “Leaving the West Behind” (page 108), he describes how
Berlin may be pivoting east toward Beijing and Moscow.

SARAH MENDELSON first traveled to Russia as a high

school exchange student in 1979. She returned there in
B essen P hoto : M elissa M ullen

the early 1990s to do research for her Ph.D. dissertation

on the Soviet invasion of Afghanistan. After stints at
various universities and think tanks, from 2010 to 2014,
Mendelson was a deputy assistant administrator at the
U.S. Agency for International Development. Now a
senior adviser at the Center for Strategic and International
Studies, Mendelson concludes in “Generation Putin”
(page 150) that Russian democracy remains a long way off.
schumpeter’s heirs

T
he Austrian economist Joseph on the broader economy and society,
Schumpeter put entrepreneurs what governments can do to encourage
at the center of his model of its spread and reap its benefits.
capitalism. Innovation was crucial to Our package begins with interviews
dynamism and growth, he argued, and with six leading practitioners: Jeff Bezos
entrepreneurs were the ones who made (founder of Amazon), Marcelo Claure
innovation happen. The “new combina- (founder of Brightstar and now ceo of
tions” of economic factors they brought Sprint), Helen Greiner (founder of
together propelled the whole system iRobot and CyPhy Works), Mo Ibrahim
onward and upward. Moreover, their (founder of Celtel), Niklas Zennstrom
efforts were anything but ordinary or (founder of Kazaa, Skype, and Atomico),
easy: “To act with confidence beyond and Michael Moritz (an early backer of
the range of familiar beacons and to Google, PayPal, Yahoo, and countless
overcome [society’s] resistance requires other tech giants).
aptitudes that are present in only a Then, Robert Litan assesses the
small fraction of the population.” current state of entrepreneurialism in
A century on from his first writings the United States; James Bessen describes
on the subject, Schumpeter would be how vested interests block entrepre-
pleasantly surprised to learn that despite neurial progress; Mariana Mazzucato
his sometimes gloomy predictions about explores the crucial role of government
creeping socialism and stagnation, entre- in spurring innovation; Bryan Mezue,
preneurs across the globe still continue in Clayton Christensen, and Derek van
their revolutionary ways and his “perennial Bever show how “market-creating
gale of creative destruction” continues innovation” can help the developing
to rage. world; and James Surowiecki traces
Others would be less pleased. Like the entrepreneurial origins of the
diners in the old joke complaining about digital era.
a restaurant where the food is terrible Our conclusion: entrepreneurs may
and the portions too small, they worry not be able to solve all of the world’s
that not enough innovation is occurring economic problems, and they certainly
these days and that what little there is can’t do it by themselves—but Schumpeter
subtracts jobs rather than adding them. was onto something, and we would all
Everybody wants more growth, more do well to listen.
dynamism, and more broadly distributed —Gideon Rose, Editor
benefits, but nobody seems to know
how to get there.
So for our lead package this issue, we
decided to do a deep dive into entrepre-
neurialism today—what it involves,
what it accomplishes, what its impact is
 What entrepreneurs do is
start with a clean sheet of paper
or whiteboard and say, “How do
we do this in a different way?
How do we solve this problem?”
—Niklas Zennstrom

A Conversation With Jeff Bezos 2 Start-Up Slowdown

Robert Litan 47
A Conversation With Marcelo Claure 8
The Anti-Innovators
A Conversation With Helen Greiner 16 James Bessen 55

A Conversation With Mo Ibrahim 24 The Innovative State

Reute rs / Elijah Nouvelag e

Mariana Mazzucato 61
A Conversation With
Michael Moritz 32 The Power of Market Creation
Bryan C. Mezue, Clayton M. Christensen,
A Conversation With and Derek van Bever 69
Niklas Zennstrom 40
Thinkers and Tinkerers
James Surowiecki 77
 Return to Table of Contents

That ability to look at things with a fresh

The Man Who mind, a beginner’s mind, is very useful
for entrepreneurs.
Sells Everything Entrepreneurs also benefit greatly
from being willing to fail, willing to
experiment. Good entrepreneurs tend
A Conversation With to be stubborn on the vision but flexible
Jeª Bezos on the details. They’re persistent on
what they’re trying to accomplish, but
they are willing to rewrite the details as

J eff Bezos has always been a tinkerer.

As a toddler, he tried to dismantle
his crib, and in high school, he
started his first business—an educa-
needed as they learn and as things fail.
Another quality I would mention is
passion for the mission, whatever it is.
The very best products and services are
tional summer camp for middle school- always built by missionaries. They’re
ers. After graduating summa cum laude people who are genuinely passionate
from Princeton in 1986 with a degree in about the arena and happy to be in it.
electrical engineering and computer Such people wake up in the morning
science, he went to work on Wall Street, thinking about that idea, thinking
but he quit finance in 1994 to try his about that particular set of customer
hand as an entrepreneur. Amazon.com experiences or that service or product.
started as an online bookseller, selling They’re doing that when they’re in the
its first copies in July 1995. In the years shower, and they’re doing that as they
since, it has grown into a diversified close their eyes at night. That’s pretty
retail giant, as well as a producer of different from the mentality of some-
consumer electronics, such as the body just trying to get in on the Internet
Kindle, and a major provider of cloud- gold rush.
computing services. Bezos spoke to
Foreign Affairs editor Gideon Rose in Most entrepreneurs and most start-ups
November. fail; only a few become truly giant
successes. Are there predictable things
What are the crucial qualities that make you can see in advance that separate the
for a successful entrepreneur? winners from the losers, or is success
There are a few qualities that entrepre- just a matter of luck and timing?
neurs benefit from. One is that view of Certainly, good luck and good timing
divine discontent: How can you make are huge components of outsized success
something better? I think entrepreneur- in entrepreneurial endeavors. Lots of
R e u t e rs / R i c har d B rian

ship and invention are pretty closely things have to go right, and the planets
coupled. And inventors are always walking have to align; that certainly happened
around the world thinking, “I’m kind of in Amazon’s case. Our timing turned
inured to this, but just because I’m used out to be very good. And so you can’t
to it doesn’t mean it can’t be improved.” sit down to write a business plan and
say you’re going to build a multibillion-
This interview has been edited and condensed. dollar corporation; that’s unrealistic. A

2 f o r e i g n a f fa i r s
 SCHUMPETER’S HEIRS

Niss as ipsunt eum, omniet

veliquatet eos res ut doler
Bezos in Las abora
omnihiliquis Vegas,dem eos
November
aut 2012 sipim.
labore lorem
The Man Who Sells Everything

good entrepreneur has a business idea time. But you have to remember, new
that they believe they can make work at inventions are not inherently disruptive.
a much more reasonable scale and then Invention is only disruptive if customers
proceeds adaptively from there, de- say, “Hey, I like this better than the
pending on what happens. old way.”
That kind of improvement for
When did you realize that Amazon would customers is often very good for society,
become the behemoth it is today? even if it’s difficult for people who are
One step at a time. There were early invested in the traditional methods.
indications that we were onto some-
thing, even from the very beginning. So by that logic, is all creative disruption
The original business plan contemplated by definition a net plus? Because if it
only books, and it contemplated growing wasn’t, then it wouldn’t be going forward?
a relatively small company. But shortly I’m always a little worried about words
after launching, we had already sold like “all” and “always” and “never.” I’m
books in all 50 states and 45 different sure there are exceptions. But I would
countries. We were way ahead of our say that, on balance, most successful
business plan. innovations in the economy do tend
And then, a couple of years after that, to be good for society.
when we were still a very small company,
we sent an e-mail message to about a You’ve managed not only to create
thousand randomly selected customers Amazon but also to periodically
and asked, “Besides the things we sell reinvent it. What are the keys to
today, what would you like to see us sell?” running a large business enterprise
The answers came back to that so long- in an entrepreneurial way?
tailed—people said, “Windshield wiper Corporate culture and the selection of
blades for my car,” and so on and so on. people—and those are related. For a
It was very surprising. It was at that company at Amazon’s scale to continue to
point—this is probably 1998—that we invent and change, to build new things,
started to realize that perhaps we could it needs to have a culture that supports a
sell a very wide selection of things using willingness to experiment, a willingness
the methods that we had pioneered. to fail. I think it is very helpful to have
a customer-obsessed culture.
Is entrepreneurship a source of innova- There are other business strategies
tion and dynamism that benefits not just that work. You can be competitor-
the entrepreneurs themselves but the obsessed, and that leads to business
economy and society more generally? strategies like close following. Close-
Yes, I think so. New inventions and following strategies can be good for
things that customers like are usually businesses because you don’t have to go
good for society. They can be tough down as many blind alleys and you get
on incumbents, and so people who have to let your competitors do the pioneer-
built a business doing it the old way ing—and then, when something works,
think it would be better if things could you can jump on it. But it doesn’t lead
be more stable for longer periods of to as much entrepreneurialism.

4 f o r e i g n a f fa i r s
 A Conversation With Jeff Bezos

A pioneering culture, one that actually Increasingly, you see entrepreneurship

enjoys and is excited by experimentation, taking off in other countries. Is this a
a culture that rewards experimentation zero-sum game Americans should be
even as it embraces the fact that it is worried about, or is it good for the world
going to lead to failure—that is very that others are now starting to display the
important for larger companies in order kind of technological entrepreneurship
to be entrepreneurial. And a long-term that used to be an American specialty?
orientation is a key part of that. If every- It’s great for the world, because we all
thing has to work this quarter, then benefit from each other’s inventions. If
you’re by definition not going to be somebody in Asia invents a new cure
doing very much experimentation. for some type of cancer, we’re all going to
benefit from that. The more innovation
You started out 20 years ago as the we can have in the world, the better off
little guy. Twenty years later, you’re society is going to be.
the big guy, dominating everything.
Does the world look different from So does Alibaba help Amazon or
that perspective? compete with it?
I don’t know exactly how to answer We have a long-standing practice of
that. I can tell you one thing, though: staying focused on our customers rather
I am having so much fun. I run into than our competitors. We try to be
the office every morning. I love every inspired by the things we see out in the
part of my job. world and wonder how they will enable
us to improve the lives of our customers.
Does the state have any role to play in
fostering entrepreneurialism, or is it Do you worry about what some have
simply a matter of the private sector called “the death of innovation” or “the
being allowed to do what it needs to do? great stagnation,” or do you think that
Governments can foster and hinder technology and innovation are moving
experimentation. I’m not an expert in forward to ever-greater heights down
that arena, but I’m sure that’s the case. the road?
I also think the culture in certain countries We live in a dynamic time, where the
is a big factor. If you talk to entrepreneurs rate of change and the rate of innova-
in the U.S., they’re willing to take tion are very high. It’s not equal in all
risks. If somebody does a start-up and segments or sectors of the economy,
it doesn’t work out, they’ll do another. but we are seeing a lot of innovation in
There’s no stigma associated with failure. certain sectors, and I expect that to
That’s not true all over the world. An continue. The great thing about ideas
acceptance that experimentation is is that every new idea leads to two more
associated with failure is a part of U.S. new ones. It’s the opposite of a gold
culture. It’s not unique; other places rush, where the more people who show
have it as well. But it’s strong in the up in 1849 to get that gold in California,
U.S. and something that we should be the faster the gold runs out. Ideas are
incredibly happy about. not like that; ideas breed.

Januar y/Februar y 2015 5

The Man Who Sells Everything

Some people have argued that Amazon and I’m sure in some cases, they wish
does well by its customers, but not so we didn’t do what we do. I know how
well for small businesses. Do you think to make our competitors happy: raise
that argument has any validity? Do you prices, slow delivery speeds, and reduce
lose sleep over the consequences for selection. But that’s not what our cus-
other businesses trying to compete tomers want us to do.
with you?
I think we are very empowering to You started out selling books. Now
certain small businesses. Probably you’re the subject of them. Do you read
some of the most impactful inventions the books written about you, and if so,
that we’ve done are those that em- what do you think of them?
power other companies. For example, Amazon has been so well treated, on
our third-party-seller business: we balance, by the media that, for myself
have millions of small sellers who get and for all the people I work with, we
access to our prime retail real estate try to keep an even keel, and a deep keel,
and get to compete against us and sell on matters like that. When the pr is
right alongside us. That technology good, don’t believe it; and when it’s the
has been a facilitator for millions of opposite way, don’t believe that either.∂
small businesses.
Kindle—we call it kdp, Kindle
Direct Publishing—is another self-
service platform that has been incred-
ibly empowering to a whole set of
creators: authors who have never been
able to get distribution before.
And aws [Amazon Web Services, the
company’s cloud-computing division],
because it transforms capital expense
and fixed expense into a variable cost,
has been a tremendous enabler of hun-
dreds of thousands of small businesses
that use it to lower their data center costs
and increase their nimbleness. Aws sells
services to software developers, software
engineers, and companies that employ
them. It has grown into a very signifi-
cant, and very exciting, business for us
over time and is a very important piece
of infrastructure for the Internet and
for many enterprises and many govern-
ment agencies.
All of these things are very good for
small business, and we’re very proud of
that. There are competitors out there,

6 f o r e i g n a f fa i r s
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 Return to Table of Contents

allowed to stay. On the plane, I met the

The Art of newly elected president of the Bolivian
Football Federation, and we hit it off.
the Cell He told me about his project of wanting
to take Bolivia to the World Cup, and
by the end of the trip, he had offered
A Conversation With me a job.
Marcelo Claure It was the lowest-paying job I would
get. But it exposed me to a world that
very few other people ever have a chance

A
native of La Paz, Bolivia, to see. Going to the World Cup was
Marcelo Claure graduated from the biggest entrepreneurial dream that
Bentley College, in Waltham, Bolivia has ever had. It was like starting
Massachusetts, in 1993 with a degree in a business from scratch and making it
economics. His first job afterward was the biggest business in history. And we
with the Bolivian Football Federation. opened the World Cup back in 1994 in
A year later, the Bolivian national soccer Soldier Field. People always say, “Hey,
team landed a spot in the World Cup, Marcelo got lucky.” The way I look at
and Claure, back in Massachusetts, it is that entrepreneurs have a higher
landed a partial stake in usa Wireless, return on luck than anybody else—​
which he built into a leading wireless because we all have this lucky moment
retailer in New England. Three years in life; it’s whether you know how to
later, he struck out on his own and leverage and take advantage of it.
founded Brightstar, a Miami-based
cell-phone distributor specializing in How did you get into the mobile
the Latin American market. By 2013, business?
it was the 55th-largest private company I saw very little opportunity in my
in the United States. Then the Japanese country, so I came back here. I was
telecommunications company SoftBank dating the woman who became my
took a majority stake in Brightstar, and first wife, and I wanted to be back in
SoftBank’s founder, Masayoshi Son, Boston, where I went to school. I went
W orl d E conomic F orum / M onika F luecki g er

installed Claure as ceo of another one to apply for a job at Merrill Lynch,
of his properties, Sprint. In November, and I told the interviewer the whole
Claure spoke to Foreign Affairs deputy story about the World Cup, and he
managing editor Stuart Reid at Sprint’s said, “You have to meet my boss. Give
headquarters, in Overland Park, Kansas. me your cell-phone number.” I didn’t
have one, so I said, “It’s in my car. I’ll
You got one of your first jobs through a call you on it from there.”
chance meeting on an airplane. So then I went with a friend to
I was flying back down to Bolivia, just find a cell-phone store. The first one
like any other Bolivian student who we went to was closed, so we went to
went to school in the U.S. who’s not another one. We passed the store. You’re
not allowed to reverse on a highway, but
This interview has been edited and condensed. I told my friend, “Please reverse.” I met

8 f o r e i g n a f fa i r s
 SCHUMPETER’S HEIRS

Claure in Switzerland,
January 2012
The Art of the Cell

the owner, and he told me that he was people called 24 hours a day, we made
tired of being in the business, and he our call center be open 24 hours, and
invited me to buy in. I didn’t have much we got a bunch of drivers spread all
money, so I gave him all I had and got over Massachusetts.
him to finance me for the rest. He had
two stores, one on Route 9 and another And in 1997, you founded Brightstar.
on Newbury Street. He handed me the I used to always get my phones from two
keys and said, “After your story with companies—BrightPoint and CellStar—
the World Cup team, you can probably and they offered such bad service. Some-
do a better job than me running this.” times they never delivered the phones,
So a few weeks after arriving back in or shipped to the wrong address. They
the U.S., I was a proud owner of my were huge, publicly traded companies,
own little business. and I figured, if these guys are so bad in
the U.S., I can only imagine how bad
What did you do that was different from they must be in Latin America. So I
what he did? said, “Well, I’m just going to call myself
A lot of things. I figured out that if you Brightstar, and I’m going to start Bright-
had only two stores, you were pretty stars in Latin America. I’m going to buy
much irrelevant. I realized that if I phones and resell them to customers and
wanted to grow, I would have to open offer a better service.”
100 or 200 stores, which would have
been very difficult. When I was in college, What opening did you see in Latin
Domino’s Pizza claimed, “Order a pizza, America?
and we’ll deliver within 30 minutes or The complexities of the market. In the
it’s free.” So I put in a 1-800 line and took U.S., it’s easy to do business. Federal
out a full-page ad in the Boston Herald Express will deliver phones everywhere.
offering to deliver phones for free. You just call an 800 number, and a truck
That first day, we were so excited, shows up. Latin America is a different
because we were betting everything we game. If you were a carrier in Latin
had on the ad. Our staff of six or seven America, you had to forecast ahead of
went in at 6 am. We had our phones time, open a letter of credit, buy the
lined up at a table—no call center, no phones in the U.S., call a trucking
fancy operation. And from the window, company to take them to Miami, fly them
I could see that the seven lines were all into your home country, clear customs,
lit up. I was like, “Wow!” and exchange currency. I thought, “This
We sold so many phones that day that is so complex. I can simplify this for
at 7 pm, we just shut it down, because it my customers.”
was crazy. We only had about five or That’s when I learned a huge lesson:
six drivers, and it was impossible. So I that companies that are easy to do busi-
called all my friends, my wife, every- ness with will always win. Simplicity is
body that I knew, and I said, “I need a the key attribute of winning businesses. If
favor.” We delivered the phones from you were a carrier in Colombia, you could
7 to 11 pm. The following day, the cycle buy your phones from Motorola in a very
started again. Then, realizing that complex way, or you could buy them from

10 f o r e i g n a f fa i r s
 A Conversation With Marcelo Claure

Brightstar, where we took care of all logistics. Mexico is similar. Central

the complexities. We had a distribution America is similar. You have these
center, and we would deliver straight countries that have great potential,
to your stores. You could forget about but there’s always a reason the countries
one of your main problems, which was never explode into the growth that’s
inventory. That worked in Colombia, in expected. Brazil and Mexico should be
Bolivia, in Brazil, in Chile—we just kept leading the world, because they have
opening one after the other. everything that you need to be success-
Then came probably the biggest ful: a huge internal market and amazing
challenge. One of my partners back natural resources. But then protectionism
then, Motorola, said, “Do you think comes into play.
you can replicate what you’ve done in
Latin America in the U.S. market?” What are some of the obstacles you
That doesn’t happen a lot for Latin encountered in developing countries?
American companies, especially service When there’s more risk, there’s more
companies. So we came to the U.S., opportunity. Where the rules of the road
did the same thing, and became the are not there, then there’s a tremendous
leading cell-phone distributor and amount of opportunity for entrepreneurs
supply-chain company in America. I to bring in their innovation and their
remember I was so proud when a tiny different way of thinking.
little carrier in Bolivia called Telecel For example, Argentina is a country
let us manage their supply chain. But where a lot of people didn’t want to
I was prouder when Verizon came in invest. One afternoon, I got invited to
the U.S. and said, “Hey, manage my have lunch with President [Cristina]
entire supply chain to all of the na- Fernández [de Kirchner]. She said, “I
tional retailers—the Walmarts, the have a vision: I want to build a cell-
Best Buys—and to all my dealers.” I phone manufacturing plant in Argentina,
wondered, “Should we tell them no, but I want to build it in the Patagonia.
because we don’t have the capability?” The reason is that everybody’s coming
But then I said to myself, “In Colom- to the city, because there are no jobs.”
bia, I had ten people calling each store And she said, “In exchange, I will give
and saying, ‘Hey, what did you sell the you some economic incentives.”
day before?’ It’s a lot easier here; we You can rest assured that she probably
can just ask Walmart what they sold.” went first to a lot of more sophisticated,
factory-like companies—unlike ours,
Do you think companies and investors which had never manufactured anything.
are still overlooking Latin America? So we did our first factory, and it ended
I call Latin America “the almost up being the largest cell-phone factory in
region.” We’re almost there, and then Latin America outside of Brazil. When
something happens. Brazil has all the I left Brightstar, we were doing eight
potential, but it’s very hard to make million to nine million phones a year.
money in Brazil if you’re not a Brazil- We created thousands and thousands of
ian company. The government makes new employees, who stayed within the
it so hard—the tax system, the lack of Patagonia. When the rules are really

Januar y/Februar y 2015 11

The Art of the Cell

clear, traditional companies will occupy Is creative destruction always a net plus
that market. When the rules are not for the economy, for society, and for
written, that’s where disruptors come in. employment?
It depends what side you see it from.
Did you find it easier operating in Mobile phones have made sure that other
certain countries as opposed to others? industries almost disappear. You don’t
Easier equals less risk and lower profit- find cameras anymore, unless it’s for
ability. The U.S. is probably the easiest high-quality professional photography.
country in the world to operate in. Most The mobile phone is eliminating video
of the time, there are clear rules of cameras, and it’s going to continue to
engagement. The laws are clear. There’s eliminate a lot of other things. There are
transportation. There’s logistics. What no more photo albums. Everything sits
mature countries, like the U.S., offer in the cloud, thanks to a mobile phone.
is a platform for a different type of Has this been productive for the most
innovation. But the new entrepreneurs important part of the economy, the
today are emerging in different types consumer? Absolutely. Now, if you are
of economies. In places, like China, that on the side that is creating, it’s great
are very complex to do business in, that’s for you. If you’re on the side that’s being
where you have the creation of Alibaba. attacked—if you’re Kodak—it’s not.
That’s where you have the creation of But net-net, it is always going to be a
[the electronics manufacturer] Xiaomi. positive for the economy as long as the
So even though there are certain mar- consumer benefits.
kets that are easier to operate in, that
doesn’t necessarily guarantee that you’re What can governments do to increase
going to be more successful. the scale and quality of entrepreneurship
in their countries?
Did you ever encounter any problems There’s a lot that can be done with policy.
with leftist governments in Latin Some countries have done an incredible
America that weren’t friendly to foreign job attracting entrepreneurs. There’s a
businesses? reason there are pockets of innovation
We did. I met with President [Hugo] in Israel: it has a pro-innovation, pro-
Chávez at one point, because he was entrepreneurial government. When
very concerned that Brightstar had a you put entrepreneurs together in a
70 percent share of the Venezuelan certain place, it’s amazing the level of
market. He said, “Explain that to me, innovation that takes place.
when you’re an American company.” I There are also a lot of countries that
said, “No, we’re not an American close their borders and don’t foster inno-
company. We are a Venezuelan com- vation, and you never see great companies
pany, with Venezuelan employees, come out of them. I’m very opinionated
with a Venezuelan leader, owned by about immigration. In the U.S., we are
an American company, and that is doing ourselves tremendous damage by
very different.” having such bad immigration policies.
We have built the best educational institu-
tions on the planet, and we educate the

12 f o r e i g n a f fa i r s
 A Conversation With Marcelo Claure

brightest minds from all countries, and When I go to Bolivia, people say, “Wow,
then we kick them out when they want if you can do it, I can do it.” And believing
to stay here. I think well-planned and in yourself is probably one of the most
well-executed immigration reforms, basic things that allows advancement.
especially for students, would be one of
the biggest drivers of entrepreneurship What are the most important qualities
and innovation—something as simple for an entrepreneur to have?
as allowing the bright minds we’ve You’ve got to have a passion for what
educated to stay and contribute to the you do. If you love what you do, you’re
American economy. going to do things that others don’t do.
You’re going to work harder than the
Has your experience as an immigrant rest. You’re going to set lofty goals that
helped you? others wouldn’t. You’re going to learn
It gave me a huge advantage. Being an how to take calculated risks.
immigrant is the best of both worlds.
You’re programmed two different ways. You’re now the CEO of a large company
You’re bringing the best from your that you didn’t found yourself. Is it
culture—and Hispanic culture has so possible to manage such a company
many great things—and mixing it with entrepreneurially?
the greatest country in the world. That Leading a company of this magnitude
gives us an advantage in comparison to is very different from leading a com-
somebody who was born in the U.S., pany that you founded. Your ability to
went to school here, and the U.S. is all influence change is very different. As
they’ve seen. We’ve seen the other side. an entrepreneur and a founder, you are
automatically granted the respect and
What values did you bring from Latin authority that you need to make deci-
America? sions, and people follow. Here, you
The family is perceived differently there. need to earn that from your employees,
It’s the most important foundation. who don’t know you. And the speed at
My father invested all his life savings which they react is completely different.
into making sure his kids went through You have to influence change through
education. In comparison, my [Ameri- your management team, and your
can] friends all had loans from universi- management team influences change
ties. In the American family, most of through the third layer, and the third
the time, at age 18, the responsibility layer influences change to the fourth
ends—not the parenthood but the layer. When it’s your own company,
support. In Latin families, the responsi- you influence change from you all
bility never ends. the way down to any layer you want.
Latin America has very few success Everybody knows you, and everybody
stories. I wanted to make sure that I won. has seen your growth.
I wanted to make sure that I became the I think I bring to Sprint the ability
most successful Bolivian immigrant ever. to make decisions from an entrepre-
I felt that I could be an inspiration to my neurial perspective. In corporate
country. The results have been amazing. America, you’re paid not to take risks,

Januar y/Februar y 2015 13

The Art of the Cell

because if you take risks and you fail, really big teams. That’s why I bought
you get fired. An entrepreneur looks the largest team in Bolivia, and why
at it completely differently. We’re able we almost became champions of Latin
to advance by taking more risks than a America last year, when we weren’t
normal corporate ceo would. supposed to.
Entrepreneurs ask the question, why I see soccer as being the most
not? I came here and said, “Our pricing— important sport in the U.S. 20 to 30
it’s completely out of whack. We have years from now. Miami doesn’t have a
lost relevance. Nobody wants to buy a soccer team. I met David Beckham,
Sprint phone.” I said, “Why don’t we and he invited me to be his partner.
do leasing?” My whole team said, “We’ve The team should have a lot of value in
got to test it in the market, make sure the future. I see it as a great opportu-
our systems work at 100 percent,” etc. nity to co-invest in that team and do
And I said, “We’re going to launch it something that I love.∂
in four days with no testing, and we’re
going to figure it out as we go.” You
follow your gut. You know that if you
can make it cheaper for consumers to
have the latest iPhone 6, consumers
are going to jump. It doesn’t need to be
analyzed by 100 people 50 times over.
You can launch things being 70 percent
right. They don’t need to be 100 per-
cent right.
That’s the entrepreneurial approach
that I’ve given to Sprint. We have changed
our pricing and made it attractive. And
we’ve just had the first month in the last
few years in which we have more cus-
tomers coming in than leaving.

You’re trying to bring a soccer team to

Miami. Why?
Soccer is David versus Goliath. Soccer
is the only sport in the world where the
rules of size and scale don’t apply. A
small country like Uruguay, which has
less than four million people, can beat a
country that has 70 million people. In
basketball, if the best players in the U.S.
play against any other country in the
world, they will win 99 times out of
100. In soccer, the underdog pretty
much has the same odds as the really,

14 f o r e i g n a f fa i r s
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 Return to Table of Contents

Wars trivia—he had learned it all—and

She, Robot when we got to the fact that Kenny Baker
played R2-D2, I said, “What do you
mean, someone played R2-D2? I thought
A Conversation With it was a robot!” (By the way, we learned
Helen Greiner in the first episodes that R2-D2 actually
got around by flying, because he couldn’t
get around those jungles, or Tatooine,

B
orn in the United Kingdom, Helen or up stairs with the rolling. So that’s
Greiner moved to the United why I had to do flying robots.)
States with her parents when she
was five. In 1990, soon after getting a What are the most important qualities
bachelor’s degree in mechanical engineer- for a successful entrepreneur?
ing and a master’s in computer science, Persistence—just in case that first idea
both from mit, she teamed up with a you have isn’t the one that is a billion-
professor and a fellow student to found dollar idea. Being able to keep at it and
iRobot, a company devoted to making get through any roadblocks.
practical robots for consumers, businesses,
and the military. Among its many prod- How has that played out in your own
ucts, the company developed the PackBot, career? What did you need persistence
a small mobile robot that can scout out to overcome?
dangerous situations, and the Roomba, a Well, we started iRobot in 1990, and it
vacuuming robot designed for home use. wasn’t until 1998 that we took the first
The company went public in 2005. In investment capital. It wasn’t until 2005
2008, Greiner left to found CyPhy Works, that we took it public. It was the longest
a start-up focusing on flying robots, or overnight success you’ll ever see.
drones. Foreign Affairs editor Gideon Rose
spoke to her in early November. Most start-ups fail; most entrepreneurs
don’t succeed. A lot of people can be
What first got you interested in robots? persistent, but they can persistently fail. Is
When I was 11, I went to the cinema success just a matter of luck and timing?
and saw Star Wars and fell in love with I don’t think it’s just luck and timing;
R2-D2—because he had a character, a it’s more about being able to have a great
personality, an agenda to save the uni- idea but also have the right timing for
verse. He seemed more than a machine. it. Uber, for example, wouldn’t have been
I’ve been intrigued with building things successful in the ’90s, because people
G e tty I m ag e s / W in M c N a m e e

that are more than machines ever since. weren’t carrying smartphones.
It’s the same with the robots. A great
Is it true that you were crushed when example is drone delivery. It’s something
you found out there was actually a to be thinking about now, but it’s probably
person inside? not something to do now, because some
Yes. I was quizzing my brother on Star of the technology hasn’t been created
and some regulatory and cultural barriers
This interview has been edited and condensed. are still there. So our strategy is to put the

16 f o r e i g n a f fa i r s
 SCHUMPETER’S HEIRS

Greiner in Washington, D.C.,

June 2007
She, Robot

pieces in place now, get the technologies great.” What we did to change that
ready, so that we’re ready to do it in five was really get robots into the hands of
years, because that’s when I think the regular people. They could be for regular
timing is going to be right. soldiers, in a form that’s rugged, reliable,
I’m not saying I’ve always been and easy to use, or in people’s homes,
successful in this. For example, I tried to so they’re not some esoteric technology
do an Internet-connected robot in 2000. but a practical device that people have
You see wonderful Internet-connected around and use every day.
robots today from VGo, Suitable Tech-
nologies, Double Robotics, and a few So the discipline of making a commer-
others. But I tried to do it in 2000. It cially viable product helps make you a
wasn’t a bad idea; I believe that people better roboticist?
will use telepresence to do all kinds of I think it does. Because robotic ideas
things. But the timing was off; it was are a dime a dozen, and robotic demon-
way too soon. People didn’t even have strations kind of follow that. It takes a
always-on Internet connections in most lot of nights and a lot of sweat to get a
homes. The Internet didn’t have the robotic demonstration done, but it’s
optical switching networks that it has when you’re making a product that you
today. So I’ve learned over the years have to worry about things like liability,
that it’s not just about the idea; it’s supply chains, logistics, all the different
about the timing of the idea as well. aspects of actually getting it into peo-
ple’s hands. There are ten million plus
So entrepreneurs mix vision and Roombas out there, which has changed
practicality? the feel from just being about, “Oh,
Yes, and that’s exactly where I like to play, the robot’s doing something; look at
because you could spend your life being it!” People are using them. People have
the very, very first [and never getting them in their homes. People see robots
anywhere]. Good entrepreneurs pick the are helpful.
timing—not the timing of what you can
do with current technology but what What is the relationship between
you’re going to be able to do a few years entrepreneurship and innovation?
from when you start. That way it all You can have innovation without
comes together, as the technology’s ready, entrepreneurship, but I don’t think
the market’s ready, and everything’s in you can have entrepreneurship without
place to put forward a successful product. innovation. It doesn’t have to be the
type of innovation that we do, building
Is that a different attitude toward things that are completely new from a
innovation in robotics from what used technical point of view, but it has to
to be the case? have some innovation behind it for
It used to be that robots were labora- the entrepreneur to succeed.
tory demonstrations, and you would
get together, and everyone would see a Some economists argue that entrepre-
robot do something really cool: “Ooh, neurs are great men and women whose
ah, the robot’s doing something. It’s activities create dynamism and are

18 f o r e i g n a f fa i r s
 A Conversation With Helen Greiner

crucial for broader economic growth and to play in entrepreneurial and techno-
development. Do you agree with that? logical innovation?
I don’t know if they’re great men and I think it does, but not in funding it,
women. They’re people that have a bee because that’s what venture capitalists
in their bonnet about something. Like, do for a living. It’s a role of enabling.
I want robots to exist. That’s why I’m I’m a believer in clusters of activity,
an entrepreneur. I passionately want and we have a cluster of robot activity
the world filled with robots. in the Boston area, anchored by mit
and iRobot. Now there’re hundreds of
So your starting point is not, “Here’s a robotics start-ups, which is really excit-
problem robots can solve,” but, “I like ing. To enable something like a robot
robots, and I want to see more of them”? community to get together—I think
Yes, but remember, I started when I was that’s where the government can have
11. I think that the passion keeps you some role. I’m serving as an ambassa-
persistent in getting through the road- dor for global entrepreneurship for
blocks that will come up, unless you’re the president, and that can be used in
insanely brilliant, like the guys at Google. diplomatic outreach, too.
If you’re going into entrepreneurship just
to make money, it’s going to be tough. You’ve worked in academia, on govern-
The whole thing has been a dream ment contracts, and in the private
come true for me. When we started sector. Are there different mindsets that
iRobot, if we’d sold a thousand robots, relate to innovation and entrepreneurship
we would’ve thought ourselves very in each of those areas?
successful, because nobody had sold They have different roles to play in
that number of mobile robots before. the innovation ecosphere. If you’re at a
(I’m not talking about the industrial university, you should absolutely be
automation equipment, because people working on stuff that’s 20 years out. If
had been doing that for decades.) you’re at a start-up and you’re working
on stuff that’s 20 years out, that’s not
Is the hobbyist, the enthusiast in you, a going to make your investors very happy.
different person from the entrepreneur, And the government: it’s there to enable
or are they tied together? and to put a level playing field in place—
It’s very much the same. It’s the passion rule of law, one set of rules for all people,
for the technology. I can honestly say that policies that make venture capital
if I wasn’t doing this at companies, I’d possible. Government also has a role to
be doing it in my garage. I happen to be play in areas affecting national security.
around at a time when it’s possible to be Google might be curing cancer, but I
successful in business doing it, but if I was don’t think they’re going to suddenly
a decade earlier, I might have a real job start putting up money to make sure
and be doing [the robotics] in my garage. our defenses are strong.

Many technology entrepreneurs see the Math and science, technology, entrepre-
state and the private sector as being at neurialism, defense contracting—
odds. Do you think the state has a role these are often very male-dominated

Januar y/Februar y 2015 19

She, Robot

environments. Are there special issues military investments. [Misguided Federal

that women in these areas face? Aviation Administration regulations
Like everything else in life, it’s a double- have] pushed [the drone industry] over
edged sword. On the one hand, there to Europe, Canada, and other places.
are statistics that show women raise less So there can be a downside to govern-
than five percent of the venture capital ment, too. [It’s important to] make sure
in the country, so things like that can be that, even while keeping people safe,
daunting. On the other hand, if you’re regulations help American industry
in a room where you stand out, people rather than hurt it.
remember you. You have to take the
good about it and ignore the other stuff, Why drones?
because the world will catch up. I just see so much potential in flying
robots, because they avoid so many of
Are some countries better than other the issues you have on the ground, and
countries at sponsoring entrepreneur- I think we’re going to go further faster
ship? Is it an American specialty? with them. If you look around, wher-
I think the U.S. has led the world in ever you are, you have free space [in the
entrepreneurship. I’m a naturalized air]. By using drones, we get to cheat a
American citizen, so I like to say I’m little—not have to do as much obstacle
American by choice, not by accident. avoidance, detection, categorization,
I’m so glad my parents brought me and things like that, because there’s less
over here when I was a child, because stuff around [than on the ground]. And
it really is a country that tells you the same is true outdoors: you don’t
anything’s possible, that you can go have roads, pedestrians, cyclists; you
out and do it. Starting a company right don’t have trees or rivers; there’s this
out of grad school and turning it into corridor above the treetops that is just
the premier robotics company has been waiting to be made use of by drones.
literally a dream come true to me. But
I think other countries are seeing how Old science fiction used to be filled with
it’s done, and that’s a good thing for flying cars, jetpacks, and things like that.
the world, because entrepreneurs create Will those eventually take advantage of
jobs, create industries. Competition the space you’re talking about, or will it
can stimulate further development and be just drones?
move the world forward faster. I believe that the technologies will
come. We already have a lot of tech-
Is robotics becoming increasingly nologies in ground robots to sense and
globalized? avoid things. I want to bring some of
Robotics is increasingly globalized, but those technologies to the flying robot
some of that’s not for good reasons. In space. I think we can disambiguate the
the space that I’m working in now, in airspace; I see no reason why drones
drones, there’ve been excessive regula- can’t share the airspace with man.
tions in place [in the United States],
and that’s helped drive away an industry How will people be safe in a world in
that we moved on first, through U.S. which drone technology has proliferated

20 f o r e i g n a f fa i r s
 A Conversation With Helen Greiner

and drones become incredibly easy to in their homes have a cultural signifi-
purchase and operate? cance beyond the economics?
A terrorist could buy a drone today I believe it did. When we first asked
and start planning an attack with it, people if they wanted a vacuuming
and I think the only way we’re actually robot, they imagined the Terminator
going to catch that is with human standing behind a vacuum and pushing
intelligence. Terrorists aren’t going to it around. We asked mostly women, and
get drones from a company building they tend to be very practical: “Where
them for commercial reasons; they’re would I put that? It doesn’t fit in my
going to go to the hobby store and closet.” When we showed them the
buy the ones that are already freely Roomba, it was like, “Oh yeah, I can
available, if they want to pack them imagine having that in my home.” It
with explosives. I think it’s a challenge. goes to the charging station, it’s very
But you can do the same with a car, small, and it just does the job. We’ve
and you don’t say, “Well, we shouldn’t gotten a lot of positive feedback.
sell cars because you can use them in
a suicide attack.” All we have to do is Are we going to see robots in the future
figure out who’s going to be doing it that are humanoid, androids like the
and try to stop it. ones in science fiction?
There are seven billion people in the
You like the idea of a world full of world, and almost all of them are very
robots, and a lot of people would agree good at being people. We’re not trying
if they helped them do things. But to duplicate people. We’re trying to
does that world full of robots have as help them; make them more efficient,
many jobs for ordinary humans? better at their jobs; empower them to
Robots have been in place in factories do more with robotic technology.
for decades now, and jobs have changed,
but there’re still people in factories. How is robotics related to artificial
Maybe there are fewer, but we’re able intelligence?
to produce more. If robots happen to You need artificial intelligence on
make things more efficient, you want robots, but you can have artificial
to be the place that has them. You can’t intelligence purely in a disembodied
stop technology; the world’s going to state, on, say, a computer system. My
continue to move forward. I would belief is that the artificial intelligence
love to see [technological productivity] in robots is going to go down a differ-
change the social contract and how ent path, one that becomes more
people think of a full workweek—as animal-like or human-like, whereas the
four days of work or, later on, even stuff on a computer is not competing
three days—because there could be with human intelligence; it’s an adjunct
more quality time that people spend to it. I think people get very confused
with their families. by the language that’s used by people
working on artificial intelligence. They
Did the Roomba’s making people say, “It’s like a brain.” But it’s not. It’s
comfortable with the idea of robots totally a machine; it’s an algorithm.

Januar y/Februar y 2015 21

She, Robot

When people say things like, “Ai’s the Some people talk about the end of
worst existential threat that exists for innovation or “the great stagnation.”
humans,” I don’t see it. There’s noth- Do you think the truly life-changing
ing that I’ve seen right at this moment innovations have already occurred?
that I’m worried about being a threat Whoever said that does not study their
to humans. history. Innovative people will [always]
be able to take things from different
Do you worry about Skynet and fields and put them together and come
Terminators? up with something completely new.∂
No, because I haven’t seen any technol-
ogy that makes me worry about it. If I
did, sure, I’d be worried. The problem
with worrying about everything is that
it takes mind share away from things
that we really should be worried about,
like global warming, genocide, funda-
mentalism, biotech weapons, and so
forth. These are real concerns.
In the early 2000s, Bill Joy [then
chief scientist at Sun Microsystems]
wrote articles about how biotech, nano-
tech, and robotics were going to kill
the world. We’d get calls from The Wall
Street Journal, and they’d say, “What
kind of evil robots are you making
there?” And we’d be like, “No, it’s a
vacuum. I swear, it’s a vacuum.”

You like robots and want to see a world

full of them. Are there some people who
have the opposite feeling, who naturally
fear or loathe them?
Yes, but those same people potentially
had a natural fear and loathing of
computer systems, and some might
still. But once you have one on your
desktop, once you have a Roomba in
your home, you change your mind. You
see what it’s going to do for you. Once
robots are delivering your packages in
30 minutes rather than you having to
wait a whole day, I think people will
start to see them as useful devices
rather than world-ending devices.

22 f o r e i g n a f fa i r s
 Return to Table of Contents

nothing is impossible. Then there’s

Africa Calling focus: if you start the mission, you
need to eat, drink, and sleep it.
A Conversation With Are entrepreneurs successful because
Mo Ibrahim of their own personal qualities or the
context they find themselves in?
They complement each other. I left

B
orn in northern Sudan in 1946, Sudan when I was 25 or 26 years old. If
Mo Ibrahim received a scholarship I had stayed, I would never have ended
to Alexandria University, in Egypt, up being an entrepreneur. You can have
and graduated with a degree in electrical the qualities, but if you don’t have the
engineering in 1968. After several years environment, you just wither away. It’s
working for Sudan’s state telecommuni- like a fish: take it out of water, it will
cations company in Khartoum, he left not survive.
for the United Kingdom to study mobile
communications, first at the University Why would things not have worked out
of Bradford, for his master’s degree, and had you stayed in Sudan?
then at the University of Birmingham, for It was a stifling society with govern-
his Ph.D. He spent several years at British ment controlling all aspects of life.
Telecom before quitting in frustration, You could not get funding for any sort
and in 1989, he founded his first company, of project. There was no infrastructure
Mobile Systems International, or msi, to support you. And there were a lot
which provided software and advice for of social pressures to just take a govern-
cellular networks. His second company, ment job and have some babies, and
Celtel, created its own cellular networks that’s it.
across sub-Saharan Africa and eventually
served 24 million customers in 14 coun- Were there times in your career when
tries. After selling Celtel in 2005, he you thought you would fail?
established the Mo Ibrahim Foundation, Many times. There were times when
which publishes an index of African we really ran out of money. Our prob-
governance and awards cash prizes to lem was always funding, because all
African leaders who leave office peace- our operations were growing at a
fully. Ibrahim spoke to Foreign Affairs breakneck speed. We needed to double
deputy managing editor Stuart Reid our investments almost every year,
in November. because that’s the way that growth
would happen. The financial markets
A P I m ag e s / Matt D unha m

What are the most important qualities were not very friendly to Africa or
for an entrepreneur to have? to telecom. Remember, 2000 was the
The initiative to try to do something year of the dot-com bust. The telecom
that other people shied away from. industry lost about $2 trillion in
That self-belief, that can-do spirit, that market capital at that time. We had
the double whammy: being a tele-
This interview has been edited and condensed. phone company and being African.

24 f o r e i g n a f fa i r s
 SCHUMPETER’S HEIRS

Niss as ipsunt eum, omniet

veliquatet eos res ut doler
omnihiliquis abora dem eos
aut laboreinlorem
Ibrahim sipim.
London, October 2006
Africa Calling

Are there Africa-specific inhibitions to every single house within 100 square
entrepreneurs? miles. In a few months, you can cover
The picture varies from country to the capital city—every home and every
country, but in general, there is a lack single road in that city. That’s why we
of infrastructure—good roads or power, were able to leapfrog: because the
for example. This can be an impediment. technology met the need.
We had so many radio sites, these stations
you have to have everywhere for mobile. What can Africa and the developing
The vast majority of them didn’t have world more broadly do to create a
power, so we had to put in generators. climate that’s friendly to economic
And if you put in generators, you need growth?
backups for these generators. You also Rule of law is the most important
need batteries. And you need somebody element in any civil society. To build a
to go every morning to each one of successful country, we need to have rule
those sites to supply fuel and put in the of law. And rule of law is not just about
batteries. These are not very accessible writing a beautiful constitution or set of
locations. Imagine the huge effort you laws. It is also about the independence
have to put in just to keep your services of the judiciary. It’s about institutions.
on. So lack of infrastructure is a problem. It’s about respect for rights, human
It can be overcome; we overcame it. rights, social, economic rights, etc.
But what is interesting is that it gener-
ated a lot of other businesses around Were there times in your own career
us in each country, where we dealt when you had difficulty operating in a
with supplying the generators or certain country without a strong rule
maintaining them. of law?
Absolutely. We operated during the
Did it help that you didn’t need much civil wars in Sierra Leone and Congo.
infrastructure? What helped us was that all competing
What mattered was the extreme need parties perceived a benefit: they really
for this service. Africa is a huge continent. needed mobile communications. So
When we started, there were about three they left us alone. Our infrastructure
million fixed lines serving over 950 million was never damaged or looted.
people. Congo had 3,000 fixed lines but In other countries, where telecom
55 million people. Postal service doesn’t was a monopoly of the government
work, unless you’re happy to wait for a when we came in, problems originated
month to get the message. Roads are from a lack of appreciation for the role
not practical in Africa. If you want to of the private sector. You end up with a
get the message from A to B, it’s a real regulator who comes from the incumbent,
pain in the neck. So a phone call is worth and they perceive us as a competitor.
a lot, because of the lack of alternatives. But it’s interesting: we had three situa-
But it’s terribly expensive to lay fiber or tions in three countries where we had
copper over these expanses and connect to take the government to local courts
it to every home. If you put up a mobile for infringement of our contract. In all
station, immediately you can service three cases, we won. If anything, that

26 f o r e i g n a f fa i r s
 A Conversation With Mo Ibrahim

shows that there can be reasonable rule Then I had too much work. I couldn’t
of law in a country even when adminis- handle it by myself, so I brought on some
trations sometimes misbehave. more engineers. I didn’t have a market-
ing department, I didn’t have an hr
What did you do when government department, and I didn’t have a finance
officials asked your employees for bribes? department. We were just a bunch of
We had a discussion with the board engineers selling our services. In a short
when we started. We said, “It’s not time, I had a major operation. I knew I
enough for the board sitting in its nice, didn’t have the business background, and
cozy headquarters in Europe to make I did seek help. But in the first years, I
statements about anticorruption. What managed the company’s cash flow, which
is needed is to offer support to our was easy for me. I found this was just
local people.” Because who comes under common sense. And I made every engi-
pressure for bribes? It’s not the guys at neer in my company a shareholder. That
the top of the company but the people was something I felt strongly about—
operating in the country. And each that we needed to build a committed
operation is actually a local company team. That proved to be a great thing,
headed by a ceo. The scheme we came because we had a high retention rate
up with was very simple. We said that and complete devotion from our
the ceo and the local management did work force.
not have the power to sign any check I’m on the board of London Business
in excess of $30,000. It was intention- School, and sometimes they ask me to
ally quite low to make sure that when give a lecture here or there about how
a minister or a senior official came to to run businesses—when I didn’t have any
put pressure on the ceo, he could say, business training other than common
“You’re asking for two million? I need sense and learning on the job. But it
to write to the board to ask for permis- seems to me, that’s the essential thing.
sion.” No president or prime minister We do not need to trouble our heads
would dare to submit a request to ask with too much Harvard Business School
for a bribe. or London Business School teaching.

Your background is in electrical engi- Do founders make good executives?

neering. How did having that scientific It depends. I’m not really the dictato-
expertise affect the way you ran your rial type. I don’t have a big ego. If you
companies? don’t have a big ego as a founder, you
My first company, msi, was a consulting can be a wonderful executive because
company. I didn’t even know how to you are willing to listen. Once you
read a balance sheet. I was an engineer. I listen to everybody, and then decisions
just wanted my freedom. British Telecom are made, then all of us need to row
was a huge bureaucracy and failed to in that direction. That’s how companies
see the future of communications, and move forward. Provided you don’t let
I just got fed up working there. So I your ego stand between you and common
said, “OK, what I know is how to grow sense or suggestions, then founders can
a network, and I am going to do that.” be good executives.

Januar y/Februar y 2015 27

Africa Calling

How important is entrepreneurship, power. So the emphasis was on neat

not just for firms and industries but for handwriting and how to write good
the economy as a whole? reports and things like that, and if you
It is vital. Where will jobs come from? move further, then you study Shake-
The government won’t produce jobs. speare and Molière. But we don’t have
Governments in Africa are bloated and enough engineers and scientists. Two
need to shed jobs, and most of the jobs percent of African university graduates
are created by small businesses. Every- study agriculture, when 70 percent of
where, even now in Germany and Europe our people are living off the land. Obvi-
and all developed economies, it is small ously, we have a problem. How many
companies that are creating the jobs. Look engineers and scientists do we produce?
at some of the greatest champions of Very few. Something like 30 percent of
business in America: your tech companies. our graduates just study literature, which
All those firms were start-up companies is interesting, but how do you build power
20 years ago or so. These would provide stations, build roads, build dams, build
innovative solutions, jobs, wealth, etc. the continent unless you have the skills?

What, if anything, can governments do Some of the funding for what became
to increase the scale and quality of Celtel came from governments in the
entrepreneurship in their countries? form of development funds. Can the
To be honest, I think government government play a role as an early stage
cannot do much other than trying to investor?
help develop the atmosphere. Africa is No, because the state has no money and
a little bit different from the United so many demands. Look, if you’re run-
States, because you’re at a different ning a country like Burkina Faso or Mali,
stage of development. Entrepreneur- you have demands for health, education,
ship is already deeply rooted in your roads, power. How much capacity do you
society. You have a massive community have in order to support entrepreneurs
of venture capital angels; this thing is there? Financially, it’s difficult.
lacking in Africa. We don’t have strong Don’t forget that those guys gave
private equity or venture capital funds, up the licenses to use telecom because
which look for investors and mentor they couldn’t do it themselves. The
and finance and help pick winners. telecom industry had a terrible time
The government cannot play that role, because they were government-run
frankly, because the government is not departments and the largest customers
qualified to do that. Otherwise, you’re were [other] government departments.
going to end up with massive nepotism The government departments never
and corruption, unfortunately. paid their bills, because if you’re the
The education system is also impor- minister of education, you need to build
tant. We have a problem in Africa schools, you need to publish books, and
with our education system. It is a relic you need to pay teachers. You know
from the past. The education system that the telecoms cannot cut off your
was meant to create clerks to help the service. That meant that the telecom
administrative role of the colonial department was starved for cash, so it

28 f o r e i g n a f fa i r s
 A Conversation With Mo Ibrahim

could not invest in new technology, involved in trade, manufacturing,

like mobile communication. Remember, transport, services, etc. They are entre-
at the beginning, everybody thought preneurial, and they helped a lot to
mobile communication was something kick off economies. I think immigrants
for the elite, not for the people. So it are a wonderful resource for any country,
was very convenient for the government because by their nature, they are entre-
to say “OK, I’m going to focus on basic preneurial. I mean, you leave your village
services and let that crazy investor have a and jump on a ship and go somewhere
go at this. And if he succeeds, I’m going else to start a new life away from your
to charge him a lot of taxes and licenses family and friends—it shows character.
and make some money out of him.” Immigrants everywhere have been a
wonderful bonus for the host countries.
You’ve operated in many different coun- Sometimes it amazes me how anti-
tries. Is it easier being an entrepreneur in immigration feelings arise in Europe
some of them as opposed to others? or the United States, when immigration
Yes, of course. For me, it has always has been wonderful for business.
been about the rule of law. When things The only difference in Africa is
are clear, and you have a process of that many of those immigrants did not
bidding and licensing that is open and necessarily integrate themselves com-
clean, it’s important. When you’re not pletely in the country. They kept their
wrapped up in red tape, that’s really passports. Very few of them acquired
important. In some countries, it was the local nationality. You’ll find third-
very straightforward, and the govern- generation or fourth-generation families
ments understood exactly what we still with the Lebanese or the Indian
were trying to do and gave us support. passport. That’s what produced the
And in some countries, we were met issue of whether you are part of the
with suspicion—that any businessman country. It’s understandable; some
coming here is essentially a thief and of those people are not sure about the
has to be watched very carefully, and if political situation going forward. What
we can squeeze him, why not? It takes Idi Amin did with the Indians [expelling
time to build an understanding that them from Uganda in 1972] was not
you’re not really a thief and that what helpful. But it’s a mutual problem.
you are doing is an essential service.
Then they end up falling in love with Is it fair to say that Africa has a
you, which is terrific. democratic deficit?
I don’t think so. Actually, participation
Ethnic minorities can sometimes be the has been one of the most improved
most prominent entrepreneurs in parameters in our index. A lot of Africans
certain parts of Africa: South Asians in actually live in a much better society
East Africa and Lebanese and Syrians now. Still, we have quite a handful of
in West Africa. Have these groups been countries where some presidents just
constrained by governments that are do not go away.
suspicious of outsiders? Power is very seductive. If you control
Not really. Most of those minorities are a country for some time, then there comes

Januar y/Februar y 2015 29

Africa Calling

a point where you feel indispensable. You race for colonization. These sorts of deals
become part of the landscape. Some sometimes happened between two drunk
leaders, of course, have also committed pinheads in a tent in the evening, sipping
crimes, and they have blood on their gin and getting a map out and drawing
hands. Or they have secret accounts with lines across a map. So when independent
stolen money. And so if they leave, Africa was born in the ’50s, it was born
people will come after them. So they just with that big problem. One of the worst
don’t leave. Like in Sudan: if you leave, things was the lack of the natural devel-
you end up at the International Criminal opment of a democratic movement. When
Court. Staying in power is a form of people left, they left in a hurry and did
insurance policy against the long arm of not pay much attention to what they
the law. left behind.

How can leaders be convinced to Is creative destruction always a net

leave office? Both Rwanda and Congo, plus for the economy, society, and
for example, have presidents who employment?
have hinted that they might change It ought to be that way. I know the
the constitution to stay in office. current debate now is about whether
They are two different cases. I know new technology is destroying jobs or
there’s some criticism against President not, and maybe the jury is still out on
[Paul] Kagame, but one has to accept that that. But if you look at all the major
he really managed to steer his country disruptions in the past, yes, there was
and was successful in the development upheaval at the beginning, but then,
of Rwanda. People admire that. That somehow, we managed to create more
should be his legacy, and I hope he makes jobs once we adapted to the new disrup-
the right decision. Congo is a bit differ- tive technology. But I think we’re now
ent, because I don’t think the president going into some uncharted waters, with
there has succeeded in building his nation. intelligent machines coming. Are we
Congo is dysfunctional. It’s a very fragile ending up with a society where a few
state. I think it’s very important for the of us who are well equipped to work
sake of his own people that the president with and develop these new intelligent
there just leaves peacefully. We’ll hope machines will end up rich while the
to find better leadership. Somehow, that majority of people will be out of work?
country needs to be put together again. I really don’t know. But I am anxious.∂

How much is the colonial era a factor at

this point?
The colonial factor complicated matters,
because it created a number of bogus
borders. Many of the borders of the
current African states don’t necessarily
follow demographic lines or natural
land features; they’re just compromises
between various colonial powers in the

30 f o r e i g n a f fa i r s
About CIRS Research Opportunities
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 Return to Table of Contents

Has that changed over time, or are you

Much Ventured, looking for the same things now that
you looked for 25 years ago?
Much Gained It’s exactly the same as 25 years ago,
with the one big exception that there
are far more opportunities today than
A Conversation With there were a quarter of a century ago,
Michael Moritz because of the digitization of everything.

Most start-ups and most entrepreneurs

B
orn in 1954 in Wales to Jewish fail, and only a tiny handful become
refugees from Nazi Germany, giant successes. Are there actual, pre-
Michael Moritz attended How- dictable differences that separate the
ardian High School in Cardiff and successes from the failures, or is it just
studied history at Christ Church, a question of luck and timing?
Oxford. After college, he moved to Companies have to get the timing
the United States, getting an mba right, because everybody knows what
from Wharton and then working as happens if a company gets started years
a reporter for Time. In 1984, he before a market develops or after too
published an early history of Apple many others have sought to exploit a
Computer, and in 1986, he joined similar opportunity. So timing is clearly
the Silicon Valley venture capital a very important part.
firm Sequoia Capital. Over the past When we make extremely early
three decades, he has been an early stage investments—really, really early,
stage investor in an extraordinary when it’s perhaps one or two people
string of companies, including Cisco, with an embryonic idea, and we invest
Google, Kayak, LinkedIn, PayPal, a small amount of money, maybe
WhatsApp, Yahoo, Zappos, and many $250,000 or $500,000—the mortality
others. He has pledged to give away rate of those sorts of endeavors is very
the majority of his fortune and has different from where we commit more
already donated hundreds of millions serious amounts of money, say, from
of dollars to various educational $2 million to $6 million. As the size of
institutions. Foreign Affairs editor the investment increases, the mortality
Gideon Rose spoke to him about rate decreases, because there’s more
entrepreneurship in his office in certainty associated with it.
late October. Over the years, we’ve had our share
of bloody noses and made some
You’ve been as successful as any terrible mistakes, either companies
venture capitalist in history. What are that we invested in or companies that
the qualities you look for in a start-up? we should have invested in but chose
R E X / H uw J ohn

Remarkable people on a mission that not to. But we have a reasonably

is not widely recognized by others. decent record of not losing gobs of
money investing in companies that are
This interview has been edited and condensed. past a very embryonic stage.

32 f o r e i g n a f fa i r s
 SCHUMPETER’S HEIRS

Niss as ipsunt eum, omniet

veliquatet eos res ut doler
omnihiliquis abora dem eos
aut labore
Moritz lorem sipim.
in Wales, October 2012
Much Ventured, Much Gained

How about the great successes? Do you b­ ecause the company didn’t start off in
know from the very beginning, when you the business that it eventually tapped.
first hear the pitch, that a Google is At first, it went in a different direction,
going to be a Google? which was selling its technology—
No. It’s the pr people and the marketers selling licenses for its search engines
and the revisionists who proclaim to larger Internet properties and to
that everything was obvious from day corporations. And that was an extremely
one. On day one, nothing is obvious, difficult market. Cash was going out of
because all you’re doing is trying to the window at a feral rate during the
concentrate on getting through the first six, seven months. And then, very
first six months and surviving for the ingeniously, Larry [Page] and Sergey
first year. [Brin] and others fastened on a model
Sequoia invested very early on in that they had seen this other company,
Apple, but I won’t talk about that, because Overture, develop, which was ranked
Apple had two different incarnations. It advertisements. They saw how it could
was a public company during its incred- be improved and enhanced and made
ible rebirth, and that portion was well it their own, and that transformed
after the venture stage. the business.
But I can talk about Cisco, or Yahoo, I think the only thing that we really
or Google, or PayPal, or Flextronics, or understood with great clarity in the
YouTube—any number of those sorts beginning—whatever it was, 1999—was
of companies. And if we or the founders that the need for search on the Internet
are honest about what we thought was was only going to go in one direction.
possible on day one . . . I think collec- We’d been investors in Yahoo. We knew
tively we have a wonderful ability to about the proliferation of more and
underestimate the potential of a com- more sources of content that would
pany that becomes great. And we do need search. We understood that. But
that extremely consistently. if you’d said that Google would at some
We invested in Cisco towards the point be more valuable than Microsoft,
end of 1986, and never in a million or that it would become as recognized
years, when we met with the founding around the world as Coca-Cola or Nike,
team—which was six or seven or eight we would have thought that was dream-
people at the time—did we ever dream ing the impossible dream.
that that company a decade later would
be worth $100 billion. Did you imagine WhatsApp would be as
When we invested in Google, the big as it became?
predecessors of the Twitterati were I think it was easier to see that for those
very busy saying that it was far too who traveled overseas. If you looked at
late to invest in a search company, WhatsApp in America, it was very
there were any number of search com- difficult to imagine how popular this
panies around, that market was already was. But I remember going to India
spoken for. There were many naysay- fairly soon after we’d made the Whats­App
ers. And certainly, the first 12 months investment, and I noticed how
of Google were not a cakewalk, prevalent it was there. We also under-

34 f o r e i g n a f fa i r s
 A Conversation With Michael Moritz

stood when we invested that it was the Is technological entrepreneurialism

best of breed for this new form of sms, different in some significant way from
and that these communications networks, entrepreneurialism in other sectors of
if they struck a chord, could grow at the economy?
extraordinary rates. We did not antici- I think it’s very hard today to detach
pate the scale of the sale to Facebook. any form of entrepreneurial activity
Nobody did. But we’d watched e-mail from technology, because whatever
and the messaging apps and Skype and business you start is launched on some
all these other communication applica- form of technology. You may just want
tions over, you know, 25 years, and to start a small bakery, but you’re buying
we’d seen what was going on in China, really good equipment, you’re using
so we had a reasonable sense of what software to run your business, you’ve
would happen. probably got a website.
Today, we pigeonhole technology
What are the most important qualities and associate it with the sorts of things
for an entrepreneur to have? that come out of Silicon Valley. But we
Clarity of thought. The ability to com- forget about looms and steel furnaces
municate clearly. A great sense of mis- and automobile assembly lines and the
sion. A massive willingness to persevere. telegraph and the refrigerator and the
A willingness to make painful decisions. washing machine and the airplane and
Extraordinary energy. And a belief that all these other things. You could make
he or she has embarked on their life’s the argument that nothing happened
work. Those are the hallmarks of the in the universe until around 1725, 1750,
truly wonderful entrepreneurs behind and then all hell broke loose with the
the handful of fantastic companies. arrival of technology. And the speed
There are lots of other virtues of has only increased since then.
entrepreneurs for companies that are
nice companies, that everybody would What is the connection, if any, between
be proud to be associated with, but entrepreneurship and innovation?
that aren’t up in the stratosphere, Rupert Murdoch puts it well. If you
where only a few companies orbit. ask him about his company, which has
been extremely entrepreneurial, he says
Economists such as Schumpeter his company has its roots in intuition,
argue that entrepreneurship is crucial innovation, and opportunism. I think
not just for individuals and firms but that’s as good and succinct a definition
for the broader economy as a whole— of entrepreneurial activity as you’re
that it’s the engine of dynamism and going to find anywhere. That’s the
innovation. Do you think that’s true? hallmark of most of these companies.
Oh, clearly. And [its effect is] not just Everybody knows the stories about
on the economy. It’s on the way people Steve Jobs visiting Xerox and seeing
live, work, entertain themselves, travel. something and thinking that he was
There isn’t an aspect of human life going to be able to do it better than
that technological entrepreneurialism Xerox, or Bill Gates fastening on an
doesn’t touch. opportunity to sell ibm an operating

Januar y/Februar y 2015 35

Much Ventured, Much Gained

system he didn’t even own, or the come to Silicon Valley. Now the U.S. share
Google guys jumping on the possi- of the creation of fresh, new technology
bilities that had been illustrated by value is declining. That’s part of the reason
Overture. that about 15 years ago, we decided here at
Sequoia we had to follow technology
What about the role of the state in where it was being developed by entrepre-
innovation? That’s often underplayed in neurs, in different places around the world.
some of the Silicon Valley narratives.
What people always forget in the ritual Is it easier to be an entrepreneur in some
whining and moaning of the technology countries than others, and if so, why?
industry about the intrusion of the state I sometimes tell people who ask us how
and regulation and the endless red tape we can possibly do business in China,
associated with doing things with the “Have you ever tried doing business in
government is the effect of the state on the state of California?” Look, every
the university system, particularly how region has its challenges. And if you’re
much of the imaginative spark kindled starting a company with big dreams,
in universities actually rests on pro- that is the hardest endeavor in business,
grams that (perhaps unbeknownst to irrespective of whether you’re in Beijing,
the participants) are financed in whole Bangalore, Mountain View, Edinburgh,
or in part by government. I think that’s or Tel Aviv. It’s just an enormously
where government has played a huge difficult undertaking.
role in the creation of Silicon Valley— Clearly, proximity to a large market is
because of Stanford, because of Berke- a big help, which is why so many U.S.
ley, because of Caltech, because of some companies have flourished, because of
of these other universities. the size and prosperity of the United
States. And it’s why so many of the
So the state has a major role to play, not Chinese companies have flourished in
so much in directly driving innovation the last decade, because of the growth
and technology but in providing for of the Chinese economy. So companies
education and basic research? and entrepreneurs playing in their home
Absolutely. I think the state’s role in the markets clearly have a massive advantage
evolution of technology is best aimed over others who have got a great idea
at fueling adventures of the mind into but may be hundreds, if not thousands,
the impossible reaches. That is very of miles away from the people who
long range, and it’s the sort of thing really want to buy whatever it is that
that almost no companies have the they’ve designed.
wherewithal to contemplate.
So the Internet hasn’t eliminated
You’ve increasingly been investing on a geography as a factor?
truly global scale—in China, in India, in It’s clearly helped a tremendous amount.
Israel, even in Europe. A lot of things are way easier. But it’s
The world has changed dramatically in 30 [still] harder to start a [global] company
years. The most imaginative entrepreneur- in Reykjavik than it is right here or in
ial people in the world used to have to Beijing.

36 f o r e i g n a f fa i r s
What can governments do to increase
the scale and quality of entrepreneur-

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37
Much Ventured, Much Gained

valued and where increasingly [even] who do not act like founders. I’ve thought
forms of intellectual endeavor that have about that a fair amount in regards to,
previously been considered impregnable say, the automobile industry, when the
are now being taken over by machines. original engineers who started all these
It’s cold and brutal. companies—Ford and Chrysler and
the others—were [replaced] by the
Many of your great successes have so-called professional manager, who,
involved huge gains with companies on the whole, didn’t have an engineer-
that have only a handful of owners and ing background, wasn’t that interested
employees. Do you worry about that in technology, like the founder of the
being a broader trend and contributing company, and forgot to take care of the
to rising inequality in the economy and future. It would be wonderful for some
society more generally? of these big companies if they were
Like everybody else, I read the Piketty run by people with real entrepreneurial
book. And I think the world has always instincts. If you look at the massive
been a very unfair place. I think the change in composition of the Dow
middle of the twentieth century is the Jones index over 30 or 40 years, and
aberration over the course of history, you wonder where all those big compa-
where there was compression between nies went, they went away because the
the wealth of the top one percent and people at the top of them didn’t have
everybody else. If you look further back, an entrepreneurial bone in their body.
that was not the case. And obviously, it
isn’t a good thing for vast amounts of So it’s not that founders don’t make
people to feel disenfranchised. That has good managers; it’s that managers
never led to a happy result. actually don’t act enough like good
founders?
So do you worry about the [unequal] The last thing that many companies
world we’re moving into? need are managers. Most companies
I don’t. Why don’t I? Partly because would be way better off with more
there’s nothing I can do about it. But entrepreneurs than managers. It’s fine
it’s very easy for people like us here to have things that aren’t perfect and
not to understand how extraordinarily have some rough edges and have a
fortunate we’ve been. It’s just preposter- reasonably chaotic environment that’s
ous how lucky we’ve been to be in this a bit unpredictable but is vibrant, is
place, at this time, associated with all the developing new products, and is mov-
different things that have happened here. ing very quickly. That’s far preferable
to having a well-managed, predictable,
You often favor very long-term holdings, slow-moving company.
where possible. Are the qualities that
make a good founder the same as those You’ve been in the Valley through
that make a good executive more several decades and investment cycles.
generally? What’s been constant, and what’s
The issue with companies that lose changed over time?
their way is that they’re run by people Today, it’s easier than ever to start a

38 f o r e i g n a f fa i r s
 A Conversation With Michael Moritz

company and harder than ever to build thing to do to ensure the future here is to
a company. It’s way easier than it was in have a much more generous immigration
the ’70s and the ’80s, because of all the approach to very talented individuals
things that we know, the way the price and ensure that the Ph.D.s from over-
of computing has declined, the avail- seas educated at the very best universities
ability of open-source software, the in America are not summarily deported
ability to have creative and major con- as soon as they receive their magical
tributors working for your company piece of paper.
even if they are located in remote places
scattered around the world. All of that There’s been talk in some places of
stuff is so much easier to orchestrate the death of innovation or “the great
today—distributing products, particu- stagnation.” Do you see innovation
larly software and services, over the and economic dynamism moving
Internet rather than having to do it with forward, or are their best days behind us?
atoms and with people and with boxes. When you’re thinking about the evolution
But I think it’s much harder today— of technology, I don’t know why today
certainly in Silicon Valley—to build a is any different from the last 200 or 300
company that endures, because of the years. I don’t understand why tomorrow
dearth of engineers and the enormous should not be brighter than it is today.
competition for their services. So But I do wonder what America’s relative
retaining these people is extremely place will be, because so much of the
difficult. I’m not saying it necessarily dynamism in the world of technology
was the healthiest of things, but 30 years is now taking place outside of the United
ago, there were not as many mercenaries States, and people here are just not
around. [Today,] the majority of people aware of the scale of the achievement
who work between San Jose and San or the extent of the ambition of the
Francisco don’t work for a company. entrepreneurs there.
They work for the Valley. The company
where they are roosting is a temporary You’ve said that a key point in your
nest, and they will change their nest career was in your 20s, when you were
every three or four years, depending told by [a potential employer in England]
on their vesting schedule. that if he were a young man, he would
go to America. If you were talking to a
So hiqh-quality engineers are the young person today, would you tell them
critical constraint? And if so, how do you to go somewhere else?
get them? Grow them? Import them? This is so much easier to say than to
You do all of those things. You modify do. But if I was a Westerner, age 22,
the immigration laws. That probably and felt that I either could make my
would be the biggest single thing that way with my Mandarin or had sufficient
would help ensure the future health confidence that I was going to master
and prosperity of American industry. it, I’d be in China.∂
I realize all the political implications
associated with it. But America was
built on immigrants. The single easiest

Januar y/Februar y 2015 39

 Return to Table of Contents

being curious about how things work,

The Nordic Model trying to see around corners, trying to
understand what the world could be like
in the future. And the ability to question
A Conversation With the status quo, to ask why things cannot
Niklas Zennstrom be done in a different way.

Even many people who have those

A
native of Jarfalla, Sweden, qualities don’t succeed. Are there some
Niklas Zennstrom studied predictable things that separate the
business, engineering physics, winners from the losers, apart from
and computer science at Uppsala Uni- luck and timing?
versity and the University of Michigan. [Just like when] you play basketball or
In the mid-1990s, while heading up the football, you need a bit of luck to win
Danish division of the Swedish tele- sometimes. But timing is hugely impor-
communications firm Tele2, he hired tant. Entrepreneurs who come up with
Janus Friis to run customer support, their idea at the right time are much
and soon the two of them decided to more likely to succeed than those who
collaborate as entrepreneurs. They come up with the idea a little bit early
founded the peer-to-peer file-sharing or a little bit too late. But refusing to
company Kazaa in 2000 and the Inter- give up—that’s very important. And
net telephone company Skype in 2003. also having vision and clarity and focus
In 2006, Zennstrom started Atomico, about what you want to achieve. That’s
a firm that invests in innovative tech- something that differentiates the ones
nology companies around the world. who become successful from the ones
And in 2007, with his wife, Catherine, who fail.
he started Zennstrom Philanthropies,
which focuses on human rights and You’ve been involved with a number of
the environment. He Skyped with companies, some of which ultimately
Foreign Affairs editor Gideon Rose in became giant hits. Did you know those
early November. were real winners back when they were
just embryonic companies, or were you
B loo m b e rg / G e tt y I m ag e s / S i m on D awson

What are the most important qualities surprised by their success?

for a successful entrepreneur to have? When we started Kazaa in 2000, we’d
Courage—because as an entrepreneur, seen Napster, and we thought they had
you’re trying to do something that no a great hybrid peer-to-peer model for
one has done before, and a lot of people music. We got inspired by what they
will try to discourage you. You need to were doing and saw they were running
have a lot of courage to take the first into some problems with the music
step and stay your path through all the industry. We thought, this is interest-
challenges. That’s very, very important. ing—we can do a full peer-to-peer
Another important thing is curiosity— technology which is much more effi-
cient, but we’re not going to do it in
This interview has been edited and condensed. music. We’re going to do it for any

40 f o r e i g n a f fa i r s
 SCHUMPETER’S HEIRS

Niss as ipsunt eum, omniet

veliquatet eos res ut doler
Zennstrom in Dublin,
omnihiliquis abora dem eos
October 2010
aut labore lorem sipim.
The Nordic Model

kind of media product, all your video, trends. For example, except for Macs,
images, or software. laptops used to be shipped without
We thought it was great timing. It microphones. But then all pcs and laptops
turned out that it was not good timing, started to be shipped with microphones.
because when Napster got shut down, And the year we launched video coin-
people went from using Napster to using cided with all laptop manufacturers
Kazaa for music. So while we became starting to install video cameras into
hugely successful and popular with their computers. So you can say we
users, we failed to develop a [viable] were lucky in that we benefited from
business model because the music and other technologies that enabled our
the movie industries were determined business. We were kind of just in front
to shut down all file-sharing services. of the wave all the time, riding it, and
A few years later, Apple came up that enabled us to get network effect
with iTunes, and then YouTube came and critical mass.
up. It, too, was on the verge of being Is that luck? Is that skill? It’s timing.
shut down by the media industry, but We could not foresee everything, but
that’s when they seem to have realized we thought when we started that we had
that the Internet was here to stay and a lot of winds at our back that favored us.
they needed to try to find a model for
working with these players. So in that Was Kazaa a precursor of the “sharing
case, YouTube had fantastic timing economy” that’s getting so much
and Kazaa had poor timing. But I never attention these days, with Uber and
gave up, because I realized that even Airbnb and so forth?
if using it for transmitting files didn’t Yes, it was, but Napster was the innova-
work, we could still use this very power- tor there. Napster had it first, a hybrid
ful technology in a different way. peer-to-peer model in which people
So we kept going, and eventually shared their music libraries with each
came up with the idea that it could be other. We took that to the next level.
used to disrupt the telephone sector. That was certainly part of the sharing
When we started to look at opportunities economy. The problem with that model
with Skype, we thought, you know what? was that you were sharing something
Maybe now the timing is perfect, because that maybe you didn’t always have the
of broadband. In 2002, people started right to share.
to migrate from dial-up connections to
broadband connections, and you started What is the relationship between
to have WiFi. You started to have what entrepreneurship and innovation?
today are called smartphones (at the time, They’re certainly interrelated. Almost
they were called pdas). And you started all successful entrepreneurs within
to have other technologies that could the technology field have some kind of
enable powerful Voice over ip service. innovation. In other fields, finance or
That’s why we felt that the timing was real estate, they may not be so involved
really good with Skype. with innovation. But in technology,
And then, as we launched, we ben- there is always some kind of innovation.
efited from still other technological Some times it’s deeper than others. With

42 f o r e i g n a f fa i r s
 A Conversation With Niklas Zennstrom

Internet businesses, the innovation has out and say, “Hey, you can do this much
become more about the product and the more efficiently for a fraction of the
business model [than the underlying cost and with a tenth of the number of
technology]. employees.” For customers, it’s fantastic.
But there are people who are losing
Schumpeter felt that entrepreneurship jobs, which is not great for them and
was crucial not just for individuals and potentially a burden for society. Over
firms but for the economy as a whole— the long term, however, if you don’t
that entrepreneurs were these great have disruptive innovation, you will
men and women driving society and the become a country or a market full of
economy forward. Do you agree with that? incumbents and will eventually be
Absolutely. I think it’s a huge driver disrupted by somebody else, which
for the economy, because in sectors would be very bad for you. So yes, on
that become mature, you have mature balance, disruptive innovation is good.
companies who improve [only] on the
margin. Maybe they’re growing a little Many people think of technological
bit here and there, becoming a little bit innovation and entrepreneurship as an
more efficient, making iterations of the American, and particularly a Silicon
products that they’re selling. But what Valley, specialty. You’re an example of the
entrepreneurs do is start with a clean global spread of tech entrepreneurship.
sheet of paper or a clean whiteboard and Are you an exception, or are you the
say, “How do we do this in a different new rule?
way? How do we solve this problem? This is something I’m really excited about.
We’re not the incumbent; if we just One of the reasons I started Atomico
start from now, if we don’t have all this eight years ago was to prove that Skype
legacy infrastructure or technology, was not just the one exception where a
can we do it in a much more efficient global tech company was created outside
way?” And they can innovate [and come of Silicon Valley.
up with] a business model or a product Silicon Valley was the first technology
that costs a tenth of the way the incum- ecosystem created. It’s been around for
bent did something or provides ten times over 50 years. And it is the most prolific
the efficiency. The sharing economy, location for creating successful technology
for example, is about innovation that businesses. But we did some research
increases the utilization of resources and looked at the last ten years in the
that are underutilized. It’s great, and Internet and software sector to see where
it’s driving economic efficiency. the billion-dollar companies were coming
from. What we found was that 40 percent
Is the disruption that your companies are of those companies came from Silicon
trying to achieve always, on balance, a Valley and 60 percent came from out-
good thing for the economy and society? side. My prediction would be that over
On balance, disruptive innovation is the next ten years, Silicon Valley will
very positive. In an isolated environment, account for less than 40 percent.
something is being done in a traditional [For a technology ecosystem to thrive,]
way. Then innovative entrepreneurs come you need to have people who are encour-

Januar y/Februar y 2015 43

The Nordic Model

aging. You need to have role models. Governments have a role to play in
You need to have capital. And you need encouraging entrepreneurs by shining a
to have people who want to come and spotlight on them and helping create
work for these entrepreneurs. That is role models. But ultimately, the biggest
starting to happen in more and more change comes from building an ecosystem
places. Obviously, China, with Beijing, where a successful entrepreneur goes and
is in second place. But Sweden is now invests in the next generation. People who
third in the world in producing billion- worked for the first-generation entrepre-
dollar software and Internet companies neur start companies. Then engineering
over the last ten years. students go to work for a start-up instead
There’s no lack of talent in these of a large corporation or a bank, and you
other places, and technology education start seeing successes. Governments can
is very good all around. Ten or 15 years facilitate this. In the United Kingdom, for
ago, if you wanted to be an Internet example, the government has been very
innovator or entrepreneur, you packed focused on making the country a great
your bag and bought a one-way ticket to place for entrepreneurs, and that has been
Silicon Valley and made it over there. helpful in making London a terrific tech
Today, you don’t need to do that. You hub. I wouldn’t say that the government
can be equally successful in many other has created it, but they’ve been helpful.
places around the world. This is an For example, one of the big challenges
irreversible trend. I think you’re going when you start a company is hiring the
to see more and more great entrepre- best people, with the right talent. And
neurs and great technology companies the U.K. government has made it easier
being created in other places. to hire people from other countries.
Another big challenge for entrepreneurs
Is it easier being entrepreneurial in is getting financing before they’ve proven
some countries as opposed to others, their business. (Once they’ve proven the
and can governments do things to business, it’s no problem, because then a
increase the scale and quality of lot of investors come along.) So what
entrepreneurship in their countries? governments can do is not invest them-
One of the reasons Silicon Valley has selves but make it easier for private
been successful is by having a culture investors to invest—by, for example,
that’s supportive of entrepreneurs. reducing capital gains taxes for investing
Some countries have more of a cultural in start-up companies. And a start-up
challenge with entrepreneurs, whether company doesn’t have a lot of money, so
that’s in Europe or Japan—countries you pay employees with stock options;
where being an entrepreneur is not governments can make sure that those
encouraged and you were supposed to stock options are not too costly to
have a career and job security. But that administer and are taxed as little as
is changing. We see it in the United possible. And they can make it easier to
Kingdom, in London. In Stockholm. In do cross-border business.
Berlin. China has a very entrepreneur-
ial culture. And also in Tokyo you’re Many American entrepreneurs and
starting to see more and more of it. people in the technology sector see the

44 f o r e i g n a f fa i r s
 A Conversation With Niklas Zennstrom

market and the state as enemies locked innovation. Is there something about
in some kind of zero-sum death match. those first sectors that makes them
The Nordic model would seem to naturally disruptable, or is it just a
transcend that. Is the fact that so many matter of time and we should expect
entrepreneurs have come out of Sweden other sectors to follow?
proof that you can have both a large, My belief is that over time—and it can
generous state sector and entrepre- be a long time—all sectors in our econ-
neurial success? omy will somehow be disrupted. Some
Sweden has always had a lot of success- sectors are easier to disrupt. As soon as
ful entrepreneurs, even a century ago. there was broadband, it became quite
Companies like Alfa Laval or Electrolux easy to distribute media on the Internet,
that become global success stories and and that’s when the media industry got
are still around today. A few generations disrupted. Then, you know, distributing
ago, you had companies like Tetra Pak newspapers and stuff like that as text and
and Ikea and H&M. And now you’re images became quite easy to do as well,
seeing a wave of technology entrepre- so it was easy to disrupt. Disrupting
neurs. I think that has to do with the fact telecommunications was quite easy to do
that we’re a small market and people once people started using broadband,
learn to speak foreign languages early. laptops, and smartphones.
And because we have a harsh climate, we Health care is harder to disrupt, but
tend to like to travel abroad. So it’s easy you’re starting to see already a lot of
for Swedish entrepreneurs to think about innovation there as well. It’s something
trying to capture the world market rather that I hope will be disrupted, because
than focusing on the domestic market. it’s a very inefficient market. Software
Over the last decade, tax reform in and biochemistry and biology are
Sweden has been very favorable to intersecting, and different sciences are
entrepreneurs and their investors. going to provide some very interesting
There is no capital gains tax when and disruptive things.
you’re investing in private companies; Education is the same; it is certainly
there is no wealth tax; there is no starting to be disrupted. You have all
inheritance tax. I don’t know if there’s a the moocs [massive open online
correlation between that and the fact courses] making it possible for all with
that there have been so many successful a smartphone to get access to the best
entrepreneurs coming out of Sweden, teachers in the world. You have compa-
but maybe it is a reason for those nies like Knewton (one of our invest-
entrepreneurs not to move abroad. ments), which are using algorithms to
provide adaptive learning. That means
The Atomico research suggests that that you can get your course material
some sectors have been more disrupted adapted in real time to suit your learn-
than others—enterprise software, ing pattern, which means that you can
e-commerce, and social communica- get high efficiency. It hasn’t really made
tions, for example—while other areas, a big dent in that sector yet. But that’s
such as health care, education, and real something that we’ll see for sure over
estate, have yet to see much disruptive the next decade.

Januar y/Februar y 2015 45

The Nordic Model

Are you bullish or bearish about the I think that the Internet and technology
future of technological innovation? actually make things more equal. They
I think this is the best time to be a are an enabler for people to get more
technologist and to be in this sector. And control over their lives. You don’t need to
I’m probably going to say the same thing have the right parents or get into the
in ten years. I think that the increased right school, because you can get the best
penetration of technology and the differ- education and training online. So I think
ent layers of technology building on top it’s a net positive.
of each other and recombining just
provides more and more opportunities One of the main focuses of Zennstrom
and efficiencies. If you’re a business leader Philanthropies is climate change. Do you
and you start to say that there can be no think technology can provide the answer
more innovation, you should probably there, or will it require state action and
retire, because you will get disrupted. international agreement (in which case
we’re all probably in big trouble)?
Do you worry that in this new age of That is my hope. We’ve known about
entrepreneurship, there’s going to be the need to reduce greenhouse gases for
increasing inequality, as the rewards many years, and governments are not do-
from new ventures go to ever fewer ing what they should in terms of making
people at the top? the reductions they need to. So in the
Some companies can go from nothing short term, the world is unfortunately
to huge values in a very short time and going to be worse off. But my belief is
make a few very smart people who have that in the long term, innovation and
the right timing and a bit of luck very entrepreneurs are the solution to this,
wealthy. And that is happening at the because over time, they will make renew-
same time that there are people in our able energy cheaper than fossil fuels.
society who are living in poverty. But When that tipping point happens, then
the technology itself is not creating people will buy renewable energy.
poverty. If anything, technology makes I think there will also be a change
things cheaper and allows people who in consumers’ behavior, driven by the
are living in challenging conditions to Internet, as the world becomes more
get access to more opportunities. transparent. In ten or 20 years, it is not
Soon there will be as many mobile going to be acceptable for any company
phones as there are people on this planet. to offer products or services which are
Even a lot of people with very low not produced in a sustainable way.
disposable incomes have a smartphone, And the same thing goes with energy.
because they are becoming so cheap. And Younger consumers—not you or me but
if you have the smartphone in your hand the next generation—they’re going to
and you’re unemployed, you can take an have different values, because of grow-
online course for free. You can learn ing up in a world with transparency.
something like software programming. That’s my hope. I don’t know if it’s true,
You don’t need to go to mit to do that. but as an entrepreneur, you sometimes
You can do that from your smartphone, have a feeling, and a hope, that innova-
if you have time and if you have the will. tion will change things for the better.∂

46 f o r e i g n a f fa i r s
 Return to Table of Contents

industry has come to be dominated by

Start-Up

SCHUMPETER’S HEIRS
older companies. This presents a risk to
innovation, because the most transforma-
Slowdown tive leaps forward tend to come not from
established firms but from entrepreneurs
with little to lose. Indeed, start-ups
How the United States commercialized most of the seminal
Can Regain Its technologies of the past several centuries,
Entrepreneurial Edge including the car, the airplane, the tele-
graph, the telephone, the computer, and
the Internet search engine. If the United
Robert Litan States wishes to reclaim its status as an

A
mericans like to think of their innovation hub, it must reform a wide
country as a cradle of innovation. swath of policies—including those cover-
After all, the United States ing immigration, business regulation,
has produced many of the world’s finest health care, and education—to support
entrepreneurs, from Andrew Carnegie new businesses.
and Henry Ford to Steve Jobs and Mark
Zuckerberg. The American obsession with a national decline
innovation has even invaded popular Data on start-ups in the United States
culture. Shark Tank, a reality television were not regularly compiled until 2008,
show in which entrepreneurs pitch to when the U.S. Census Bureau created
potential angel investors, has reached the Business Dynamics Statistics data-
its sixth season and draws more than six base, which tracks firm start-ups and
million viewers a week. Silicon Valley, a shutdowns across the country. Using the
new comedy on hbo, follows the founders data from 1977 to 2012, my colleague Ian
of a technology start-up as they attempt Hathaway and I have published a series
to strike it rich. Meanwhile, the near- of reports for the Brookings Institution
celebrity status of prominent tech entre- highlighting a startling observation: the
preneurs, such as Zuckerberg and Elon ratio of new firms to all firms, or the
Musk, has spurred interest in the so-called “start-up rate,” has been steadily decreas-
stem subjects—science, technology, ing. In 1978, start-ups—defined in the
engineering, and math—and in entrepre- database as companies less than a year
neurship more generally. old—accounted for nearly 15 per­cent
The numbers, however, tell a different of all U.S. firms; by 2011, that figure
story. Over the past 30 years, the rate of had slipped to just eight percent. For
start-up formation in the United States the first time in three decades, business
has slowed markedly, and the technology deaths exceeded business births.
This national decline mirrored similar
Robert Litan is a Nonresident Senior Fellow shifts in all 50 states and in all but one
at the Brookings Institution, Of Counsel to of the country’s 366 largest metropolitan
Korein Tillery, and the author of Trillion Dollar centers. This includes California, with its
Economists: How Economists and Their Ideas
Have Transformed Business. Follow him on two wellsprings of innovation, Silicon
Twitter @BobLitan. Valley and the Los Angeles–Orange

Januar y/Februar y 2015 47

Robert Litan

County region, where entrepreneurship do not benefit the economy the way
rates once soared above the national larger firms do. Firms with at least one
average. The downward trend has affected employee besides the founder have the
all major industries, even the life-sciences potential to grow and, since 1980, have
sector, which includes pharmaceutical accounted for the vast majority of new
and medical-device businesses and has jobs in the United States.
traditionally played a major role in new As newer firms have become scarcer,
job creation. In 1990, around 2,600 new the number of older firms has multi-
life-sciences firms started up, a number plied. The proportion of U.S. companies
that grew to roughly 3,000 in 1997; by considered mature, meaning at least
2011, that number had fallen to 1,995. 16 years old, rose from 23 percent of
Fewer start-ups has meant fewer all firms in 1992 to 34 percent in 2011.
high-growth firms, defined by the Organ­ Over the same period, the percentage
ization for Economic Cooperation and of the work force employed at mature
Development as companies that experi- firms rose as well, from 60 percent to
ence three consecutive years of at least 72 percent. An optimist might conclude
a 20 percent increase in the number of that the U.S. economy has simply re-
people they employ. According to re- warded economies of scale. In this view,
searchers at the U.S. Bureau of Labor a greater share of older firms represents
Statistics, the percentage of U.S. firms a net benefit, since firms with more
that met that criterion dropped from experience are more likely to succeed
roughly three percent in 1994–97 to 1.5 and provide stable employment.
percent in 2008–11. This drop is likely But aging firms, like aging people,
related to the decline in start-ups that are also more risk averse. When they
took place during the same period. innovate, they are more likely to aim
These changes are surprising not only for incremental improvement rather
because they run counter to the image than creative destruction or disruption.
of the U.S. economy as highly entrepre- They also tend to be larger, more bureau-
neurial but also because they took place cratic, and less flexible than start-ups
during a revolution in information tech- when faced with changing technology
nology that substantially lowered the and shifting consumer preferences. And
costs of launching and expanding new older, more entrenched firms are harder
businesses, thanks to cheaper software to compete with than younger ones, which
and hardware, a more global Internet, may explain why a larger share of older
and the savings afforded by data storage firms has coincided with a smaller share
in the “cloud.” Granted, the Census of start-ups.
Bureau’s data set excludes firms where Although similar data do not exist
the founder is the only employee, which for firms in other countries, there is
ignores the large and growing number of reason to worry that the United States
people who write smartphone applications may fall behind. The Organization for
or sell goods on online platforms such as Economic Cooperation and Develop-
eBay or Etsy. But there is a good reason ment began publishing global data on
for this exclusion: although individual start-up rates in 2011, but the data go
entrepreneurs deserve applause, they back only to 2006, two years before the

48 f o r e i g n a f fa i r s
 Start-Up Slowdown

Upwardly mobile: at a programming conference in San Francisco, June 2014

onset of the global economic crisis. Still, national rates of start-up formation may
the data are instructive. Despite the fact be inevitable. On the other hand, over
that start-up rates across member coun- the next decade, members of the over-
tries fell on average, the rates in several size millennial generation will begin to
countries—notably Australia, Portugal, enter their late 30s and early 40s, the
Sweden, and the United Kingdom— peak ages to start a business. As they
have exceeded their pre-crisis levels. do so, start-up rates may begin to pick
Put simply, if the United States cannot up, countervailing sluggish population
reverse its entrepreneurial slump, it growth. But policymakers should not wait
G e tt y i m ag e s / B loo m b e rg / dav id paul m orris

risks losing its status as a global leader ten years to see which of these trends
in innovation. wins out. Instead, there is much Wash-
ington can and should do now to
jump-starting business encourage entrepreneurship.
Some have suggested that start-up First, Washington should reform
rates can be explained by demographic U.S. immigration law. Immigrants, who
trends. Hathaway and I have shown, tend to be less risk averse than the general
for example, that much of the variation population, have historically proved twice
in start-up rates across U.S. states may be as likely to launch businesses as native-
linked to differential rates of population born Americans. According to a team of
growth. If the rate of U.S. population researchers at Duke University, immi-
growth continues to decline, as it has grants were behind one in four technology
done fairly consistently since 1992, lower start-ups between 1995 and 2005. In 2005,

Januar y/Februar y 2015 49

Robert Litan

the researchers found, companies led by nently. As of June 2014, the program
immigrant entrepreneurs employed had attracted more than 12,000 appli-
450,000 workers and generated $52 billion cants from 112 countries and admitted
in sales. Yet the U.S. government has 810 from 65 countries. Thus far, 132 of
made it difficult for immigrants to stay the resulting companies have opted to
in the United States, despite their clear stay in Chile and have already brought
benefit to the economy. The H1-B visa, in around $26 million in capital; global
for example, which allows companies investors have begun to refer—only
to employ foreign workers in specialty half-jokingly—to “Chilecon Valley.”
fields, lasts just six years and can be Other countries, particularly the United
obtained only through a lottery system. States, should take note.
The H1-B system should be updated, In addition to following through
but Congress should also make it easier with immigration reform, Washington
for immigrant entrepreneurs to secure needs to make it easier for people who
long-term visas and permanent-resident are not hugely wealthy to invest in start-
status. The bipartisan immigration bill ups. In particular, the Securities and
that passed the Senate in 2013 took a Exchange Commission should make it
step in this direction by creating an simpler for investors to buy equity in
easier path to permanent residency for start-ups through so-called crowdfunding
foreign students who earn a master’s platforms, which allow new companies
degree or a doctorate in one of the stem to tap a more economically diverse inves-
fields. But the legislation has languished tor base online and to raise equity with-
in the House of Representatives, where out first hiring an investment bank to
opponents want more piecemeal reform— underwrite their stock.
or no reform at all. Given the political Congress took a step in this direction
resistance to comprehensive reform, in April 2012 when it passed the Jump-
policymakers should prioritize easing start Our Business Startups Act, which
restrictions on immigrant entrepreneurs, made it legal for companies to raise up
the benefits of which should be easy to $1 million annually through crowd-
to sell to politicians on both sides of funding. The law set a cap on the amount
the aisle. of equity individual investors could
The more immigrants the United purchase to limit the amount of risk they
States turns away, the more it forfeits its would assume. The law also required
entrepreneurial edge. Other countries, firms to disclose basic information to
most notably Chile, have already begun potential investors, including the nature
to take advantage of Washington’s flawed of the business, the identity of its direc-
immigration policy. In 2010, Chile began tors, and any pertinent risk factors. The
paying foreign entrepreneurs to visit U.S. Securities and Exchange Commis-
the country for six months and interact sion is set to finalize the rules for the
with locals. The program, dubbed Start- law’s implementation by the end of
Up Chile, offered foreigners $40,000, 2014, and Congress should ensure that
plus free office space, Internet access, the rules do not excessively burden
and mentorship, and asked only that investors or companies looking to utilize
they consider moving to Chile perma- the crowdfunding platforms, for example,

50 f o r e i g n a f fa i r s
 Start-Up Slowdown

Start-Ups Winding Down

Percentage of U.S. Firms Less Than One Year Old, 1978–2011

16%

14%

12%

10%

8%

6%
1980 1985 1990 1995 2000 2005 2010
source: U.S. Census Bureau, Business Dynamics Statistics; calculations by Ian Hathaway and Robert Litan.

by further capping investment. If the forced to reevaluate its regulations,

United States wishes to encourage more removing those that do not pass a
risk taking by those who launch com- cost-benefit test and improving those
panies, it should also tolerate more risk that do. Congress could also authorize
taking by those who fund them. a bipartisan panel of experts to identify
More broadly, Congress should outmoded regulations and submit them
regularly reevaluate and update federal on a regular basis to lawmakers for an
regulations, many of which pose unnec- up-or-down vote.
essary barriers to entry for new firms. Historically, the U.S. health insurance
Federal regulations are expensive, often system has also worked to the disadvan-
costing small businesses thousands of tage of start-ups. Here, however, the news
dollars per employee, and such costs is mostly good. Prior to the passage of the
pose a distinct disadvantage for younger Affordable Care Act in 2010, employees
and smaller firms, which rarely have the had a disincentive to leave established
resources to hire full-time attorneys or firms that gave them health insurance
compliance officers. To facilitate the without regard to their health status. By
dismantling of unnecessary regulations, prohibiting insurance companies from
Congress should include sunset provi- taking preexisting conditions into account
sions on all major federal rules so that when setting rates and by requiring
every ten to 15 years or so, Congress is everyone to buy insurance, the act encour-

Januar y/Februar y 2015 51

 ages the employee mobility necessary for

Not all readers new business formation. If Congress

modifies the act in the future, it must

are leaders, keep the provision protecting those

with preexisting conditions, or risk

but all leaders discouraging employees, once again,

from launching new firms. It should

are readers. also keep—or find a workable alterna-

tive to—the individual mandate, which
- Harry S. Truman expands insurance populations to cover
the higher costs of those with preexist-
ing conditions. Otherwise, insurance
SIGN UP for the pools run the risk of unraveling.
Of course, there is a limit to what
Foreign Affairs government can do to support start-ups
Books & Reviews and entrepreneurs; the private sector
newsletter
must do more as well, and investors
should experiment with ways to support
new businesses. One new approach, the
establishment of so-called business
accelerators, represents a welcome step.
In return for a small share of equity in
qualifying start-ups, accelerators pro-
vide seed money, free office space, and
access to potential funders. Launching
a business can be a lonely experience,
but accelerators surround entrepreneurs
with peers and mentors, providing a
sense of community usually found only
at established companies. Accelerators
have popped up not just in Silicon Valley
but throughout the country—in Austin,
New York, St. Louis, and Washington,
D.C.—and the initial anecdotal results
appear promising.

closing the gap

Even if the United States successfully
boosts the formation of new companies,
it will have to contend with the dark side
of innovation: the wealth inequalities
that sometimes accompany technological
ForeignAffairs.com/newsletters change. Advances in robotics and infor-
mation technology, in particular, have

52
 Start-Up Slowdown

increased the demand for employees of potential entrepreneurs.

with strong technical backgrounds and An entrepreneurial revolution will
curtailed the need for unskilled labor. require more than just coders, however.
Some economists believe that the revolu- As the Nobel Prize–winning economist
tion in information technology may end Edmund Phelps has argued, innovation
up benefiting only those workers whose requires the teaching of not just techni-
salaries place them in the top ten to cal skills but also the humanities and
20 percent of the income spectrum, thus the arts. Had Jobs not taken a calligraphy
widening the already substantial income class at Reed College, for example, he
gap between the wealthy and the poor. might not have insisted on including a
It is not yet clear what impact an wide array of fonts in Apple computers—
influx of start-ups would have on this an innovation that gave his company an
problem—but there is reason to suspect early edge over its competitors. Since
it could make things worse. In recent Washington has little control over educa-
years, hugely profitable start-ups have tion policy at the state level, reform will
created relatively few new jobs and done have to proceed incrementally through
little to spread the wealth. The popular experimentation in local school districts.
text-messaging service WhatsApp The federal government and nongovern-
employed only 55 people when Face- mental organizations should support and
book acquired it for $19 billion last publicize these experiments so that states
year; Instagram, a photo-sharing social can learn from their successes and failures.
networking site, had only 13 employees Entrepreneurs create the future
when Facebook bought it for $1 billion and boost national economies. For the
in 2012. If the majority of new companies United States, economic strength is key
resemble these successful technology to maintaining and strengthening its
firms, then any start-up renaissance will status as a world leader. Rousing the
only magnify inequality. In addition, country from its entrepreneurial slumber
innovations in automation, robotics, will require deep structural change, but
and data processing could eliminate the stakes are high. In the balance hangs
millions of jobs in the coming decades, the welfare of future generations and the
pushing many workers into lower- global leadership of the United States.∂
wage positions or out of the labor
force altogether.
Closing the wage gap, or at least
reversing its growth, will require signifi-
cantly overhauling public education
systems so that they can better teach
technological literacy. Being able to write
computer code will soon be as important
as being able to write in English, and
students should begin learning to code
as early as elementary school. Better edu-
cation represents the best chance to level
the playing field and expand the number

Januar y/Februar y 2015 53

 READY TO CHANGE THE WORLD?

TREASURY WHITE COMMERCE OAS FEDERAL NATIONAL ACADEMY

DEPARTMENT HOUSE DEPARTMENT RESERVE OF SCIENCES

WORLD IMF THE GEORGE WASHINGTON UNIVERSITY STATE

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Every school of international affairs bridges the theory

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elliott.gwu.edu
 Return to Table of Contents

patent litigation, for example, has reduced

The Anti-

SCHUMPETER’S HEIRS
venture capital financing and R & D
investment for small firms, and strict
Innovators employment regulations have strength-
ened large employers and prevented the
spread of knowledge and skills across the
How Special Interests industry. Although the United States
Undermine Entrepreneurship remains innovative, government policies
have, across the board, increasingly favored
James Bessen powerful interest groups at the expense
of promising young start-ups, stifling

F
or much of the last century, the technological innovation.
United States led the world in The root of the problem is the corro-
technological innovation—a sive influence of money in politics. As
position it owed in part to well-designed more intense lobbying and ever-greater
procurement programs at the Defense campaign contributions become the norm,
Department and nasa. During the 1940s, special interests are more able to sway
for example, the Pentagon funded the public officials. Indeed, these interests
construction of the first general-purpose have overpowered start-ups across the
computer, designed initially to calculate government—at the Pentagon, in the
artillery-firing tables for the U.S. Army. courts, and in various state legislatures.
Two decades later, it developed the data
communications network known as the A strict separation
arpanet, a precursor to the Internet. Yet U.S. government procurement has
not since the 1980s have government spurred technological innovation since
contracts helped generate any major new the early nineteenth century, when the
technologies, despite large increases in U.S. War Department sought to develop
funding for defense-related R & D. One the high-precision machines needed
major culprit was a shift to procurement to make weapons from interchangeable
efforts that benefit traditional defense parts. Over the next two centuries, gov­­
contractors while shutting out start-ups. ernment programs cultivated a corps
Bad procurement policy is just one of skilled engineers, technicians, and
reason the United States has begun to software developers fluent in cutting-
lose its technological edge. Indeed, the edge technologies, who would later adapt
multibillion-dollar valuations in Silicon them for general use in the private sector.
Valley have obscured underlying problems U.S. procurement programs worked
in the way the United States develops so well in part because the Pentagon
and adopts technology. An increase in gave its business to a diverse group of
private firms, including start-ups and
james bessen is a Lecturer at the Boston
University School of Law and former CEO of the university spinoffs such as Bolt, Beranek
software company Bestinfo. This article draws and Newman (now bbn Technologies), one
on his forthcoming book, Learning by Doing: of the companies that helped develop the
The Real Connection Between Innovation,
Wages, and Wealth (Yale University Press, 2015). Internet. It also required contractors to
Follow him on Twitter @JamesBessen. share their technologies with universities

Januar y/Februar y 2015 55

James Bessen

and other private firms, encouraging Rumsfeld’s second term as secretary of

further innovation outside the govern- defense, from 2001 to 2006, when the
ment. By contrast, France and the United Pentagon restricted bidding to major
Kingdom often used government con- contractors, slashed funding to university
tracts to promote national telephone and researchers, restricted the participation
computer companies, and the United of noncitizens in its programs, and classi-
Kingdom and the Soviet Union limited fied most of the technology it produced.
the interaction between government The Pentagon has relaxed some of its
researchers and their civilian counter- regulations since then—one recent
parts, cutting off the private sector from cyberwarfare research program sought
high-tech advancements. The Pentagon out computer hackers—but the larger
also encouraged contractors to adopt trend persists.
open technical standards—such as the The reason for the shift is simple:
set of protocols, established in 1982, that large defense contractors have the money
specified how data should be packaged and influence to secure lucrative govern-
and transmitted on the Internet—which ment contracts. Although procurement
allowed knowledge to spread quickly has been the province of lobbyists since
and easily. President Dwight Eisenhower’s 1961
In the past few decades, however, warning about the “military-industrial
procurement has strayed from this complex,” the pure quantity of cash has
successful formula. Instead of awarding skyrocketed. Since 1990, the defense
contracts to start-ups and spinoffs, the industry has contributed more than
Pentagon has favored traditional defense $200 million to political campaigns,
contractors. The Defense Department and in 2012 alone, it spent roughly
tasks these contractors with meeting $132 million on more than 900 lobbyists.
the military’s narrow needs and too Congress has its own interests, too.
often prohibits them from sharing their The defense R & D budget regularly
work with universities or other compa- includes pet projects for select congres-
nies. An example from the past reveals sional districts, most of which benefit
how problematic such policies can be. large contractors, not universities and
In 1977, when the Pentagon sought to new firms.
create high-speed semiconductor chips,
Congress prohibited the contractors hired Overly litigious
from sharing their research. University Start-ups suffer not only from the
researchers were effectively excluded from Pentagon’s policies but also from the
the program, and chipmakers were forced actions of the courts. The proliferation
to separate their defense work from their of patent litigation, in particular, has
commercial operations. Unlike the govern- become a serious problem for small
ment procurement programs in the 1950s software firms, many of which make
and 1960s, which spawned many start-ups, easy targets for aggressive lawyers. Such
this billion-dollar program did little to lawsuits are a relatively new phenom-
commercialize new technology. enon in the U.S. software industry,
The more recent reliance on defense which grew up patent free. In 1972,
contractors reached an apex under Donald the Supreme Court ruled that most

56 f o r e i g n a f fa i r s
 The Anti-Innovators

A series of tubes: programming a U.S. Army computer in Philadelphia, 1946

software could not be patented, reasoning between 2007 and 2011; software patents
that unlike mechanical devices, abstract accounted for 89 percent of the increase.
software algorithms are difficult to tie Many of these lawsuits are the work
to a specific inventive concept. A decade of “patent trolls”—companies that
later, however, after persistent lobbying exist solely to buy and litigate patents.
by patent lawyers, Congress created the Patent trolls are particularly drawn to
Court of Appeals for the Federal Circuit, software patents, which are often vague
a new body designed to hear all appeals in enough to be widely applicable. In the
patent cases. Such specialization is ex- early 1980s, for example, one inventor
tremely rare, for good reason: it promotes developed a kiosk for retail stores that
boosterism. The new court, constantly could produce music tapes from digital
seeking to expand its role, began side- downloads, filing a patent for an
stepping the Supreme Court in the 1990s, “information-manufacturing machine” at
extending patent law to cover software. “a point of sale location.” A patent troll
It also loosened its restrictions on vague- named E-Data later acquired the patent
sounding patents, such as those for and interpreted it to cover all sorts of
“information-manufacturing machines.” digital e-commerce, making millions of
A pic / G e tt y I m ag e s

The number of patents and lawsuits dollars from suits against more than 100
has surged as a result. A 2013 study by companies. Lodsys, another patent troll,
the Government Accountability Office bought an equally vague patent from 1992,
found that the number of defendants which covered “methods and systems
in patent lawsuits more than doubled for gathering information from units of

Januar y/Februar y 2015 57

James Bessen

a commodity across a network.” It has acknowledged as much in October, at

now threatened to sue hundreds of a town hall meeting with technology
smartphone application developers for entrepreneurs in California, where he
infringement. As long as the courts cited concerns about “folks filing phony
remain receptive to their suits, patent patents, and costing some of our best
trolls appear to be here to stay. And innovators tons of money in court, or
their suits are expensive. In 2011, the even if they don’t go to court, having
roughly 5,000 firms named as defen- to pay them off just because they’re
dants in patent lawsuits paid more making a bogus claim.”
than $29 billion out of pocket. In much the same way, copyright
In the early years of this century, law also punishes innovators. For
software companies began pushing much of the last century, copyright law
Congress to reform patent law, and in was flexible enough to accommodate
2011, it passed the America Invents Act. new technology—whether it was the
More than 1,000 lobbyists worked on player piano, the phonograph, the
the bill, including ten former members radio, the jukebox, the videotape
of Congress, 280 former congressional player, or cable television. Sometimes
staffers, and more than 50 former gov- the companies behind the new tech-
ernment officials. In the end, the soft- nologies had to pay licensing fees,
ware lobby was simply overpowered but often they were initially exempt
by patent lawyers and pharmaceutical from copyright restrictions. Congress
companies, both of which benefit from waited to intervene until new tech-
the status quo in patent law—and are nologies were established enough to
bigtime political donors. The new law work out a fair compromise. Now,
did little to deter patent trolls or to however, powerful content providers
discourage the vague software patents lobby Congress to ensure that new
that allow trolls to abuse the system. In distribution channels are taxed or
fact, the law granted relief to only one restricted while still in their infancy.
industry: finance. Thanks to pressure In 1988, for example, lobbyists for
from politically powerful Wall Street network broadcasters and cable tele­
executives, the law included a special vision companies convinced Congress
provision allowing financial firms to to restrict the market for emerging
challenge patents covering their ser- satellite television providers, requiring
vices and products. them to pay hefty licensing fees to
In December 2013, another bill transmit to subscribers. A decade
designed to weaken patent trolls passed later, lobbyists for broadcast radio
the House of Representatives, but phar- pushed for the Digital Millennium
maceutical companies and trial lawyers Copyright Act, which forced Internet
once again blocked reform. This past radio companies to pay larger royalties
May, Senate Majority Leader Harry Reid than those paid by traditional stations.
prevented the bill from coming to the Rather than accommodating new
Senate floor for a vote. As long as reform technologies, in other words, copyright
stalls, software entrepreneurs will con- law has been used to resist them.
tinue to suffer. President Barack Obama

58 f o r e i g n a f fa i r s
 The Anti-Innovators

Trolling for Cash

Number of Companies Sued by U.S. Patent Trolls, 2004–13

5000

3500

2000

500

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

source: PatentFreedom, “Operating Company Parties in NPE Lawsuits Over Time,” 2014.

Constraining competition involving noncompete agreements rose

Yet another threat to start-ups comes 61 percent from 2002 to 2012, to 760
from state legislatures, in the form of cases. This is bad news for innovation,
increasingly cumbersome employment since such agreements make it difficult
regulations. Historically, technical work- for start-ups to recruit employees away
ers such as mechanics and engineers from established companies.
moved freely from job to job, spreading Consider the difference between
new technologies across the industry. California, whose courts generally do not
Today, however, a variety of regulations enforce these agreements, and Massachu-
limit that mobility. Some states—Florida setts, whose do. Silicon Valley has become
and Massachusetts, for instance—have a breeding ground for new technology
made it easy for employers to enforce firms and new technologies, whereas
noncompete agreements, which prohibit Massachusetts’ Route 128 has fallen
employees from leaving one company to behind. It is telling that the Facebook
join or start another in the same industry. co-founder Mark Zuckerberg moved his
According to research conducted by the company from Cambridge to Palo Alto
law firm Beck Reed Riden, the number as it took off. This past summer, state
of published U.S. court decisions lawmakers in Massachusetts considered

Januar y/Februar y 2015 59

James Bessen

a ban on noncompete agreements, but traditional dentist’s office, restricting

powerful business lobbying groups the use of these technologies and
fought hard against it, arguing that reducing incentives to innovate further.
the agreements keep employees from
stealing trade secrets and proprietary lobbying for the future
information. Politics is about balancing competing
Interest groups are also lobbying interests. Opposing factions battle one
state legislatures to enforce strict another but ultimately compromise,
requirements for certification to work each getting something it wants. In
in certain fields, another barrier to recent decades, however, start-ups
innovation. In the past few decades, have consistently lost out. Whereas
occupational licensing has grown rap- established interests have the money
idly. In the 1950s, only 70 professions and lobbying power to buy political
had licensing requirements; by 2008, influence, newer firms offer only the
more than 800 did. Political scientists promise of future profits. As Jim
have tied this surge to aggressive lobby- Cooper, a Democratic congressman
ing by professional associations. In from Tennessee, has framed the prob-
1995 alone, 850 licensure bills related lem, “The future has no lobbyists.”
to health professions were introduced Balance will be difficult to restore,
in state legislatures, and more than given that money will likely remain a
300 became law. But excessive licensing fixture of the U.S. political system.
can be overly restrictive. In many states, The cost of running for Congress has
for example, licensing regulations pre- increased by more than 500 percent
vent nurse practitioners and dental since 1984, and spending by registered
hygienists from performing new pre- Washington lobbyists has soared, more
ventive health procedures—such as than doubling between 1998 and 2008.
applying protective varnishes and Efforts to curtail lobbying have largely
sealants to teeth—by restricting the failed, with the Supreme Court restrict-
carrying out of these procedures to ing legislation intended to rein in cam-
doctors and dentists. Similar restrictions paign spending. But if technology
limit the adoption of new telemedicine start-ups continue to suffer, the United
and teledentistry technologies, which States may lose what has been the very
use videoconferencing and data secret to its success.∂
transfer through smartphones and the
Internet to connect doctors and den-
tists to patients in rural areas. In
Alaska, for example, dental therapists
travel to remote Native Alaskan villages
to treat patients, often performing
procedures with the help of dentists
who consult remotely. In other states,
however, occupational regulations limit
the procedures dental therapists and
hygienists can perform outside of a

60 f o r e i g n a f fa i r s
 Return to Table of Contents

Economist article on the future of

The Innovative

SCHUMPETER’S HEIRS
manufacturing encapsulated this
common conception. “Governments
State have always been lousy at picking
winners, and they are likely to become
more so, as legions of entrepreneurs
Governments Should Make and tinkerers swap designs online, turn
Markets, Not Just Fix Them them into products at home and market
them globally from a garage,” the article
Mariana Mazzucato stated. “As the revolution rages, gov-
ernments should stick to the basics:
better schools for a skilled workforce,

T
he conventional view of what clear rules and a level playing field for
the state should do to foster enterprises of all kinds. Leave the rest
innovation is simple: it just to the revolutionaries.”
needs to get out of the way. At best, That view is as wrong as it is wide-
governments merely facilitate the spread. In fact, in countries that owe
economic dynamism of the private their growth to innovation, the state
sector; at worst, their lumbering, has historically served not as a meddler
heavy-handed, and bureaucratic insti- in the private sector but as a key partner
tutions actively inhibit it. The fast- of it—and often a more daring one,
moving, risk-loving, and pioneering willing to take the risks that businesses
private sector, by contrast, is what won’t. Across the entire innovation
really drives the type of innovation that chain, from basic research to commer-
creates economic growth. According cialization, governments have stepped
to this view, the secret behind Silicon up with needed investment that the
Valley lies in its entrepreneurs and private sector has been too scared to
venture capitalists. The state can inter- provide. This spending has proved
vene in the economy—but only to fix transformative, creating entirely new
market failures or level the playing markets and sectors, including the
field. It can regulate the private sector Internet, nanotechnology, biotechnology,
in order to account for the external and clean energy.
costs companies may impose on the Today, however, it has become
public, such as pollution, and it can harder and harder for governments to
invest in public goods, such as basic think big. Increasingly, their role has
scientific research or the development been limited to simply facilitating the
of drugs with little market potential. It private sector and, perhaps, nudging it
should not, however, directly attempt in the right direction. When govern-
to create and shape markets. A 2012 ments step beyond that role, they
immediately get accused of crowding
Mariana Mazzucato is Professor of the out private investment and ineptly trying
Economics of Innovation in the Science Policy to pick winners. The notion of the state
Research Unit at the University of Sussex. She
is the author of The Entrepreneurial State: as a mere facilitator, administrator, and
Debunking Public vs. Private Sector Myths. regulator started gaining wide currency

Januar y/Februar y 2015 61

Mariana Mazzucato

in the 1970s, but it has taken on new- more activities. It requires fundamen-
found popularity in the wake of the tally reconsidering the traditional role
global financial crisis. Across the globe, of the state in the economy. Specifically,
policymakers have targeted public debt that means empowering governments
(never mind that it was private debt to envision a direction for technologi-
that led to the meltdown), arguing that cal change and invest in that direction.
cutting government spending will spur It means abandoning the shortsighted
private investment. As a result, the very way public spending is usually evalu-
state agencies that have been responsible ated. It means ending the practice of
for the technological revolutions of the insulating the private sector from the
past have seen their budgets shrink. In public sector. And it means figuring
the United States, the budget “sequestra- out ways for governments and taxpay-
tion” process has resulted in $95 billion ers to reap some of the rewards of
worth of cuts to federal R & D spend- public investment, instead of just the
ing from 2013 to 2021. In Europe, the risks. Only once policymakers move
eu’s “fiscal compact,” which requires past the myths about the state’s role in
states to drop their fiscal deficits down innovation will they stop being, as John
to three percent of gdp, is squeezing Maynard Keynes put it in another era,
educational and R & D spending. “the slaves of some defunct economist.”
What’s more, thanks in part to the
conventional wisdom about its dyna- THE FAILURE OF MARKET FAILURE
mism and the state’s sluggishness, the According to the neoclassical economic
private sector has been able to success- theory that is taught in most economics
fully lobby governments to weaken departments, the goal of government
regulations and cut capital gains taxes. policy is simply to correct market fail-
From 1976 to 1981 alone, after heavy ures. In this view, once the sources of
lobbying from the National Venture failure have been addressed—a monop-
Capital Association, the capital gains oly reined in, a public good subsidized,
tax rate in the United States fell from or a negative externality taxed—market
40 percent to 20 percent. And in the forces will efficiently allocate resources,
name of bringing Silicon Valley’s enabling the economy to follow a new
dynamism to the United Kingdom, in path to growth. But that view forgets
2002, the government of British Prime that markets are blind, so to speak.
Minister Tony Blair reduced the time They may neglect societal or environ-
that private equity funds have to be mental concerns. And they often head
invested to be eligible for tax reductions in suboptimal, path-dependent direc-
from ten years to two years. These tions. Energy companies, for example,
policies increase inequality, not invest- would rather invest in extracting oil
ment, and by rewarding short-term from the deepest confines of the earth
investments at the expense of long- than in clean energy.
term ones, they hurt innovation. In addressing societal challenges such
Getting governments to think big as climate change, youth unemployment,
about innovation is not just about obesity, aging, and inequality, states must
throwing more taxpayer money at lead—not by simply fixing market failures

62 f o r e i g n a f fa i r s
 The Innovative State

You didn’t build that: an iPhone in Washington, D.C., October 2013

but by actively creating markets. They As Michael Shellenberger and his

must direct the economy toward new colleagues at the progressive think
“techno-economic paradigms,” in the tank the Breakthrough Institute have
words of the technology and innovation documented, despite the mythmak-
scholar Carlota Perez. These directions ing about how the shale gas boom is
are not generated spontaneously from being driven by wildcatting entrepre-
market forces; they are largely the result neurs operating independently from
of deliberate state decisions. In the the state, the U.S. federal government
mass-production revolution, for example, invested heavily in the technologies
the state invested in both the underlying that unleashed it. In 1976, the Morgan-
technologies and their diffusion across town Energy Research Center and the
the economy. On the supply side, the Bureau of Mines launched the Eastern
U.S. military-industrial complex, begin- Gas Shales Project, which demonstrated
ning in World War II, invested in im- how natural gas could be recovered
provements in aerospace, electronics, and from shale formations. That same year,
R e ut e rs / K e v in L a m ar q u e

materials. On the demand side, the U.S. the federal government opened the Gas
government’s postwar subsidization of Research Institute, which was funded
suburban living—building roads, backing through a tax on natural gas production
mortgages, and guaranteeing incomes and spent billions of dollars on research
through the welfare state—enabled into shale gas. And the Sandia National
workers to own homes, buy cars, and Laboratories, part of the U.S. Depart-
consume other mass-produced goods. ment of Energy, developed the 3-D

Januar y/Februar y 2015 63

Mariana Mazzucato

geologic mapping technology used for existing technologies. The problem,

fracking operations. however, is that failing to admit the
Likewise, as the physician Marcia public side of the story puts future
Angell has shown, many of the most government-funded research at risk.
promising new drugs trace their origins For policymakers, then, the question
to research done by the taxpayer-funded should not be whether to pick particular
National Institutes of Health, which has directions when it comes to innovation,
an annual budget of some $30 billion. since some governments are already
Private pharmaceutical companies, mean- doing that, and with good results. Rather,
while, tend to focus more on the D than the question should be how to do so in a
the R part of R & D, plus slight varia- way that is democratically accountable
tions of existing drugs and marketing. and that solves the most pressing social
Silicon Valley’s techno-libertarians and technological challenges.
might be surprised to find out that
Uncle Sam funded many of the innova- A SMARTER STATE
tions behind the information technology State spending on innovation tends to be
revolution, too. Consider the iPhone. assessed in exactly the wrong way. Under
It is often heralded as the quintessential the prevailing economic framework,
example of what happens when a hands- market failures are identified and particu-
off government allows genius entrepre- lar government investments are proposed.
neurs to flourish, and yet the development Their value is then appraised through a
of the features that make the iPhone a narrow calculation that involves heavy
smartphone rather than a stupid phone guesswork: Will the benefits of a particu-
was publicly funded. The progenitor lar intervention exceed the costs associ-
of the Internet was arpanet, a program ated with both the offending market
funded by the Defense Advanced failure and the implementation of the fix?
Research Projects Agency (darpa), Such a method is far too static to evaluate
which is part of the Defense Depart- something as dynamic as innovation. By
ment, in the 1960s. Gps began as a failing to account for the possibility that
1970s U.S. military program called the state can create economic landscapes
Navstar. The iPhone’s touchscreen that never existed before, it gives short
technology was created by the company shrift to governments’ efforts in this area.
FingerWorks, which was founded by a No wonder economists often characterize
professor at the publicly funded Univer- the public sector as nothing more than an
sity of Delaware and one of his doctoral inefficient version of the private sector.
candidates, who received grants from This incomplete way of measuring
the National Science Foundation and public investment leads to accusations
the cia. Even Siri, the iPhone’s cheery, that by entering certain sectors, govern-
voice-recognizing personal assistant, can ments are crowding out private invest-
trace its lineage to the U.S. government: it ment. That charge is often false, because
is a spinoff of a darpa artificial-intelligence government investment often has the
project. None of this is to suggest that effect of “crowding in,” meaning that
Steve Jobs and his team at Apple were it stimulates private investment and
not brilliant in how they put together expands the overall pie of national output,

64 f o r e i g n a f fa i r s
 Image Courtesy of the DoD.
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 The Innovative State

which benefits both private and public innovation and makes it harder to attract
investors. But more important, public top talent. It creates a self-fulfilling
investments should aim not only to prophecy: the less big thinking a gov-
kick-start the economy but also, as Keynes ernment does, the less expertise it is
wrote, “to do those things which at able to attract, the worse it performs, and
present are not done at all.” No private the less big thinking it is allowed to do.
companies were trying to put a man on Had there been more information tech-
the moon when nasa undertook the nology capacity within the U.S. govern-
Apollo project. ment, the Obama administration would
Without the right tools for evaluating probably not have had such difficulty
investments, governments have a hard rolling out HealthCare.gov, and that
time knowing when they are merely failure will likely lead to only more
operating in existing spaces and when outsourcing.
they are making things happen that In order to create and shape technolo-
would not have happened otherwise. gies, sectors, and markets, the state must
The result: investments that are too be armed with the intelligence necessary
narrow, constrained by the prevailing to envision and enact bold policies. This
techno-economic paradigm. A better does not mean that the state will always
way of evaluating a given investment succeed; indeed, the uncertainty inherent
would be to consider whether it taught in the innovation process means that it
workers new skills and whether it led will often fail. But it needs to learn from
to the creation of new technologies, failed investments and continuously
sectors, or markets. When it comes to improve its structures and practices. As
government spending on pharmaceuti- the economist Albert Hirschman empha-
cal research, for example, it might make sized, the policymaking process is by its
sense to move past the private sector’s nature messy, so it is important for public
fixation on drugs and fund more work institutions to welcome the process of
on diagnostics, surgical treatments, and trial and error. Governments should pay
lifestyle changes. as much attention to the business school
Governments suffer from another, topics of strategic management and organi-
related problem when it comes to con- zational behavior as private companies
templating investments: as a result of do. The status quo approach, however, is
the dominant view that they should to focus not on making the government
stick to fixing market failures, they are more competent but on downsizing it.
often ill equipped to do much more
than that. To avoid such problems as a PROFIT AND LOSS
regulatory agency getting captured by Since governments often undertake
business, the thinking goes, the state courageous spending during the riskiest
must insulate itself from the private parts of the innovation process, it is
sector. That’s why governments have key that they figure out how they can
increasingly outsourced key jobs to the socialize not just the risks of their
private sector. But that trend often rids investments but also the rewards. The
them of the knowledge necessary for U.S. government’s Small Business
devising a smart strategy for investing in Innovation Research program, for

Januar y/Februar y 2015 65

Mariana Mazzucato

example, offers high-risk financing to is that governments, unlike venture

companies at much earlier stages than capital firms, are often saddled with the
most private venture capital firms do; costs of the failures while earning next
it funded Compaq and Intel when they to nothing from the successes. Taxpayers
were start-ups. Similarly, the Small footed the bill for Solyndra’s losses yet
Business Investment Company pro- got hardly any of Tesla’s profits.
gram, an initiative under the auspices Economists may argue that the state
of the U.S. Small Business Administra- already receives a return on its invest-
tion, has provided crucial loans and ments by taxing the resulting profits.
grants to early stage companies, includ- The truth is more complicated. For
ing Apple in 1978. In fact, the need for one thing, large corporations are mas-
such long-term investments has only ters of tax evasion. Google—whose
increased over time as venture capital game-changing search algorithm, it
firms have become more short term in should be noted, was developed with
their outlook, emphasizing finding an funding from the National Science
“exit” for each of their investments Foundation—has lowered its U.S. tax
(usually through a public offering or a bill by funneling some of its profits
sale to another company) within three through Ireland. Apple does the same
years. Real innovation can take decades. by taking advantage of a race to the
As is the nature of early stage bottom among U.S. states: in 2006, the
investing in technologies with uncertain company, which is based in Cupertino,
prospects, some investments are winners, California, set up an investment subsid-
but many are losers. For every Internet iary in Reno, Nevada, to save money.
(a success story of U.S. government Fixing the problem is not just a
financing), there are many Concordes matter of plugging the loopholes. Tax
(a white elephant funded by the British rates in the United States and other
and French governments). Consider the Western countries have been falling over
twin tales of Solyndra and Tesla Motors. the past several decades precisely due to
In 2009, Solyndra, a solar-power-panel a false narrative about how the private
start-up, received a $535 million guar- sector serves as the sole wealth creator.
anteed loan from the U.S. Department Government revenues have also shrunk
of Energy; that same year, Tesla, the due to tax incentives aimed at promot-
electric-car manufacturer, got approval ing innovation, few of which have been
for a similar loan, for $465 million. In shown to produce any R & D that would
the years afterward, Tesla was wildly not have happened otherwise. What’s
successful, and the firm repaid its loan more, given how mobile capital is these
in 2013. Solyndra, by contrast, filed for days, a particular government that has
bankruptcy in 2011 and, among fiscal funded a given company might not be
conservatives, became a byword for the able to tax it since it may have moved
government’s sorry track record when it abroad. And although taxes are effective
comes to picking winners. Of course, if at paying for the basics, such as educa-
the government is to act like a venture tion, health care, and research, they don’t
capitalist, it will necessarily encounter begin to cover the cost of making direct
many failures. The problem, however, investments in companies or specific

66 f o r e i g n a f fa i r s
 The Innovative State

technologies. If the state is being asked in—early stage companies since 1993.
to make such investments—as will The Finnish Innovation Fund, or Sitra,
increasingly be the case as financial which is operated under the Finnish
markets become even more focused parliament, has done the same since
on the short term—then it will have to 1967, and it was an early investor in
recover the inevitable losses that arise Nokia’s transformation from a rubber
from this process. company into a cell-phone giant. Had
There are various ways to do so. the U.S. government had a stake in
One is to attach strings to the loans Tesla, it would have been able to more
and guarantees that governments hand than cover its losses from Solyndra.
out to businesses. For example, just as The year Tesla received its government
graduates who receive income-contingent loan, the company went public at an
student loans get their repayments opening price of $17 a share; that figure
adjusted based on their salaries, the had risen to $93 by the time the loan
recipients of state investments could was repaid. Today, shares in Tesla trade
have their repayments adjusted based above $200.
on their profits. The prospect of the state owning a
Another way for states to reap greater stake in a private corporation may be
returns involves reforming the way they anathema to many parts of the capitalist
partner with businesses. Public-private world, but given that governments are
partnerships should be symbiotic, rather already investing in the private sector,
than parasitic, relationships. In 1925, they may as well earn a return on those
the U.S. government allowed AT&T investments (something even fiscal
to retain its monopoly over the phone conservatives might find attractive).
system but required the company to The state need not hold a controlling
reinvest its profits in research, a deal stake, but it could hold equity in the
that led to the formation of Bell Labs. form of preferred stocks that get prior-
Today, however, instead of reinvesting ity in receiving dividends. The returns
their profits, large companies hoard them could be used to fund future innovation.
or spend them on share buybacks, stock Politicians and the media have been
options, and executive pay. Research by too quick to criticize public investments
the economist William Lazonick has when things go wrong and too slow to
borne this out: “The 449 companies in reward them when things go right.
the S&P 500 index that were publicly
listed from 2003 through 2012 . . . used THE NEXT REVOLUTION
54% of their earnings—a total of $2.4 Past technological revolutions—from
trillion—to buy back their own stock.” railroads to the automobile to the space
An even bolder plan would allow the program to information technology—
state to retain equity in the companies did not come about as the result of
it supports, just as private venture capital minor tinkering with the economic
firms do. Indeed, some countries adopted system. They occurred because states
this model long ago. Israel’s Yozma Group, undertook bold missions that focused
which manages public venture capital not on minimizing government failure
funds, has backed—and retained equity but on maximizing innovation. Once one

Januar y/Februar y 2015 67

Mariana Mazzucato

accepts this more proactive state purpose, entrepreneurs experiment with the
the key questions of economic policy specifics. Governments should pro-
get reframed. Questions about crowding vide ambitious targets, not in the old
out private investment and unwisely command-and-control style but through
picking winners fall by the wayside as a combination of carrots and sticks. The
more dynamic questions—about creat- German government has followed this
ing the types of public-private interac- approach in its energy-transition initia-
tions that can produce new industrial tive, or Energiewende, which is designed
landscapes—rise to the top. to phase out nuclear energy and substitute
Today, many countries, from China it with renewables; it is doing this by
to Denmark to Germany, have settled setting lofty goals for carbon emissions
on their next mission: green energy. reductions and subsidizing technological
Given the potential benefits and the development of wind and solar power.
amount of money at play, it is crucial More broadly, governments should
that governments back this mission the strike agreements that allow them to
right way. For starters, they must not share in the profits from their successful
only pick various technologies or sectors investments. And most of all, they should
to invest in but also ask what they want build the public agencies of the future,
from those sectors. For example, if what turning them into hotbeds of creativity,
governments want from the energy sector adaptation, and exploration. That will
is a stable energy supply, then shale gas require abandoning the current obses-
will do, but if the mission is to mitigate sion with limiting the state’s interven-
climate change, then it won’t. In fact, tion to fixing problems after they have
mission-oriented policies need to foster happened—and smashing the popular
interactions among multiple fields. Nasa’s myth that the state cannot innovate.∂
mission to the moon required the inter-
action of many different sectors, from
rocketry to telecommunications to
textiles. Likewise, the green energy
revolution will require investment not
just in wind energy, solar power, and
biofuels but also in new engines, new
ways of more efficiently maintaining
infrastructure, and new ways of making
products last longer. Accordingly, the
state should take its cue from the venture
capital world and diversify its portfolio,
spreading capital across many different
technologies and enterprises.
In making green investments,
governments should fund those tech-
nologies that the private sector has
ignored and provide a strong, clear
direction for change, letting various

68 f o r e i g n a f fa i r s
 Return to Table of Contents

different types of innovation have

The Power of

SCHUMPETER’S HEIRS
radically different effects on economic
and employment growth. This insight
Market Creation gives entrepreneurs, policymakers, and
investors the ability to collaborate as
never before to create the conditions
How Innovation Can Spur most likely to unlock sustained pros-
Development perity, particularly in the developing
world. We argue that there exists a
Bryan C. Mezue, Clayton M. well-established model of company-
level investment and innovation that
Christensen, and Derek van Bever leads to transformative economic

M
ost explanations of economic development and national prosperity,
growth focus on conditions has been remarkably consistent at
or incentives at the global or explaining past successes, and can
national level. They correlate prosperity provide direction to stakeholders in
with factors such as geography, demogra- what to look for and what to build
phy, natural resources, political develop- in the future.
ment, national culture, or official policy
choices. Other explanations operate at varieties of innovation
the industry level, trying to explain why Our model targets innovation as the
some sectors prosper more than others. fundamental unit of analysis, since
At the end of the day, however, it is most investments are focused on that.
not societies, governments, or indus- And innovation, in turn, comes in
tries that create jobs but companies and three varieties. The first is what we call
their leaders. It is entrepreneurs and “sustaining innovation,” the purpose of
businesses that choose to spend or not, which is to replace old products with
invest or not, hire or not. new and better ones. Such innovations
In our research on growth, therefore, are important, because they keep mar-
we have taken the opposite approach, kets vibrant and competitive. Most of
working not from the top down but from the changes that one sees in the market
the bottom up, adopting the perspective are sustaining innovations. But these
of the firm and the manager. From this are by nature substitutive, in that if a
vantage point, we have learned that business succeeds in selling a better
product to its existing customers, they
won’t buy the old product anymore.
bryan c. mezue is a Fellow at the Forum for
Growth and Innovation at the Harvard Business When Samsung releases an improved
School. model of its flagship smartphone, sales
clayton m. christensen is Kim B. Clark of its old versions drop quickly. When
Professor of Business Administration at the Toyota convinces consumers to buy a
Harvard Business School.
hybrid Prius, they don’t buy a Camry.
derek van bever is Senior Lecturer of Investments in sustaining innovations,
Business Administration at the Harvard
Business School and Director of the school’s therefore, rarely create much net growth
Forum for Growth and Innovation. within the companies that develop and

Januar y/Februar y 2015 69

Bryan C. Mezue, Clayton M. Christensen, and Derek van Bever

sell them. And rarely do they lead to distribution channels in order to create
new jobs to fuel macroeconomic growth. a new market. Market-creating innova-
“Efficiency innovation” is the second tors create new growth and new jobs.
type; it helps companies produce more for Market-creating investments require
less. Efficiency innovations allow compa- two things: an entrepreneur who spots
nies to make and sell established products an unfulfilled customer need and the
or services at lower prices. The Walmart presence of an economic platform (that
retail model, for example, is an efficiency is, an enabling technology or feature in
innovation. Walmart can sell the same the product or business model that brings
products to the same customers as a significant advantages in economies
traditional department store, such as of scale). Kenya’s M-Pesa service, for
Macy’s, does at prices 15 percent lower and example, has succeeded in addressing
with half the inventory. In every competi- the lack of consumption of banking
tive economy, efficiency innovations are services across the country by using a
critical to companies’ survival. But by their wireless telecommunications platform.
very nature of producing more with less, When M-Pesa was released in 2007,
efficiency innovations entail eliminating fewer than 20 percent of Kenyans used
jobs or outsourcing them to an even more banks; today, more than 80 percent do.
efficient provider. In addition to being The South African telecommunications
able to produce more with fewer people, giant mtn, meanwhile, ushered in the
efficiency innovations make capital more cell-phone revolution across the conti-
efficient, improving cash flow. nent by combining telecommunications
The third type is “market-creating infrastructure with low-cost phones
innovation.” When most industries targeted at nonconsumers.
emerge, their products and services are Any strong economy has a mix of all
so costly and inaccessible that only the three classes of innovation at any given
wealthy can buy and use them. Market- time. But only market-creating innova-
creating innovations transform such tions bring the permanent jobs that
offerings into products and services that ultimately create prosperity. By target-
are cheap enough and accessible enough ing nonconsumption, market-creating
to reach an entirely new population of innovations turn the liabilities of
customers. The Model T Ford, the developing nations—the diverse unmet
personal computer, the smartphone, needs of their populaces—into assets.
and online equity trading are examples In the process, they create new value
of market-creating innovations. Because networks, build new capabilities, and
many more people can buy such prod- generate sustained employment. This
ucts, the innovators need to hire more feeds a virtuous circle, as innovators
people to make, distribute, and service move up the ladder to more sophisti-
them. And because market-creating cated nonconsumption opportunities.
innovations are simpler and lower cost,
the supply chains that are used for how market-creating
sustaining innovations don’t support innovation works
them. This makes it necessary to build Our early research seems to show that
new supply networks and establish new market-creating innovation has been an

70 f o r e i g n a f fa i r s
 The Power of Market Creation

Growth engine: testing at Embraer in Brazil, October 2014

important factor in every nation that consumer electronics, office equip-

has managed to achieve transformative ment, and steel.
growth and prosperity. Postwar Japan Consider the Japanese motorcycle
offers perhaps the best example. The industry. From a group of more than
Japanese economy was obliterated in 200 motorcycle makers in the 1950s,
World War II, so its challenge in many Honda, Kawasaki, Suzuki, and Yamaha
ways was less to develop from scratch emerged to captain the industry’s devel-
than to rebuild. Japan’s success in that opment at home and abroad. These
effort has often been attributed to “Big Four” firms did not seek growth
national pride and a strong work ethic, by stealing market share from existing
to the vision of government agencies leaders in motorcycles. Rather, they
such as what was then the Ministry of targeted nonconsumption. When the
International Trade and Industry, or to Japanese Diet passed an amendment to
excellence in science and engineering the country’s Road Traffic Control Law
R e ut e rs / R oos e v e lt C assio

education. But such explanations have in 1952 allowing younger drivers to

lost their persuasive force as Japan’s ride motorcycles, Suzuki was one of the
economy has stagnated in recent decades: first companies to adapt its offerings
a constant cannot explain a variable. for younger consumers, with its low-
In retrospect, a more powerful expla- end 60cc Diamond Free bike. Similarly,
nation for the country’s postwar growth Honda launched the 1952 50cc Cub
is its success with market-creating F-Type to target the growing number
innovations in motorcycles, automobiles, of small businesses that needed delivery

Januar y/Februar y 2015 71

Bryan C. Mezue, Clayton M. Christensen, and Derek van Bever

vehicles but couldn’t afford large ones. has become one of the most recognized
Honda positioned the motorcycle at the brands in the world and one of the
affordable price of 25,000 yen (about largest single contributors to South
$70) and provided a 12-month installment Korea’s gdp.
financing plan. Domestic competition In China, too, market creators have
among firms vying for the business of built domestic niches into regional or
consumers with little disposable income global footholds, in industries ranging
caused them to integrate backward in from consumer durables to construction
components and forward in distribution equipment. Haier started out in 1984
channels. This created jobs in Japan as a market-creating innovator that
beyond the Big Four themselves, and produced mini-refrigerators for Chinese
it also gave them the ability to export nonconsumers, and then it leveraged
their motorcycles to the United States a partnership with the German firm
and Europe and compete for new Liebherr to acquire technology and
consumers in those markets as well. equipment. By 2011, the company had
The same pattern was seen with disrupted many global incumbents in
Panasonic, Sharp, and Sony in consumer the “white goods” market with product
electronics; Nissan and Toyota in cars; lines inspired by its experience in China,
and Canon, Kyocera, and Ricoh in office gaining a global market share of 7.8
equipment. They all followed a two-stage percent. Similarly, Sany was launched
strategy of competing against noncon- in 1989 as a small materials-welding
sumption in the domestic Japanese shop for an underserved town in Hunan
market first and then pursuing the Province. It leveraged its understanding
same strategy abroad. of local needs and the latest technological
This model has been replicated in advances to produce cheap construction
South Korea, where market-creating equipment for China’s booming con-
innovators, such as Samsung, which have struction market. Today, it has a higher
been pivotal to the country’s economic domestic market share than its main rival,
rise, studied the Japanese experience the U.S. firm Caterpillar, and is also
closely. Samsung was founded as a gaining market share in foreign markets.
trading company but launched an elec- The same pattern appears in other
tronics subsidiary in 1969 to manufacture countries as well. In Chile, government
products that would eradicate domestic reform and the booming copper indus-
nonconsumption of entertainment and try have received significant acclaim,
cooling technologies. Samsung Electron- but market-creating innovations seem
ics’ first product was a black-and-white to have been the true engine of growth.
tv, produced jointly with the Japanese For example, the blossoming of Chile’s
companies nec and Sumitomo. Soon agriculture sector was based on market
after, Samsung studied Japanese models creation—before Chile’s innovations,
to produce some of South Korea’s first nonconsumption of fresh fruits and
cheap electric fans, and then the company vegetables was pervasive during most
graduated to low-cost air conditioners. of the year in nontropical advanced
By launching a continuous stream of countries. Chile’s agricultural exporters
market-creating innovations, Samsung leveraged the improving science of

72 f o r e i g n a f fa i r s
 The Power of Market Creation

cultivation and modern logistics to a new model to teach Brazilians how to

transform the availability of produce speak English. It now maintains over
and provide fresh goods all year round. 2,600 franchised schools, has generated
In India, many health providers are over 20,000 jobs, and has trained over
embracing market-creating innovations to 800,000 students.
make quality health care more accessible.
The Aravind Eye Hospital launched with the right kind of investment
the goal of providing low-cost eye surgery Such examples suggest the wide range
to poor nonconsumers. By introducing of opportunities available to grow by
innovations such as the high utilization targeting nonconsumption and creat-
of medical staff and tiered service levels ing robust domestic franchises that
for paying and nonpaying customers, can then achieve regional or global
Aravind has become the largest eye scale. Looking at things this way also
hospital in the world. And just as in sheds light on what role resources and
the Japanese case, Indian firms are using investments actually play in development.
their domestic platforms to target non- Several ostensibly valuable levers for
consumers abroad: Narayana Health, development—such as investments
for example, is setting up shop in the in natural resource industries, major
Cayman Islands to reach cost-conscious infrastructure projects, and routine
Americans, and India has become a foreign direct investment—have rarely
leader in health tourism, serving over brought the benefits their backers
a million foreigners every year. expected. Why not? In part, because
And in Brazil, where extensive oil such investments don’t create markets.
and lumber resources often capture Economists have long wondered
attention, market-creating innovators why nations endowed with oil (such
such as Embraer have been hard at as Iran, Iraq, Mexico, Nigeria, and
work creating jobs and capabilities. Venezuela) or precious metals (such as
Like most aircraft manufacturers, Mongolia, Peru, and Russia) generate
Embraer was initially supported by billions upon billions in revenues and
government subsidies and focused on profits yet manage to create few jobs
producing aircraft for military purposes. and little national economic growth.
But the company trained its sights on The answer is that investments in
the commercial market, delivering resource industries in developing
low-cost aircraft to domestic airlines. nations lead to efficiency innovations,
Today, Embraer has acquired a broad designed to produce more with less.
set of capabilities, has created exten- From the day these rigs and refineries
sive domestic supply networks, and go into operation, the objective of their
makes planes for several dozen leading managers is to increase productivity
international airlines, including major by reducing employment. This is the
U.S. ones, such as American, Delta, logic of efficiency innovation, and its
JetBlue, and United. And Grupo Multi, outcome is net job loss, not gain.
another Brazilian market-creating suc- Many infrastructure projects, such
cess, targeted the nonconsumption of as communications towers, power plants,
foreign-language learning by developing and roads, meanwhile, are also efficiency

Januar y/Februar y 2015 73

Bryan C. Mezue, Clayton M. Christensen, and Derek van Bever

investments. They reduce the cost of to keep pace with customer growth. This
operations for domestic companies, distinction explains why foreign direct
allowing them to better serve their investment did not create fundamental
existing customers, but they do not growth in Mexico but did in Taiwan.
directly lead to the creation of sustained Most U.S. investments in Mexico funded
growth and prosperity. In fact, if they efficiency innovations embedded within
cannot be combined with a different established end-use markets—in indus-
set of investments specifically targeting tries such as automobiles, appliances, and
unfulfilled customer needs, their benefits electric motors. In contrast, most of the
will remain limited to existing custom- companies that have driven Taiwan’s
ers and their economic impact will be economic development—including
limited as well. This is why infrastruc- ASUSTeK Computer, htc, Hon Hai
ture investments in developing coun- Precision Industry, MediaTek, and the
tries, championed by organizations such Taiwan Semiconductor Manufacturing
as the World Bank and the International Company—have provided efficiency
Monetary Fund, so often fail to drive innovations embedded within market-
long-term growth. creating innovations: more efficient
Most foreign direct investment, finally, components or services used in market-
is similarly oriented toward efficiency. creating innovations such as laptop
The most common type is when a multi- and tablet computers and smartphones.
national company sets up a low-cost Because the growth from market-creating
factory to provide components or ser- innovations is typically greater than the
vices for products with an established rate of reduction caused by increased
end use. Often, these investments are efficiency, the broader economy became
“migratory”: as soon as the low-cost more prosperous.
rationale for the investment in country
X has played out, the company moves how to create sustained
its factory to lower-cost country Y, if growth
possible. These are investments to get Given that most investments in devel-
things into and out of the country, not oping economies have been conceived
to develop a long-term, stable source from the top down and have focused on
of production and jobs. efficiency, it should come as no surprise
Some types of foreign direct invest- that there has been little growth in areas
ment, of course, do bring more substan- that seemed otherwise to possess such
tial benefits to developing nations. One promise. To do better in the future,
example is when an investment supports both the public and the private sector
a product that is creating a new market should work to support market-creating
abroad. Typically, the market for the innovations—and innovators—in their
end products and services is growing home markets.
faster than efficiency innovations are Perhaps the most critical move to
decreasing costs. Such an investment boost market-creating innovation would
puts people to work to build and run be to put in place platforms and incentives
the initial factory, and then the com- that would accelerate the flow of capital
pany keeps hiring additional employees between investors and market-creating

74 f o r e i g n a f fa i r s
 The Power of Market Creation

innovators. Some of this work simply already available that can teach entrepre-
involves adapting existing tools to the neurs the critical elements of market
particular challenges of investing in creation. For example, Godrej & Boyce’s
emerging markets. Online investment chotuKool, a portable refrigerator—a
platforms, such as AngelList and disruptive product bringing affordable
Gust, which directly connect investors cooling capability to the 80 percent of
to entrepreneurs, have the potential rural Indian consumers without access
to accelerate many market-creating to reliable refrigeration—shows how
investments (provided they can be creativity and patience can bring
adapted to address the legitimate trust life-changing products to segments of
concerns of investors), and both are the market that had long assumed that
already going global. So-called crowd- such luxuries were beyond their reach.
funding networks, such as Kickstarter A long-standing concern of entrepre-
and Indiegogo, can also be targeted neurs and investors trying to build
more precisely at market-creating businesses in the developing world has
activity, with a particular focus on been the seemingly unavoidable road-
giving investors from developing block of corruption. There is evidence,
countries’ ethnic diasporas the chance however, that systemic corruption can
to invest. And in resource-rich nations, be circumvented. Thus, despite India’s
policymakers can play a bridging role high degree of corruption at all levels
by diverting a portion of the revenues of society, information technology
from those resources toward funds companies in its southern states have
specifically designated for market- prospered because the Internet has
creating investments. Such funds should essentially become a conduit around
be managed autonomously, by inves- the corruption rather than through it.
tors who understand how to spot and This principle holds promise for other
support market-creating innovations. businesses around the world. Rather
Most entrepreneurs focus on introduc- than spending managerial time apply-
ing products and services into existing, ing for or negotiating fees for certifi-
established markets, but market-creating cates, licenses, permits, and registrations,
innovation is built on targeting non- executives should work with reform-
consumption—unfulfilled needs in new minded leaders to create ways of getting
markets. To help entrepreneurs tap the them easily and virtually, bypassing the
abundant nonconsumption opportunities multiple opportunities for corruption
available in developing nations, adequate along the ordinary routes.
training programs must teach entrepre- For certain system-level constraints,
neurs how to see such nonconsumption finally, instead of waiting for the system
and estimate the rewards of eradicating itself to change, entrepreneurs are best
it. In coordination with universities and served by trying to internalize the prob-
companies, such programs should study lem and control more of the outcome.
how market-creating innovations have For example, although traditional capital
taken hold in comparable nations and markets may not be keen on market-
identify emerging high-potential tech- creating innovations, the concept of
nologies. Several case studies are “royalty financing” could help individual

Januar y/Februar y 2015 75

Bryan C. Mezue, Clayton M. Christensen, and Derek van Bever

businesses. Under this scheme, rather Armed with a strong causal expla-
than raising traditional equity or debt, nation for what provides sustained
the entrepreneur can license investor growth, and operating in supportive
capital. The investor receives nothing conditions and joined by sympathetic
until revenues are generated, and then policymakers, entrepreneurs in devel-
the entrepreneur pays a royalty to the oping countries can create new markets
investor—a percentage of revenues— and new opportunities. The result of
just as is common with licenses for doing so will be not just successful
intellectual property. As revenues businesses but also more broad-based
increase, royalties increase, until the job creation and more robust and
accumulated royalties paid have lasting prosperity for their countries
reached some multiple of the initial and fellow citizens.∂
principal amount. Such an approach
precludes the need for a liquidity
event, that is, an opportunity to cash
out, whose outcome is hard to predict
when capital markets are poorly orga-
nized and policed. Instead, investors
benefit from a liquidity process, which
they can monitor and confirm firsthand.
Skilled talent is even scarcer than
capital, and here, too, companies can
move to internalize the problem. By
embracing in-house vocational pro-
grams or working more closely with
schools and universities, companies
can address the problem directly. At
the extreme, in South Korea, the steel
company posco set up its own univer-
sity to train capable engineers. Observ-
ing that “you can import coal and
machines, but you cannot import talent,”
posco’s founder, Park Tae-joon, led
the company to establish the Pohang
University of Science and Technology
to provide needed education in science
and technology. The school consistently
tops domestic and international uni-
versity rankings and has been rated
number one by the London-based
Times Higher Education’s “100 Under
50,” a ranking of the top 100 universi-
ties under 50 years old.

76 f o r e i g n a f fa i r s
 SPONSORED SECTION | AZERBAIJAN - 1
AZERBAIJAN 2020
TURNING STRENGTH
INTO SUSTAINABILITY
© BEGOC

www.foreignaffairs.com/azerbaijan2015
OVER THE PAST TEN YEARS AZERBAIJAN HAS BEEN ONE OF THE FASTEST GROWING ECONOMIES IN
THE WORLD. Rich hydrocarbon reserves and careful planning have enabled the country to build a healthy
and forward-looking economy. Azerbaijan is now preparing to take the next leap. A program for economic
diversification and a clear vision for development are shaping the future of Azerbaijan as a globally
competitive player, creating abundant opportunities for investment along the way.

Azerbaijan’s transformation is particularly impressive

considering that twenty years ago it was mired in
deep political and economic crisis. Amid post-Soviet
uncertainty, the economy was in free fall, with a severe
contraction in output and rampant inflation.
The revival of the country’s economy followed the
introduction of a new oil strategy defined by Azerbaijan’s
national leader Heydar Aliyev, which encompassed
a series of production sharing agreements, and
“Our strategic goal is to further
the opening of Azerbaijan’s historic oil sector to
international investment. A 1994 agreement, hailed strengthen Azerbaijan’s independence
as the “contract of the century,” gave investors access and make it one of the most developed
to Azerbaijan’s rich oil fields in the Caspian Sea. The and competitive countries in the world.”
ensuing inflow of capital and expertise permanently
Ilham Aliyev, President of the Republic of Azerbaijan
altered the country’s fortunes. Large-scale production
and the construction of multiple pipelines contributed
to making Azerbaijan one of the world’s largest oil and new high-tech industrial facilities and diversification of
gas exporters. the national economy,” President Aliyev recently stated.
Since, Azerbaijan has experienced tremendous “As a result, the non-oil sector has been registering an
growth, which averaged 13.5 percent in the last decade. annual growth rate of 10 percent each year.”
The country is flush with foreign exchange reserves Economic diversification is therefore a cornerstone
and about half of Azerbaijan’s export oil revenues are of the country’s principal development concept,
collected in a state oil fund (SOFAZ), which finances ‘Azerbaijan 2020: A look into the Future’, adopted in
long-term strategic investments in infrastructure and 2012. It positions Azerbaijan to become a politically
socioeconomic development. developed and economically competitive country by
Azerbaijan’s biggest challenge today is diversifying 2020, applying its regional leadership to a global scale.
away from hydrocarbons, which represent more than Particular emphasis is placed on the strengthening
90 percent of the country’s total exports, a 60-percent of non-oil industries, transitioning the country
increase from fifteen years ago. The country expects into a knowledge-based economy, and exploiting
to capitalize on hydrocarbons for at least another forty Azerbaijan’s strategic position along international
years, but oil production is believed to have peaked trade routes. For investors, this opens a new chapter
and Azerbaijan must do more for its non-oil economy. of opportunities, particularly in view of further regional
For the government this is a clear priority. “In the last integration and rapid progress in the development
ten years, a portion of the revenues obtained from of Azerbaijan’s infrastructure and services. Leaving
oil and gas production has been channeled into the very little to chance, Azerbaijan appears to be on full
development of the non-oil sector, the establishment of course to meeting its 2020 targets.
SPONSORED SECTION | AZERBAIJAN - 2

Baku 2015: Proud Hosts

of the First Ever European Games
In June 2015, Azerbaijan will host the very first The long-term legacy of these investments is
European Games—a new format of a major important for Azerbaijan. “I can honestly claim
multisport event for the entire continent, created that we have one of the best legacy models among
at the December 2012 General Assembly of the the big sport events in the world,” says Minister
European Olympic Committees—in its capital city of Rahimov. “We are not constructing new sport
Baku. No other European nation had exhibited quite facilities that will become useless after the main
the same level of preparedness as Azerbaijan. event.” The National Stadium, for example, is a
This will be a unique opportunity for Azerbaijan modern, multi-purpose venue that was planned
to showcase the country and to make ‘Baku 2015’ well before the European Games and will be used
the standard for all future European Games. Azad as premium football stadium, seating 68,000
Rahimov, Minister of Youth and Sports and CEO of the spectators. Similarly, other venues are planned to
Baku 2015 European Games Operations Committee fill gaps in the current infrastructure, such as the
(BEGOC), notes that “it is very important for us to new Aquatics Center, which will give Baku citizens
deliver the message to the world that Azerbaijan free access to first-class swimming facilities.
can achieve international sporting excellence and
leave a strong legacy. Azerbaijan will deliver a first- “The European Games provide
class event that will create positive memories and
a great opportunity to showcase
excellent facilities to inspire not only Azerbaijanis,
but also future countries hosting the event.” Azerbaijan as a modern European
The Baku 2015 European Games will be nation and further establish the
the largest multisport event ever to be held in
country as a prime destination in
Azerbaijan, even if the country has past experience
in organizing large cultural events. A total of twenty Europe for sports.”
sports will be represented at the Games, including Azad Rahimov, Minister of Youth and Sports
sixteen Olympic sports. More than six thousand
athletes from forty-nine nations are expected to
take part in seventeen days of competition. Making Sports a Priority
The Games are being given full government The government’s careful approach to sporting
support. Azerbaijan’s First Lady, Mehriban Aliyeva, infrastructure reflects a broader policy to develop
chairs the organizing committee that manages the athletic facilities across the country. “We have
event, in cooperation with the Baku City Executive invested heavily in sports infrastructure,” confirms
Power and the National Olympic Committee of Minister Rahimov. “In the past fourteen years we
Azerbaijan. “We now have more than 1,000 people have constructed forty-one Olympic complexes in
working for the Baku 2015 European Games, and various regions of the country. This offers great
this number will eventually increase to 1,500,” opportunities especially for young people, taking
says Minister Rahimov. This includes international into account that 66 percent of Azerbaijan’s
experts who have been recruited to ensure the population is under thirty-five years of age.” World-
highest level of professionalism. class sporting events such as the European Games
give impetus to providing the Azerbaijani youth with
Built to Last top-standard sports venues. This creates perfect
“To facilitate the European Games, Azerbaijan and ground for Azerbaijan’s next generation of athletes
especially Baku are undergoing huge changes,” and strengthens the country’s credentials as a
says Minister Rahimov. “Preparations include the sporting nation.
upgrading and modernization of existing sporting Neither does Azerbaijan’s program end with
infrastructure, as well as the construction of the European Games. In 2017, Azerbaijan will host
new venues.” A total of eighteen venues will be the Islamic Solidarity Games, drawing athletes
made available for the competition, including five from fifty-seven countries. And for 2020, Baku was
new constructions: the Baku Aquatics Center, the selected to host games of the UEFA Euro Football
National Gymnastics Arena, the BMX Velopark, Championships, with one quarter-final and three
the Baku Shooting Center, and the Baku National group stage matches to be played at the new
Stadium. National Stadium.
SPONSORED SECTION | AZERBAIJAN - 4

Azerbaijan’s Place in the World

Azerbaijan’s strong economic development, tions, and participating in international organi-
political stability, and commitment to dialogue zations such as the Organization for Security
and cooperation are dramatically changing the and Co-operation in Europe (OSCE), the Council
country’s international standing. Regionally, on of Europe, the Non-Aligned Movement, and the
the back of its economic power, it has become Organization of Islamic Cooperation (OIC). In 2011,
a key driver for further integration. Azerbaijan Azerbaijan was elected a non-permanent member
accounts for roughly 80 percent of gross domes- of the United Nations Security Council, reflecting
tic product (GDP) of the entire South Caucasus its international credibility.
and attracts more foreign direct investment than While Azerbaijan continues to deepen relations
any other country in the region. “Azerbaijan’s with key partners, it also seeks closer politi-
geographical location and economic potential cal and economic cooperation with countries in
require us to be an active player in the regional Southeast Asia, Latin America, and Africa, where
integration process,” says Elmar Mammadyarov, the Azerbaijan International Development Agency
Minister of Foreign Affairs. “Occupying a cross- of the Ministry of Foreign Affairs also imple-
road between East and West, we have a long- ments humanitarian projects. Azerbaijan thus
standing tradition of building bridges between strengthens its international clout. In the words
people and societies.” of Mammadyarov, “Azerbaijan’s development in
In the wake of developing its hydrocarbon sec- recent years across all areas and its growing influ-
tor, Azerbaijan has established close links and ence at the global level speak for themselves.”
economic ties with neighboring states and other
countries in the region. It participates in numer- A Home for Major Investments
ous regional organizations and encourages closer Azerbaijan’s strong economic growth in the
cooperation. “Azerbaijan has been behind a number last two decades would have been impossible
of regional projects, especially in the field of energy, without foreign investment. The country’s
transport and information communication tech- economic success is attributable to an open-
nologies,” explains Mammadyarov. “Construction door policy that invites investors to participate
of the Baku-Tbilisi-Jeyhan oil pipeline paved the in the development of key sectors, including
way for the completion and successful launch of the the lucrative hydrocarbon sector. This attitude
Baku-Tbilisi-Erzurum gas pipeline, as well as the prevails and has made Azerbaijan a preferred
Baku-Tbilisi-Kars railroad project and the Trans- destination for foreign direct investment.
Eurasian Information Super Highway.” “Political and economic stability, protection of
What holds true regionally also applies inter- investor’s rights, favorable geographical location,
nationally. Azerbaijan is proving a reliable and abundant natural resources and a highly skilled
committed partner, strengthening bilateral rela- workforce have made Azerbaijan one of the most
SPONSORED SECTION | AZERBAIJAN - 6

attractive countries in the region for foreign pipelines, rail and roads, and promoting economic
investments,” says Elmar Mammadyarov, Minister development of our region.”
of Foreign Affairs.
Between 1996 and 2013, the country attracted Tomorrow’s Infrastructure
more than $100 billion in foreign investment. Azerbaijan’s strategic location makes it an ideal
In 2013 alone, investments amounted to $10.5 hub and transit route for intercontinental trade and
billion. Traditionally, investment was directed at transportation. The country has invested heavily in
the oil and gas sectors, which continue to create building and expanding its road, rail, air and sea
significant opportunities. But Azerbaijan’s economy infrastructure. In the last decade, Azerbaijan has
is diversifying. As Sahil Babayev, Deputy Minister of built four international airports and added more
Economy and Industry, confirms, “diversification than five thousand miles to its road network. And
of non-oil sectors is our primary goal and we have this was only the beginning. Apart from ongoing
already achieved results. Compared to 2007, when work at Baku international airport for a new
60 percent of GDP was generated by the oil sector, terminal with an annual capacity of three million
this has now been reduced to 43 percent.” passengers, one of Azerbaijan’s biggest projects is
Opportunities exist in a variety of sectors, the Baku-Tbilisi-Kars railway. Also known as the
including in particular agriculture, alternative ‘Iron Silk Road’, the project will connect the railway
energy, food processing and packaging, systems of Azerbaijan, Georgia, and Turkey with
industrial production, information technology and those of Europe and Asia.
telecommunications, logistics and transportation, “The Baku-Tbilisi-Kars railway project will be
and tourism. one of the most efficient transport corridors in
A string of reforms has contributed to raising terms of distance, speed and tariffs. It will not
Azerbaijan’s attractiveness. The social, economic, only contribute to internal cargo shipping, but
and legal conditions of investment are clearly also benefit Azerbaijan’s role in transit cargo
defined, the business registry system has been shipping,” says Ziya Mammadov, Minister of
greatly simplified, and mechanisms are in place Transport. Another major development under way
to protect the rights of investors. Azerbaijan offers is the construction of a new port facility. “The new
a very liberal environment for investment and a Baku International Sea Trade Port will become
range of special incentives. the biggest seaport in the Caspian region and
Regionally, Azerbaijan creates additional should be considered as a continuity of the Baku-
opportunities through integration, as Mammadyarov Tbilisi-Kars railway project,” says Mammadov.
explains. “There is a strong will and financial Eventually, the new port will have an annual
commitment from the our side to implement capacity of twenty-five million tons of cargo or one
economic projects of regional importance, million containers. The eagerly awaited project is
especially in the fields of energy, ICT and transport, expected to be completed by 2017 and will further
connecting continents, regions and countries by enhance Azerbaijan’s regional importance.
 SPONSORED SECTION | AZERBAIJAN - 7
Hydrocarbons Continue Powering Growth
Azerbaijan has played an important role in the history imports and exports.
of oil production. It was the site of the first oil field, Developing the Shah Deniz field solidifies SOCAR’s
drilled in 1846, and of the first offshore oil field. More role as an important energy provider to European
than 150 years later, Azerbaijan still stands among the markets. The Shah Deniz field currently has a capacity
world’s great oil- and gas- producing nations. Without of 315 billion cubic feet (bcf), but after the second
the revenues from oil and gas production, Azerbaijan’s development stage will have an additional peak
recent and phenomenal growth over the past two capacity of 565 bcf, making it one of the world’s largest
decades would have been unthinkable. gas development projects. Preparations are well under
“More than one hundred billion dollars in revenues way, as Abdullayev confirms. “Master agreements
have been received since the establishment of SOFAZ for design, construction and supply works have been
in 1999,” says Shahmar Movsumov, President of signed. Initial, and in some production areas even main
the State Oil Fund of Azerbaijan (SOFAZ), which is works, have started,” he says, adding that “the Shah
responsible for collecting and managing oil and gas Deniz field is planned to deliver initial volumes of gas
revenues. “Roughly 40 percent of these revenues have to Turkey by 2018.”
been saved and 60 percent have been invested into the SOCAR strategically decided to grow supply to
economy of Azerbaijan.” European rather than regional markets, which requires
Large-scale oil production took off with the a significant upgrade and expansion of infrastructure;
development of Azerbaijan’s most prolific oil field, the the consortium managing the Shah Deniz field agreed
Azeri-Chirag-Guneshli (ACG) field, located offshore to make a total investment of $45 billion to support
in the Caspian Sea. The field became operational in this shift. Money will be spent on expanding the field
1997 and is managed by an international consortium and constructing pipelines across Turkey and into
headed by British Petroleum (BP), under a landmark Greece, Albania, and Italy. “This is a giant project
production sharing agreement. Production at the and will establish a pipeline system of 3,500 km in
field peaked in 2010, but it still accounts for about 80 length, stretching from Azerbaijan to Europe,” explains
percent of the country’s total output, even as new oil Abdullayev. “It will involve cutting-edge underwater
fields are coming on stream. production technologies at the Caspian Sea, expansion
Most oil is exported via the Baku-Tbilisi-Ceyhan of the current Southern Caucasus Gas Pipeline, and
(BTC) pipeline, which runs through Azerbaijan, construction of the Trans Anatolian Natural Gas
Georgia, and Turkey and provides a crucial link to Pipeline (TANAP) and the Trans Adriatic Pipeline (TAP).”
global markets. It has allowed Azerbaijan to massively The project, also known as the Southern Gas Corridor
increase production, reaching one million barrels per (SGC), will be the first in decades to introduce new gas
day (bbl/d) at its peak in 2010. supplies to Europe, amid European Union efforts to
Now gas is quickly becoming a second major source diversify European gas supplies. “The initial expectation
of revenue for Azerbaijan. In 2006, production started of gas production for Shah Deniz Stage II is sixteen billion
on the offshore Shah Deniz field, one of the largest gas cubic meters annually (bcma),” explains Deputy Minister
and condensate fields in the world. Almost overnight, Abbasov. “Ten bcma of this gas will be delivered to Italy,
this has turned Azerbaijan into a net gas exporter and Greece, and Bulgaria, and the remaining six bcma will
a major energy partner for Europe. For Natiq Abbasov, be delivered to Turkey. Agreements have been signed for
Deputy Minister of Energy, this might yet reveal itself as the next twenty-five years.”
“the contract of the twenty-first century.” And this may only be the beginning. Azerbaijan
expects a steep rise in gas exports, including from
SOCAR Rises to International Status other domestic resources. “We hope to be able to
Rovnag Abdullayev, President of the State Oil Company of produce gas from the Absheron gas field by 2020-
the Republic of Azerbaijan (SOCAR), is duly enthusiastic 2021,” says Abbasov. “The initial figure of sixteen bcma
about the prospects of gas. “In the bright oil and gas is thus set to rise. Our target is to produce fifty-five
history of Azerbaijan, the Shah Deniz field development bcma by 2025 and to export between thirty-five and
is ushering in a new era.” The state-owned SOCAR holds forty bcma of this gas.”
a major stake in the exploration and production of oil For SOCAR, gas-sector development is another
and natural gas in Azerbaijan. It produces approximately stepping stone toward becoming an international
20 percent of the country’s total output and is part of and vertically integrated energy company. Recent
the BP-led Azerbaijan International Operating Company acquisition of a controlling share of the Greek
(AIOC), which operates the ACG and Shah Deniz fields. natural gas transmission network operator (DESFA)
SOCAR also manages the country’s oil and natural gas exemplifies SOCAR’s wider strategic orientation. The
SPONSORED SECTION | AZERBAIJAN - 8

move is expected to pave the way for other SOCAR the retail stations market in Europe. Currently we are
activities in the European market. in the process of acquiring local fabrication capability
SOCAR has business activities stretching from to support our construction business and maintenance
Europe to the United Arab Emirates and Singapore. businesses,” adds Wring.
It maintains fuel retail networks in Georgia, Ukraine,
Romania, and Switzerland, and became a major player New Focus on Renewable Energies
in the Turkish petrochemicals sector when it acquired Despite the dominance of oil and gas in Azerbaijan’s
a controlling share in Turkey’s sole petrochemicals energy sector, the country is no stranger to renewable
manufacturer, Petkim, in 2008. Plans to grow Petkim’s energies. Azerbaijan’s geographical location offers
Turkish-market share from 30 percent to over 40 unique opportunities for a range of alternative energy
percent will see a heavy investment from SOCAR. This sources, including solar, wind, and geothermal. The
includes construction of petrochemical plant facilities, potential for solar energy alone is estimated at ten
an energy plant, a container port, and a $5.5 billion thousand megawatt (MW), attributable to long hours of
refinery on Turkey’s Aegean coast. sunshine and clean air. And along the coastal waters of
SOCAR no longer feels confined by Azerbaijan’s Azerbaijan, wind power is estimated to offer potential
borders. As Abdullayev states: “We are keen to for another ten thousand MW.
expand our presence in international markets. In the Azerbaijan established a dedicated State Agency on
coming years, we intend to focus more on overseas Alternative and Renewable Energy Sources (SAARES)
exploration and production and the expansion of in 2009 to develop its renewable energy sources.
foreign investment projects.” The agency is responsible for formulating the policy
framework and developing a centralized approach to a
Meeting the Challenge country-wide and rapid uptake of renewable energies.
Azerbaijan’s second largest natural gas field, the offshore “We want to avoid the problems that European and other
Umid field, is a joint development by SOCAR and Nobel Oil, countries have encountered,” explains Akim Badalov,
a private company. Nobel Oil’s exploration and production Chairman of SAARES. “Just like a newborn baby is given
arm holds a 20 percent share in the project and has the care of its parents, we provide state support to this
been involved in the field’s development, despite being newly established sector, to then set it free.” Following
a young entry to the market. “Nobel Oil was established research, international consultations, and trial projects,
in 2005 in the spirit of the business model applied by the SAARES has developed a national strategy that presents
Nobel brothers who created one of the most successful a detailed roadmap towards achieving a significant
companies in the history of the oil industry,” says Michael increase in the share of alternative energy sources in
Wring, CEO of Nobel Oil Services. “We soon grew into an Azerbaijan’s energy consumption.
active technical service provider, offering a wide range “The strategy sets renewable energy targets by 2020,
of services, including work over, drilling, installation, with accurate megawatt figures for solar, biomass,
construction, engineering and maintenance, repair and wind power, etcetera,” says Badalov. “No other country
operations services to the oil and gas industry.” At the plans with such accuracy. To the last village we know
same time, involvement in the Umid project allows the the capacity of each of the stations we will build.” Once
company to grow its upstream expertise and to stay approved by the presidential office and by parliament,
ahead of the game. roll-out will be supported by Azalernativenerji Ltd.
Competition is steep and requires companies The organization will be responsible for the economic
to continuously adapt to new challenges. “We can’t matters of renewable energy production, including
afford complacency or continue riding on our previous distribution, sales, and management of infrastructure.
successes. We have an active organic and inorganic Azerbaijan’s own brand of hybrid power stations,
business development strategy and want to create combining wind, solar, and geothermal energy and
partnerships by setting up joint ventures with local power generated from biomass, will equally be run
and foreign providers of technology and services,” by Azalernativenerji LLC, under the State Agency on
Wring notes. “Our competitive advantage is our intimate Alternative and Renewable Energy Sources.
knowledge of the local market and business realities, If implemented as planned, the strategy would
including our relationships with potential customers achieve a drastic change in the country’s energy mix. “By
and service providers. We understand how to get results 2020, we will be able to achieve around four thousand
in a saturated challenging market.” Nobel Oil plans to MW of power generation, providing almost 50 percent of
continue diversifying in energy-related industries and the total energy generated in the country,” says Badalov.
grow its international business. “In May 2014 we started “But considering our potential, we could even achieve six
a trading business of crude, gas and refined fuels. We thousand MW.” He is confident that the sector’s growth
also established Nobel Oil Downstream which entered will be limited only by Azerbaijan’s actual energy needs.
 SPONSORED SECTION | AZERBAIJAN - 9
Private Investment Shapes the Non-Oil Sector
The opportunities in Azerbaijan’s non-oil economy are operations,” says Guliyev. “Most of our larger projects
most apparent in the portfolios of private investors. are concentrated in this field.” Synergy operates
Synergy Group, one of the largest private investment AAC LLC, a highly modern production facility for
holdings in Azerbaijan, has invested in the non-oil aerated concrete products used in the country’s major
sector since its establishment in 2010. Its portfolio construction projects. The facility is being upgraded
includes industries ranging from construction and for a two-fold rise in production capacity to meet
construction materials to hospitality management, growing demand from the local industry. And this
information and communication technologies, and is just one of many projects. “We have launched
agriculture. “We are proud to say that the group construction of a fibro-cement plant that will produce
already includes dozens of separate businesses, now ecofriendly roof and facade coverings,” says Fakhriyar
employing more than 1,500 people,” says Dayanat Jabbarov, Vice-Chairman of the Supervisory Board.
Guliyev, Chairman of the Supervisory Board. Many of “And we are preparing to open a plant based in
the company’s investments are made in the regions Shamkir, the Zayam Technologies Park, specializing
outside of Baku—a deliberate choice, as Guliyev in the production of metal structures used in the
explains. “The social and economic development of construction of factories, buildings and bridges.”
the regions is a main drive behind our activities.” In 2010, Synergy Group established a partnership
Otherwise, Synergy’s investments are as diverse with leading regional contractor Renaissance
as Azerbaijan’s economy. One of Synergy’s interests, Construction, in a bid to becoming Azerbaijan’s leading
Caspian Coast Winery & Vineyards, produces high construction contractor.
quality wines and cognac for export, while Azagro Synergy Group proves as true the tenets of
is a business growing fresh cut roses in modern Azerbaijan’s 2020 agenda that significant growth and
greenhouses. Synergy Group also owns Azerbaijan development is possible in all sectors. “We will continue
University, one of the country’s first private universities. to contribute to the development of our country in
Synergy’s largest investments, however, are in the every field,” says Guliyev. “We are honored to be one
construction and hospitality sector. “The construction of the main actors in growing the attractiveness of
sector represents an essential part of the Group’s Azerbaijan’s economy for international investors.”
SPONSORED SECTION | AZERBAIJAN - 10

A Quantum Leap in
Public Service Provision
Azerbaijan is undergoing rapid socioeconomic is practically impossible. You cannot have any
changes, heralded by wide-ranging reforms, corruption in an ASAN Service Center with the
including the modernization of its public services. The ASAN model type. Therefore, the main target for
ASAN-Service of the State Agency for Public Service us today is raising the level of efficiency of the
and Social Innovations, which represents a quantum services and to be always a step ahead of the public
leap in the way public services are delivered, with expectations placed on ASAN.”
equal access guaranteed to all citizens, is central to
the country’s transformation. The Customer is Always Right
Since its establishment in 2012 as part of Customer satisfaction is paramount in ASAN, acting
President Aliyev’s modernization initiative, ASAN- as a barometer of the center’s success. Exit poll
Service has become a byword in efficiency and machines are available to garner feedback, and
transparency. ASAN has significantly increased video-call machines enable people to voice their
public confidence in state bodies and triggered complaints or suggestions by contacting a dedicated
a radical change in public perception of state call center free of charge.
administration. ASAN uses social networks to ensure public
In a successful public-private partnership participation and raise citizen awareness about its
(PPP), ASAN service centers combine in a single work. Already, ASAN’s Facebook page has more
administrative building state entities and private than 250,000 followers.
companies. Together they render over 200 services Ethical behavior and politeness underpin ASAN’s
to more than 2,500 people per day. Available state success. Staff receive regular intensive training that
services include the issuance of IDs and passports, includes customer service, corporate ethics, and
residence and work permits, notarized documents, time and stress management skills. The result is
renewal of driving licenses and the payment of a customer satisfaction rate of 98 percent among
fines. Private companies offer banking, insurance, more than 3 million served so far.
utilities, translation and medical services. ASAN’s role as an advanced model for the
ASAN is also paving the way for e-government in delivery of public services is now widely recognized.
Azerbaijan through the use of modern information Kamran Agasi, Director of the Innovations Center,
technologies and service-specific software notes that ASAN’s structure “can serve as a best
developed by Azerbaijani specialists. practice for countries that would like to take their
public service delivery to a qualitatively new level.
Convenient and Transparent We have proved that in a short period of time it is
Introduction of a mobile ASAN service is the latest possible to transform public service delivery.” This
innovation in public service delivery. Well-equipped sentiment has been echoed by the World Bank’s
large buses offer services to residents in remote Executive Director Jorg Frieden, who stated that
areas and regions that do not host ASAN centers. “the application of ASAN service experience in other
Intra-city mobile services are provided free of countries would be very beneficial.”
charge to people with disabilities and children A model of excellence in public-sector innovation,
under medical care. If citizens are unable to come to ASAN has become synonymous with Azerbaijan’s
the centers, they can call and request that services lasting achievements and the social and economic
be rendered at their current location—home, work, progress underway.
or elsewhere. This mobile operation facility will
soon be offering the full range of services currently
available at ASAN centers.
ASAN has proved a highly effective tool in
fighting red-tape and corruption by eliminating the
circumstances that allow it to flourish, such as the
lack of transparency and responsibility. According
to Inam Karimov, Chairman of the State Agency
for Public Service and Social Innovations under
the President of the Republic of Azerbaijan, “ASAN
has installed such a system where corruption
 SPONSORED SECTION | AZERBAIJAN - 11
Azerbaijan’s Technological Edge
Information and communication technologies (ICT) the population uses the Internet and 55 percent
play a crucial role in Azerbaijan’s efforts to diversify has a registered broadband connection. Mobile
its economy. Apart from a very real growth potential, phones are ubiquitous, with a penetration rate of
ICT enables development of other industry sectors. 110 percent. Three major mobile phone operators
“The ICT sector in Azerbaijan has been on the cutting are competing in a market that grew by 25 percent
edge of economic innovation,” explains Ali Abbasov, last year. Baku-based Azerfon, operating under
Minister of Communications and Information its brand name Nar Mobile, has been the fastest
Technologies. “These innovations have spread across growing company in the market, attracting more
nearly every other industry, increasing efficiency and than two million subscribers since 2007.
driving change in the way they operate, and the goods “We are the smallest of the three operators, and
and services they produce.” the newest one, and we currently have a market
With annual growth rates between 20–25 percent, share of about 20 percent” says Kent McNeley,
ICT has become the fastest growing sector in Chief Executive Officer of Azerfon. “We have been
Azerbaijan. It is now the second largest recipient of innovative in a number of different ways. We were
foreign investment, after the oil industry, attracting the first to bring third-generation (3G) mobile
due attention. “The presence of US companies such technology to Azerbaijan. And we are now the first to
as Microsoft, HP, IBM and Oracle has contributed allow the use of handsets during flight, cooperating
immensely to the development of the ICT sector in with Azerbaijan Airlines for flights to and from
Azerbaijan,” says Abbasov. $3 billion have been invested Azerbaijan.” Nar Mobile also distinguishes itself
in the sector in the last decade, with upward tendency. by focusing on customer care and the quality and
Azerbaijan has made significant technological reach of its network. For McNeley, the future course
advances. In 2013, the country launched its first is clear. “We will continue broaden the coverage of
telecommunications satellite, delivering services to our network, build the capacity, build the quality of
customers internationally. Azerbaijan was also the first our system, strengthen indoor coverage; all those
country in the region to digitalize its fixed telephone things that make our product better.”
network, linking all residences with telephone lines Nar Mobile will be able to put its credentials to
and connecting regional centers to the backbone the test during the 2015 European Games. As an
fiber-optic network. It is now committed to building a official telecommunications sponsor, it will provide
transcontinental super information highway between the communications network for the event. “We have
Frankfurt and Hong Kong. been working with the Games Committee for several
months now,” says McNeley, “looking at all aspects of
Growing Mobile Phone Market how to best meet the needs of people directly involved
Citizens in Azerbaijan are among the most in the games and of visitors.” This presents a unique
connected in the region. Seventy-three percent of opportunity to grow recognition and expertise.
SPONSORED SECTION | AZERBAIJAN - 12

Tourism Discovers Azerbaijan

Azerbaijan’s rich historic and cultural heritage and particularly the countries of the Commonwealth
unique natural beauty, which covers nine climatic of Independent States (CIS). Azerbaijan expects
zones, make the country an ideal destination for to attract more tourists from outside the region
international tourism. “We are currently engaged in by investing in new types of events and tourism
rethinking strategies for the diversification of areas facilities. The upcoming 2015 European Games are
of tourism and services, adopting new standards and part of this approach. “For Azerbaijan’s tourism
norms, revising marketing and market penetration industry this event is a long-term investment in the
strategies, and establishing new mechanisms country’s image as an emerging tourist destination
for cooperation between the public and private capable of catering to different tastes and
sectors,” says Abulfas Garayev, Minister of Culture expectations to highest international standards,”
and Tourism, describing efforts underway to shape explains Garayev.
the sector’s development. Meanwhile, one of the country’s largest
Visitors increasingly recognize Azerbaijan’s development projects in the sector opened in 2012.
appeal, beyond being a business destination. The The new Shahdag Tourism Complex is situated in
number of visitors continues to rise. 2.5 million the Shahdag National Park in the northeastern part
tourists visited the country in 2013, while income of Azerbaijan and includes a choice of hotels and
from international tourism increased from around sporting facilities, including one of Europe’s largest
$200 million in 2007 to approximately $1.5 billion ski resorts. Azerbaijan is open for business, but also
in 2013. for year-round holiday-making.
Travelers to Azerbaijan find services of the highest
standards. The world’s top hotel chains, including www.foreignaffairs.com/azerbaijan2015
the Four Seasons, Marriott, Kempinski, Hilton,
Fairmont and Jumeirah, have long established their A Report by:
presence among a growing number of hotels.
Currently, 40 percent of tourists come to
Azerbaijan from other countries in the region,
 Return to Table of Contents

the first (and sometimes only) place

Thinkers and

SCHUMPETER’S HEIRS
that comes to mind is Silicon Valley.
In the simplest sense, Walter Isaacson’s
Tinkerers The Innovators explains how that hap-
pened and, in the process, sheds some
interesting light on what drives innova-
The Innovators Behind the tion more generally.
Information Age The Innovators doesn’t begin in the
Valley, though. It doesn’t even begin in
James Surowiecki the United States, or in the twentieth
century. Instead, Isaacson starts with the
story of the visionary British math-
The Innovators: How a Group of Hackers, ematicians Ada Lovelace and Charles
Geniuses, and Geeks Created the Digital Babbage, who, in the 1830s and 1840s,
Revolution rather miraculously came up with the
By Walter Isaacson . Simon & basic idea for a general-purpose com-
Schuster, 2014, 560 pp. $35.00. puter much like those of today. From
there, Isaacson leaps ahead a century
Zero to One: Notes on Startups, or How to to the years just before World War II,
Build the Future when a series of conceptual breakthroughs
By Peter Thiel with blake led to the construction of what might
masters . Crown Business, 2014, be considered the first proto-computers.
224 pp. $27.00. Isaacson’s book, as its title suggests,
then becomes a kind of serial biography,

I
n the grand scope of human history, as he offers up portrait after portrait
technological progress is actually a of the men and women who turned the
surprisingly new phenomenon. While computer from a theoretical idea into
there had always been the occasional new a daily reality. This approach has its
invention or technological breakthrough, limitations: there are times when it
it wasn’t until the Industrial Revolution feels as if the reader is hearing at once
that sustained technological progress too much and yet not enough about
became a reality—and, with it, the possi- the characters. But what keeps the
bility of steadily rising living standards. book from feeling like a series of
For most of the past two centuries, that potted sketches is that Isaacson is
progress was most visible in the indus- adept at situating his characters in
trial and agricultural realms. But over the both time and place. He lays out the
past 60 years or so, the lion’s share of institutional and organizational con-
innovation has come from a single sector: texts in which they functioned, as well
what is now loosely called “information as the broader social trends they were
technology.” When thinking about influenced by and in turn shaped. The
innovation in the United States today, result is a book that offers a remarkably
vivid picture of people genuinely making
James Surowiecki is a staff writer at The history, even if they did so not entirely
New Yorker. on their own terms.

Januar y/Februar y 2015 77

James Surowiecki

O Pioneers! be personal and interactive.” This has

In a schematic sense, the story Isaacson been the central theme of the last three
tells can be loosely divided into three decades or so in computing: the person-
periods. The early years culminate in alization of technology and the transfor-
the 1946 debut of eniac (the Electronic mation of computers from expensive,
Numerical Integrator and Computer), hard-to-use machines into accessible,
which Isaacson considers to be the first affordable household devices that put
true computer, meaning that it was all immense computing power in the hands
electronic, was programmable, and “could of individuals. And although corporations
in theory tackle any task,” rather than have obviously been integral to this
being designed for a single goal. Those process, the last 20 years have also
early years were dominated by the seen the emergence of important, and
demands of the U.S. military (eniac surprising, new ways of producing
was originally designed to calculate software and organizing work—think
the trajectory of artillery shells), and of open-source software or Wikipedia.
the work took place largely in university That last point is important, because,
laboratories and military facilities. as Isaacson makes clear, advances in the
The two and half decades that digital revolution have taken myriad
followed saw private corporations forms. The easiest innovations to see
become central to the development of are the devices that people built—
the computer, first at Bell Labs (where eniac, the semiconductor, the micro-
the transistor was invented) and soon processor, the personal computer, the
after in Silicon Valley. Government, Internet—and the software they wrote:
however, was still an integral part of graphical user interfaces, operating
the process, since federal research systems, word-processing programs,
funding was immense—together, the and so on. But there were also impor-
U.S. Defense Department and the tant innovations in finance, such as
National Science Foundation spent as the rise of venture capital (about which
much on basic research as private Isaacson could have said more). There
companies did between the 1950s and were important organizational innova-
the 1980s—and since the military was tions, too, such as the corporate research
a crucial customer for the technology laboratories at Bell Labs and Xerox
industry in its early days, most notably parc, both of which invested heavily
in the case of microchips. Indeed, the in basic research as well as product
real driver of technological change during development and became extraordinary
this era was what Isaacson calls “the founts of technological breakthroughs
military-industrial-academic complex,” (even if the companies that owned those
which eventually led to the creation labs didn’t always take advantage of
of the Internet in the 1970s. them). And there were innovations in
What the advent of the Internet management, such as the nonhierarchical
signaled, particularly in combination structure that Robert Noyce, Gordon
with the birth of the personal computer, Moore, and Andrew Grove pioneered
was the mainstreaming of the idea that, at Intel. Then there’s what Isaacson calls
as Isaacson puts it, “computers should “the advance that is closest to being

78 f o r e i g n a f fa i r s
 Thinkers and Tinkerers

Staying hungry: Steve Jobs in Cupertino, California, January 1984

revolutionary” in recent years—namely, trying to use history to investigate

the way the Internet has “facilitated how innovation works.
collaboration not only within teams
but also among crowds of people who how to succeed in business
didn’t know each other.” This is trickier than one might think.
Those who have read deeply in the The temptation is to simply look at
history of technology will find much of successful innovators and at failed ones
this material familiar. But Isaacson has and identify what the former did well
a great way with the telling detail, and and what the latter did poorly. The
he does an excellent job of showcasing problem is that the reasons for failure
the work of innovators such as Douglas (or for success, for that matter) are not
Engelbart (who in the 1960s essentially always obvious, and the sample size of
invented a computer that had nearly all truly successful innovators is not that
the features users take for granted today) large. As Isaacson writes, “Sometimes
and J. C. R. Licklider (who worked at the the difference between geniuses and
Defense Department and in some sense jerks hinges on whether their ideas turn
shepherded the Internet into existence), out to be right.” That should make one
N o r m a n S e e ff

people who had a profound impact on at least a little cautious about believing
modern life but whom most have that it is possible to reliably distinguish
never heard of. And while at heart, the distinctive characteristics of geniuses
Isaacson is telling a story, he’s also and jerks.

Januar y/Februar y 2015 79

James Surowiecki

Still, some common themes do constructed a prototype. But because he

emerge from the history of the digital worked alone, in Iowa, rather than in a
revolution. Probably the most important lab with other scientists and engineers,
is not to rely solely on geniuses in the his computer never became fully func-
first place. That may sound odd, since tional, and he became a footnote to
the story of invention is usually told as a history, eclipsed by Mauchly and Eckert.
story of great inventors. But as Isaacson Isaacson takes Atanasoff ’s efforts seri-
reveals, the true engine of innovation is ously, but he notes that “we shouldn’t
collaboration. The pairing of a creative in fact romanticize such loners.” Real
visionary and a more practical engineer innovation isn’t just about an invention.
(such as John Mauchly and J. Presper As Eckert put it, “You have to have a
Eckert, who created eniac, or Steve whole system that works.” And that’s
Jobs and Steve Wozniak at Apple) can hard to do when you’re all by yourself.
be enormously productive. And it isn’t In the same vein, Isaacson’s book
just strong pairs, either; the organiza- points to the virtues of public financing
tions that have done best at innovating of basic research, so that what might
have typically been those that have relied be called “the knowledge commons”
on strong teams made up of diverse is constantly being replenished and
thinkers from lots of different disciplines. reinvigorated. Although patent rights
These teams didn’t try to quash inde- and intellectual property law are obvi-
pendent thinking; they welcomed it. As ously at the core of the way much of
Isaacson puts it, “Rugged individualism the technology industry works today,
and the desire to form associations were the history of the last 60 years is, in
totally compatible, even complementary, large part, a history of people building
especially when it involved creating freely on the ideas of others to come
things collaboratively.” up with something new.
One of the reasons diverse teams Of course, even having all these
have tended to be more successful is things can’t guarantee an innovation
that they have done a better job of boom. There are times when Isaacson’s
turning ideas into actual products. This take feels a bit reductionist, as when he
is an important theme in Isaacson’s concludes that the way the United States
book: genuine innovations are not just has driven innovation historically—
about brilliant insights. They’re the relying on government-funded work,
result of taking those insights and the corporate pursuit of profits, and
turning them into things that people collaborative, open-source labor all at
will actually use and then finding a once—is necessarily the best model
way to get those products into people’s for how to propel innovation every-
hands. One of the more interesting where. But we don’t actually know that.
sections of The Innovators is Isaacson’s What we do know is that taking this
account of John Atanasoff ’s quixotic multipronged approach to innovation
quest to build a general-purpose com- has worked well. Whether a different
puter by himself in the early 1940s. approach might have worked better
Atanasoff anticipated important aspects will remain a mystery.
of what would become eniac and

80 f o r e i g n a f fa i r s
 Thinkers and Tinkerers

the vision thing electric car). Thiel’s language here is

Different as Isaacson’s innovators were, attention-grabbing (aren’t monopolies
they all had one important thing in bad things?), but he’s clearly onto some-
common: the faith that dramatic change thing important: what businesses want
was possible, and that computers and to avoid is commoditization, where
networks could truly transform the way there is no real distinction between
people lived. That kind of ambition is their product and those of their com-
precisely what Peter Thiel, a co-founder petitors. There is money to be made
of PayPal who is now a well-known even in a competitive market, but it’s
venture capitalist and gadfly in Silicon always difficult, and the profit margins
Valley, believes is missing from today’s are nearly always slim. Monopolies,
entrepreneurs. That may sound peculiar, by contrast, are lucrative. In Thiel’s
given that nary a day goes by without mind, that is a good thing, since it is
news of some new start-up raising a the prospect of earning a monopoly,
big chunk of venture capital. But in his and the profits that come with it, that
new book, Zero to One, which was born out encourages people to come up with
of a class he taught at Stanford Univer- profound innovations.
sity for budding entrepreneurs, Thiel Of course, coming up with those
argues that today, too many start-ups isn’t exactly easy. And although Thiel’s
have embraced an overly cautious view book has plenty of interesting and
of what’s possible. Instead of trying to concrete advice for entrepreneurs—
reinvent the wheel, they are trying to Thiel suggests starting off by aiming
make existing wheels go a tiny bit faster, to dominate a small market rather than
doing things such as producing yet trying to take a small slice out of a big
another social networking app rather market, and he stresses, as Isaacson does,
than trying to solve genuinely compli- the importance of sales and presenta-
cated and important problems. What tion in making even great products
the world needs, Thiel thinks, are more successful—he’s also clear that the vast
people like Elon Musk, who started majority of the economic value that
Tesla Motors and SpaceX. What it’s start-ups create is created by a minus-
getting instead are a lot of start-ups that cule fraction of the start-ups out there.
are doing what everyone else is doing One could say that this means the
and just hoping to do it a little better. chances of success are very small, but
Thiel thinks that this is a bad strat- Thiel, a libertarian, frames it in differ-
egy for starting a business. The enemy ent terms. The real question an entre-
of any business, he argues, is competition, preneur has to be able to answer, he
and if a start-up is doing what other argues, is, What do you know that the
companies are already doing, it has rest of the world doesn’t? If you have a
guaranteed itself competition. What good answer to that question, you
the founders of companies should really should try to turn your idea into reality.
want is a monopoly, and the best way Much of Zero to One is about what it
to get that is to build something that takes, on an organizational and cultural
others aren’t (for example, in Musk’s level, for a start-up (even one with a
case, a stylish and reasonably affordable great idea) to succeed. But Thiel’s real

Januar y/Februar y 2015 81

James Surowiecki

concern isn’t so much with individual conditioning, the interstate highway sys-
businesses. Instead, Thiel is writing tem, the microchip, the semiconductor,
against what he perceives as a narrowed and so on. The record of the last five
sense of ambition and a lack of imagina- decades isn’t anywhere near as dramatic.
tion in the business world more generally,
and indeed in society as a whole—and getting there
it’s this that makes his book an interesting At the same time, Thiel’s implicit down-
complement to Isaacson’s. The Innovators playing of the advances since the 1970s—
is deeply optimistic about technological including the Internet, the personal
progress and American innovation. Thiel, computer, and the smartphone—under-
by contrast, believes that the United states the enormous benefits they have
States (and the world, for that matter) brought, not just to the way people
has been stuck for the past 40 years in entertain and educate themselves but
a state of what he calls “horizontal prog- also to the way they collaborate and
ress.” People are getting better at copy- connect. Isaacson, for his part, offers
ing what already works. But with few up a wonderful paean to how the Inter-
exceptions—most of them in informa- net allows collective intelligence and
tion technology—they are not making collective effort to emerge on a grand
the kinds of great leaps (or what he calls scale, in a way that was never possible
“vertical progress”) that have taken before. But Thiel has little patience or,
place in the past. One might ask, “But it seems, interest in this. Thiel has
what about globalization, which has described himself as an outsider. So
improved living standards for billions perhaps it’s not surprising that these
of people?” For Thiel, globalization is extraordinary social networking tech-
a quintessentially horizontal improve- nologies appear relatively trivial to him.
ment: it’s about developing countries But it is hard to argue that tools that
imitating the successes of others. Al- people use so frequently and seem to
though that has certainly made people enjoy so much are not actually impor-
in developing countries better off than tant. In interviews, Thiel has pointed
before, Thiel argues that it hasn’t actu- to the small number of people employed
ally make the world significantly richer by Twitter as evidence that the company
as a whole. isn’t transformative. But whatever one
Thiel’s gloomy take on innovation thinks of Twitter, a head count is an
today is surprisingly common, what odd way to determine its social value.
with worries about “secular stagnation” That depends instead on how much
in the economy and the possibility that value it creates for its users.
the world now faces permanently slower What is peculiar is that Thiel sort of
growth. And for all the talk about the knows this: he was an early investor in
rapid pace of change these days, it would Facebook, and in Zero to One, he cites
be hard to argue that things have changed Google, the iPod, the iPad, and Uber as
more in the last 50 years than they did genuine innovations. Yet at some level,
in the previous 50. The years between he is clearly dissatisfied with these inven-
1915 and 1965 saw the birth of radio, tions. They may have remade people’s
television, jet airplanes, penicillin, air daily lives. But Thiel is looking for

82 f o r e i g n a f fa i r s
 Thinkers and Tinkerers

something bigger—something like the do you want to try to do something

Apollo program, perhaps. (Although great and transformative?
Thiel is a libertarian, he expresses admi- Thiel obviously thinks that entrepre-
ration for the government’s role in neurs should do the latter—if they have
orchestrating both the space program genuinely great ideas. (Otherwise, he
and the Manhattan Project. He’s just suggests, they’re better off going to work
disappointed that the government’s for someone else who has a great idea.)
ambitions, too, have been scaled back As he puts it, “better to risk boldness
in recent years.) Of course, it’s far from than triviality.” And although he recog-
obvious that the Apollo program had nizes that luck plays a role in whether
all that big an impact on the lives of or not one succeeds, he contends that
ordinary Americans. But it is the scale entrepreneurs need to “prioritize design
of it that Thiel admires. over chance.” Even though they may
For all these flaws, it would be a know that the potential outcomes of their
mistake to dismiss Thiel’s critique of actions are uncertain, they need to plan,
today’s narrowed ambitions or his exhor- and not use that uncertainty as a crutch.
tations to entrepreneurs to think big. These are the things that Isaacson’s
There are too many start-ups raising innovators did. Isaacson’s history suggests
money to create another app that will that by its very nature, successful innova-
add incremental value at best. Many tion requires a leap of faith, a willingness
businesses have become so obsessed with to believe that one can go from zero to
optimizing their current production one. Or, as the computer scientist Alan
that they have lost the desire—or maybe Kay has put it, “The best way to predict
even the ability—to seek out truly break- the future is to invent it.”∂
through innovations. And Thiel is onto
something when he says that the “defi-
nite optimism” of the postwar era, which
assumed that the future was going to be
better because Americans were going to
make it so, has been replaced by “indefi-
nite optimism,” a vague notion that Amer-
icans are going to keep improving but
without any real idea for how to get there.
In some sense, what Thiel is saying
to entrepreneurs is not just, “Think
about what it takes to get rich,” but also,
“How do you want to spend your life?”
Do you really want to have developed
one of a million apps in the iTunes
store or be a consultant who helps some
company save a fraction of a penny
making widgets? Do you, as so many
end up doing, want to muddle along
and hope something good happens? Or

Januar y/Februar y 2015 83

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 essays
Syria’s calm façade
concealed deep structural
vulnerabilities. Lebanon’s
chaos, paradoxically,
signaled strength.
– Nassim Nicholas Taleb
and Gregory Treverton

The Calm Before the Storm Under the Sea

Nassim Nicholas Taleb and Gregory F. Robert Martinage 117
Treverton 86
R e u t e r s / R a m i Z aya t

Darkness Invisible
Europe Reborn Thomas R. Insel, Pamela Y. Collins,
Matthias Matthijs and R. Daniel Kelemen 96 and Steven E. Hyman 127

Leaving the West Behind The G-Word

Hans Kundnani 108 Thomas de Waal 136
 Return to Table of Contents

The Calm Before the Storm

Why Volatility Signals Stability, and
Vice Versa
Nassim Nicholas Taleb and Gregory F. Treverton

E
ven as protests spread across the Middle East in early 2011,
the regime of Bashar al-Assad in Syria appeared immune from
the upheaval. Assad had ruled comfortably for over a decade,
having replaced his father, Hafez, who himself had held power for the
previous three decades. Many pundits argued that Syria’s sturdy
police state, which exercised tight control over the country’s people
and economy, would survive the Arab Spring undisturbed. Compared
with its neighbor Lebanon, Syria looked positively stable. Civil war
had torn through Lebanon throughout much of the 1970s and 1980s,
and the assassination of former Prime Minister Rafiq Hariri in 2005
had plunged the country into yet more chaos.
But appearances were deceiving: today, Syria is in a shambles,
with the regime fighting for its very survival, whereas Lebanon has
withstood the influx of Syrian refugees and the other considerable
pressures of the civil war next door. Surprising as it may seem, the
per capita death rate from violence in Lebanon in 2013 was lower
than that in Washington, D.C. That same year, the body count of the
Syrian conflict surpassed 100,000.
Why has seemingly stable Syria turned out to be the fragile
regime, whereas always-in-turmoil Lebanon has so far proved robust?
The answer is that prior to its civil war, Syria was exhibiting only pseudo-
stability, its calm façade concealing deep structural vulnerabilities.
Nassim Nicholas Taleb is Distinguished Professor of Risk Engineering at New York
University’s Polytechnic School of Engineering and the author of Antifragile: Things That
Gain From Disorder.
Gregory F. Treverton is Chair of the U.S. National Intelligence Council. From 2009
to 2014, he was Director of the RAND Corporation’s Center for Global Risk and Security
(where he wrote this article).
This essay is adapted from a RAND risk-methodology report funded by the U.S. government.

86 f o r e i g n a f fa i r s
 The Calm Before the Storm

Lebanon’s chaos, paradoxically, signaled

strength. Fifteen years of civil war had
served to decentralize the state and bring about
a more balanced sectarian power-sharing
structure. Along with Lebanon’s small size
as an administrative unit, these factors
added to its durability. So did the coun-
try’s free-market economy. In Syria,
the ruling Baath Party sought to
control economic
variability, replacing
the lively chaos of the
ancestral souk with the
top-down, Soviet-style structure of
the office building. This rigidity
made Syria (and the other Baathist
state, Iraq) much more vulnerable
to disruption than Lebanon.
But Syria’s biggest vulnerability
was that it had no recent record of
recovering from turmoil. Countries
that have survived past bouts of
chaos tend to be vaccinated
against future ones. Thus,
the best indicator of a
country’s future stabil-
ity is not past stability
but moderate volatil-
ity in the relatively
recent past. As one
of us, Nassim Nicho-
las Taleb, wrote in
the 2007 book The
Black Swan, “Dicta-
torships that do not
appear volatile, like,
say, Syria or Saudi
Arabia, face a larger
risk of chaos than, say,

Januar y/Februar y 2015 87

Nassim Nicholas Taleb and Gregory F. Treverton

Italy, as the latter has been in a state of continual political turmoil

since the second [world] war.”
The divergent tales of Syria and Lebanon demonstrate that the
best early warning signs of instability are found not in historical data
but in underlying structural properties. Past experience can be extremely
effective when it comes to detecting risks of cancer, crime, and earth-
quakes. But it is a bad bellwether of complex political and economic
events, particularly so-called tail risks—events, such as coups and
financial crises, that are highly unlikely but enormously consequential.
For those, the evidence of risk comes too late to do anything about it,
and a more sophisticated approach is required.
Thus, instead of trying in vain to predict such “Black Swan” events,
it’s much more fruitful to focus on how systems can handle disor-
der—in other words, to study how fragile they are. Although one
cannot predict what events will befall a country, one can predict how
events will affect a country. Some political systems can sustain an
extraordinary amount of stress, while others fall apart at the onset of
the slightest trouble. The good news is that it’s possible to tell which
are which by relying on the theory of fragility.
Simply put, fragility is aversion to disorder. Things that are fragile
do not like variability, volatility, stress, chaos, and random events, which
cause them to either gain little or suffer. A teacup, for example, will not
benefit from any form of shock. It wants peace and predictability, some-
thing that is not possible in the long run, which is why time is an enemy
to the fragile. What’s more, things that are fragile respond to shock in a
nonlinear fashion. With humans, for example, the harm from a ten-foot
fall in no way equals ten times as much harm as from a one-foot fall. In
political and economic terms, a $30 drop in the price of a barrel of oil is
much more than twice as harmful to Saudi Arabia as a $15 drop.
For countries, fragility has five principal sources: a centralized
governing system, an undiversified economy, excessive debt and lever-
age, a lack of political variability, and no history of surviving past
shocks. Applying these criteria, the world map looks a lot different.
Disorderly regimes come out as safer bets than commonly thought—
and seemingly placid states turn out to be ticking time bombs.

the center cannot hold

The first marker of a fragile state is a concentrated decision-making
system. On its face, centralization seems to make governments more

88 f o r e i g n a f fa i r s
 The Calm Before the Storm

efficient and thus more stable. But that stability is an illusion. Apart
from in the military—the only sector that needs to be unified into
a single structure—centralization contributes to fragility. Although
centralization reduces deviations from the norm, making things ap-
pear to run more smoothly, it magnifies the consequences of those
deviations that do occur. It concentrates turmoil in fewer but more
severe episodes, which are disproportionately more harmful than
cumulative small variations. In other words, centralization decreases
local risks, such as provincial barons pocketing public funds, at the
price of increasing systemic risks, such as disastrous national-level
reforms. Accordingly, highly centralized states, such as the Soviet
Union, are more fragile than decentralized ones, such as Switzerland,
which is effectively composed of village-states.
States that centralize power often do so to suppress sectarian
tension. That inability to handle diversity, whether political or
ethnoreligious, further adds to their fragility. Although countries
that allow their sectarian splits to remain out in the open may
seem to experience political turmoil, they are considerably more
stable than those that artificially repress those splits, which creates
a discontented minority group that brews silently. Iraq, for exam-
ple, had a Sunni-minority-led regime under Saddam Hussein that
repressed the Shiites and the Kurds; the country overshot in the
opposite direction after Prime Minister Nouri al-Maliki, a Shiite,
took office in 2006 and began excluding the Sunnis. Indeed, research
by the scholar Yaneer Bar-Yam has shown that states that have
well-defined boundaries separating various ethnic groups experience
less violence than those that attempt to integrate them. In other
words, people are better next-door neighbors than roommates.
Thus, in countries riven by sectarian divides, it makes more sense to
give various groups their own fiefdoms than to force them to live
under one roof, since the latter arrangement only serves to radicalize
the repressed minority.
Moreover, centralization increases the odds of a military coup by
making the levers of power easier to seize. Greece, for example, was
highly centralized when a group of colonels overthrew the government
in 1967. Italy might have appeared just as vulnerable around the same
time, given that it also suffered from widespread social unrest and
ideological conflict, but it was saved by its political decentralization
and narrow geography. The various economic and political centers

Januar y/Februar y 2015 89

Nassim Nicholas Taleb and Gregory F. Treverton

were both figuratively and literally far from one another, distance
that prevented any single military faction from seizing power.
Just as states composed of semiautonomous units have fared well
in the modern era, further back in history, the most resilient polities
were city-states that operated under
On its face, centralization empires that provided a measure of
protection, from Pax Romana to Pax
seems to make governments Ottomana. But at the tail end of their
more stable. But that existence, many empires began to cen-
stability is an illusion. tralize, including Pharaonic Egypt
and the Ming dynasty in China. In
both cases, the empires tightened the
reins after, not before, they thrived, ruling out centralization as a
cause of their success and fingering it as an explanation for their
subsequent failure.
City-states both old and new—from Venice to Dubai to Geneva to
Singapore—owe their success to their smallness. Those who com-
pare political systems by looking at their character without taking
into account their size are thus making an analytic error: city-states
are remarkably diverse in terms of their political systems, from the
most democratic (Venice) to the most enlightened but autocratic
(Singapore). Just as an elephant is not a large mouse, China is not
a bigger version of Singapore, even if the two share similar styles
of government.
Again, consider Lebanon. For much of history, the Mediterranean
was ringed by multilingual, religiously tolerant, and obsessively
mercantile city-states, which accommodated a variety of empires.
But most were eventually swallowed up by the modern nation-states.
Alexandria was consumed by Egypt, Smyrna by Turkey, Thessaloniki
by Greece, and Aleppo by Syria. Luckily for Lebanon, however, it
was swallowed up by Beirut, not vice versa. After the collapse of the
Ottoman Empire, the state of Lebanon was small and weak enough
to get colonized by the city-state of Beirut. The result: over the past
half century, living standards in Lebanon have risen in comparison
to its peers. The country avoided the wave of statism that swept over
the region with Gamal Abdel Nasser in Egypt and the Baath Party
in Iraq and Syria, a trend that concentrated decision-making power
and created dysfunctional bureaucracies, leading to many of the region’s
problems today.

90 f o r e i g n a f fa i r s
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 The Calm Before the Storm

unsteady-state economy
The second soft spot is the absence of economic diversity. Economic
concentration can be even more harmful than political centralization.
Economists since David Ricardo have touted the gains in efficiency to
be had if countries specialize in the sectors in which they hold a com-
parative advantage. But specialization makes a state more vulnerable
in the face of random events.
For a state to be safe, the loss of a single source of income should
not dramatically damage its overall economic condition. Places that
depend on tourism, for example, are particularly susceptible to
perceived instability (as Greece discovered after its economic crisis
and Egypt discovered after its revolution), as well as unrelated
events (as Hawaii found out immediately after 9/11) and even just
the vagaries of fashion, as new hot spots replace older ones (as
Tangier, Morocco, has come to recognize). Another common source
of fragility is an economy built around a single commodity, such as
Botswana, with its reliance on diamonds, or a single industry that
accounts for the lion’s share of exports, such as Japan’s automobile
sector. Even worse is when large state-sponsored or state-friendly
enterprises dominate the economy; these tend to not only reduce
competitiveness but also compound the downside risks of drops in
demand for a particular commodity or product by responding only
slowly and awkwardly to market signals.
The third source of fragility is also economic in nature: being
highly indebted and highly leveraged. Debt is perhaps the single
most critical source of fragility. It makes an entity more sensitive to
shortfalls in revenue, and all the more so as those shortfalls acceler-
ate. As Lehman Brothers experienced when it collapsed in 2008, as
the confidence of investors wanes and requests for repayment grow,
losses mount at an increasing rate. Debt issued by a state itself is
perhaps the most vicious type of debt, because it doesn’t turn into
equity; instead, it becomes a permanent burden. Countries cannot
easily go bankrupt—which, ironically, is the main reason people
lend to them, believing that their investments are safe.
Leverage raises risks in much the same way. Dubai, for example,
has plowed money into aggressive real estate projects, increasing its
operating leverage and thus making any drops in revenue extremely
threatening. Profit margins there are so thin that shortfalls could easily
accelerate, which would rapidly push the emirate’s companies into

Januar y/Februar y 2015 91

Nassim Nicholas Taleb and Gregory F. Treverton

the red and drain state coffers. This means that Dubai, in spite of its
admirable structure and governance, can rapidly go insolvent—as the
world witnessed after the 2008 financial crisis, when Abu Dhabi had
to bail it out.

The virtue of volatility

The fourth source of fragility is a lack of political variability. Contrary
to conventional wisdom, genuinely stable countries experience
moderate political changes, continually switching governments
and reversing their political orientations. By responding to pressures
in the body politic, these changes promote stability, provided their
magnitude is not too large—more like the gap between the Labour
Party and the Conservative Party in the contemporary United
Kingdom than that between the Jacobins and the royalists in rev-
olutionary France. Moderate political variability also removes
particular leaders from power, thus reducing cronyism in politics.
When a state is decentralized, the variations are smoother still,
since municipalities distribute decision-making power and allow
for a plurality of political views.
It is political variability that makes democracies less fragile than
autocracies. Italy is resilient precisely because it has been able to
accommodate virtually constant political turmoil, training citizens
for change and incubating institutions able to correct for mild insta-
bility. So far, perhaps predictably, none of the former dictatorships
touched by the Arab Spring has demonstrated any such capacity.
Egypt has reverted to military rule, and the others have fallen into
varying degrees of chaos. Some states that emerged from autocratic
rule without devolving into turmoil were able to develop means of
accommodating change. Spain under Francisco Franco, for instance,
over time became more and more an autocratic façade behind which
the institutions of civil society could develop.
The fifth marker of fragility takes the proposition that there is
no stability without volatility a step further: it is the lack of a record
of surviving big shocks. States that have experienced a worst-case
scenario in the recent past (say, around the previous two decades)
and recovered from it are likely to be more stable than those that
haven’t. In part, this marker is simply providing information: countries
that sustain chaos without falling apart reveal something about their
strength that could not be discovered otherwise. But this marker

92 f o r e i g n a f fa i r s
 The Calm Before the Storm

also involves the idea of “antifragility,” the property of gaining from

disorder. Shocks to a state are educational, causing them to experience
posttraumatic growth.
Look at Indonesia, Malaysia, the Philippines, South Korea, and
Thailand. The fact that these countries weathered the 1997–98 Asian
financial crisis suggests that they were robust enough to survive—
and their impressive subsequent performance suggests that they
might even have been antifragile, adjusting their institutions and
practices based on the lessons of the crisis. Likewise, the fact that
the former Soviet states have recovered from the collapse of the
Soviet Union suggests that they are also relatively stable. The idea
is analogous to child rearing: parents want to protect their children
from truly serious shocks that they might not survive but should
not want to shelter them from the challenges in life that make
them tougher.

the beautiful and damned

These five markers function best as warning signals. They cannot
indicate with high confidence whether a given country is stable—no
methodology can—but they certainly can reveal if a given country
should cause worry. Those countries that score poorly on multiple
criteria are particularly concerning, since these markers are com-
pounding: qualifying as fragile on two counts is more than twice as
dangerous as doing so on one. When it comes to overall fragility,
countries can vary from exhibiting no signs of fragility to being
very fragile.
Saudi Arabia is an easy call: it is extremely dependent on oil,
has no political variability, and is highly centralized. Its oil wealth
and powerful government have papered over the splits between its
ethnoreligious units, with the Shiite minority living where the oil
is. For the same reason, Bahrain should be considered extremely
fragile, mainly on account of its repressed Shiite majority.
Egypt should also be considered fragile, given its only slight and
cosmetic recovery from the chaos of the revolution and its highly
centralized (and bureaucratic) government. So should Venezuela,
which has a highly centralized political system, little political vari-
ability, an oil-based economy, and no record of surviving a massive
shock. Some of the same problems apply to Russia. It remains highly
dependent on oil and gas production and has a highly centralized

Januar y/Februar y 2015 93

Nassim Nicholas Taleb and Gregory F. Treverton

political system. Its one redeeming factor is that it surmounted the

difficult transition from the Soviet era. For that reason, it probably
lies somewhere between moderately fragile and fragile.
Some countries are best categorized as fragile but possibly doing
something about it. Greece holds enormous quantities of debt and
has an inflexible political system, but it has begun to undertake an
economic restructuring. (Time will
tell whether this is the beginning of
Italy is resilient precisely a new era of responsibility or a false
because it has been able to start.) Iran has an effectively central-
accommodate virtually ized government that exhibits little
constant political turmoil. variability and an economy tied to oil
and gas production, yet the regime
has been tolerating (although only
implicitly) a measure of political dissent. And although Iran is
nominally a theocracy, unlike Saudi Arabia, it appears to have an
extremely adaptive form of Islam that may accommodate modern-
ization. Greece and Iran could transform into more robust states or
lapse into fragility.
Moderately fragile states include Japan, given its highest-in-
the-world debt-to-gdp ratio, long-term dominance by a single party,
dependence on exports, and failure to fully recover from its “lost
decade”; Brazil, which is growing increasingly centralized and
bureaucratized; Nigeria, which is highly centralized and dependent
on oil yet has rebounded from the economic and political turmoil
of the 1980s and proved somewhat adaptable in the face of new
threats, such as the Islamist insurgent group Boko Haram; and Turkey,
which is highly centralized and has no track record of recovery. (In
addition, Turkey’s dependence on foreign investment is incompat-
ible with its aggressive pro-Islamist foreign policy, which turns off
Western investors.) India is perhaps best considered slightly fragile.
Its political system is relatively decentralized and has adapted to
rapid population growth and uneven economic progress, and its
economy is somewhat reliant on exports.
Italy, paradoxically, shows no signs of fragility. It is effectively
decentralized and has bounced back from perennial political crises.
It also experiences a great deal of harmless political variability, cycling
through 14 prime ministerial terms in the past 25 years. France, by
contrast, is more fragile—centralized (in spite of the lip service it

94 f o r e i g n a f fa i r s
 The Calm Before the Storm

pays to decentralization), indebted, and without a demonstrated

comeback. The country is at risk of economic trauma, which would
raise the danger of erratic political reactions. Those, in turn, would
likely enhance the appeal of right-wing factions and radicalize the
country’s significant Muslim minority.
Then there is the China puzzle. China’s stunning economic
growth makes its future hard to assess. The country has recuperated
remarkably well from the major shocks of the Maoist period. That
era, however, ended nearly four decades ago, and so the recovery is
hardly a recent comeback and thus less certain to protect against
future shocks. What’s more, China’s political system is highly cen-
tralized, its economy is dependent on exports to the West, and its
government has been on a borrowing binge as of late, making the
country more vulnerable to slowdowns in both domestic and foreign
growth. Are the gains from past turmoil big enough to offset the
weakness from debt and centralization? The most likely answer is
no—that what gains China has accrued by learning from trauma are
dwarfed by its burdens. With each passing year, those lessons recede
further into the past, and the prospects of a Black Swan of Beijing
loom larger. But the sooner that event happens, the better China
will emerge in the long run.∂

Januar y/Februar y 2015 95

sponsored
EGYPT section
/ SponsorED Section

Egypt
Road map for recovery

F
our years after the Arab Spring revolution of Jan- in the MENA region (Middle East and North Africa). This sector
uary 25, 2011, the people of Egypt want to see their has been growing steadily, in line with the general uptrend re-
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Its position as the gateway between Europe, Asia and Africa, Another highlight to attract the interest of local and foreign in-
large demographics, historical ties and greenfield opportunities, vestors is the mega project of the second Suez Canal. Launched
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regional power in the past. The government is again counting one of this scheme is underway and involves digging another
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to revive the country’s wealth and regain foreign investors’ con- waiting time for vessels) and bolstering revenues for the country
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signs of a growth recovery, an improvement in macroeconomic the people showed a social collective will to support and back the
stability, and strong support from external donors”. government in this gutsy and daring development, expressing
The current situation is not without challenges but the coun- their hope for a new Egypt.
try boasts a GDP of about $270bn, a population of over 80m One of the most difficult reforms underway is a $5.6bn cut in
and has more than $104bn worth of ventures planned - many of subsidized energy. It’s painful for consumers, yet a vital component
which are yet to be awarded. Thus the government has a large in- to restructure the state budget since, in recent years, this subsidi-
vestment-donor conference planned for February 2015. Entitled zation has annually accounted (at $15bn) for about a fifth of total
the “Egypt Economic Summit”, this is where the road map for re- expenditure. It also demonstrates (to international investors and
covery will be officially introduced and where a broad spectrum donors) the nation’s willingness to implement necessary measures
of projects will be offered to raise $10bn in 2015. and put in place critical policies to boost the country’s fortunes.
The investment portfolio will include a range of opportunities The launch of government initiatives backed by fiscal reforms
in water desalination, transportation, real estate, food and bever- and large infrastructural projects are just some of the reasons for
age, green and renewable energy, as well as other sectors of crit- Egypt’s improved overall outlook. The current leadership, backed
ical interest. An example is the Egyptian pharmaceutical industry by its regional Arab allies, is trusting in this new formula to reshape
which accounts for an impressive 30% of total medicinal supply its country’s economic, security and political landscape.
Amoun Pharmaceutical EGYPT / SPONSORED SECTION

On the path to becoming

“Partner of Choice”
Despite the political turmoil in the region, the past few years Group, Capital International Private Equity L.P. and Concord Inter-
have seen Egypt’s pharmaceutical industry not only continue to national), APC now operates a large, modern plant in El-Obour
operate but also expand. Expected to reach $4.24bn by Q4 2014 City, a suburb of Cairo. APC’s state-of-the-art factory (designed by
at a compound annual growth rate (CAGR) of 11.4% (according to a an American architectural firm) is considered to be one of the
sectorial report by GAFI, the General Authority for Free Trade and largest and most up-to-date pharmaceutical operations in Africa
Investments), this resilience is due to some key factors. The mod- and the Middle East. APC’s growth and expansion is due to the
ernization of the healthcare industry is one, coupled with the size vision, determination and market know-how of its leadership.
of the market where, cites the African Development Bank, Egypt With more than 30 years of experience at several pharmaceuti-
represents 23% of the middle class of Africa. The country is also cal companies, including 25 at Pfizer, Dr Mohamed Roushdy took
considered by GAFI to have the lowest consumption rate of phar- over as Chairman and CEO of APC in December 2012. Given his
maceutical products per capita in the world. belief in APC and in the growth potential of this sector in Egypt, Dr
The nation’s pharmaceutical sector comprises over 600 phar- Roushdy has decided to
maceutical companies including the presence of major multina- take on a new challenge.
tionals companies like GlaxoSmithKline, Novartis and Pfizer. After His plan is to gear up APC
16 years of strategic development, Amoun Pharmaceutical Com- to become the “Partner of
pany (APC) ranks 1st amongst domestic companies and 3rd over- Choice” in Egypt for inno-
all. As one of the leading local drug makers in Egypt, APC has five vators, multinationals, reg-
commercial branches in the country manufacturing human and ulators and the surround-
veterinary pharmaceutical products and nutritional supplements. ing communities. The
Bought in 2006, by a consortium of American and international reasons why APC fits the
investors (CVCI Private Equity fund - lately acquired by Rohatyn profile of the ideal partner
are many in Dr Roushdy’s
eyes, “We know the mar-
ket, we know the business, We will never be
we have the infrastructure, satisfied because
we speak the language of we want the best
innovators and of multina- for this country
tionals, and we have credi-
bility among regulators.”
The roots of APC’s suc-
cessful expansion over DR MOHAMED ROUSHDY
Chairman & CEO of
the years are founded in Amoun Pharmaceutical
responsible growth as
the current incumbent
reveals, “We invest in our communities and in our people for
long-term and sustainable growth. Our achievement has been to
grow organically, do the right things and do things right, as well
as to shape an enduring environment that will benefit everyone,
because when there is prosperity, it should be for everyone. In-
vesting in people is one of the pillars of APC’s strategy. We do this
by offering the best training and mentoring opportunities to max-
imize talent to its full potential. Developing a strong pool of pro-
fessionals not only benefits APC, but the economy as a whole.”
While Dr Roushdy acknowledges the challenges his sector
faces, he nevertheless remains very positive about its poten-
tial: Egypt is one of the leading “growth markets” due to its
large population, under-saturated market, its multilingual pool
of well-educated professionals, its labor-cost leverage, as well
as its geostrategic position at the crossroads of Africa, the Gulf
countries and Europe. APC may be on the right path but Dr
Roushdy is under no illusion that there remains a lot to be
done, “We will never be satisfied,” he explains, “Because we
want the best for this country.”
 Return to Table of Contents

Europe Reborn
How to Save the European Union From
Irrelevance
Matthias Matthijs and R. Daniel Kelemen

I
n 1982, The Economist marked the 25th anniversary of the European
Economic Community, the precursor to the European Union, by
featuring a tombstone dedicated to the organization on its cover.
“Born March 25, 1957. Moribund March 25, 1982,” it read. Then came
an epitaph courtesy of the ancient Roman historian Tacitus: Capax
imperii nisi imperasset, “It seemed capable of being a power, until it
tried to be one.” Inside, the magazine pilloried the community for its
institutional weakness, bemoaned its citizens’ growing disenchantment
with European integration, and warned of a possible British exit.
Yet those dark hours marked the dawn of the European project, not
its dusk. Just three years later, Jacques Delors, the former French
finance minister, became the European Commission’s eighth president
and immediately injected a dose of vitality into the sluggish organiza-
tion. His campaign to create a single market in Europe—an initiative
that enjoyed enthusiastic support from British Prime Minister Margaret
Thatcher—paved the way for the 1992 Maastricht Treaty, which estab-
lished the eu. During Delors’ decadelong tenure, the union strength-
ened its institutions, extended its authority into new policy areas, and
welcomed five new member states. In the early 1990s, opinion polls
found that 70 percent of Europe’s citizens favored eu membership
and less than ten percent opposed it. Within a decade, European inte-
gration had risen from the grave; the eu had proved itself to be far
more resilient than even many of its supporters had expected it to be.

Matthias Matthijs is Assistant Professor of International Political Economy at Johns

Hopkins University’s School of Advanced International Studies and a co-editor, with Mark
Blyth, of the forthcoming The Future of the Euro. Follow him on Twitter @m2matthijs.
R. Daniel Kelemen is Professor of Political Science at Rutgers University and the editor
of Lessons From Europe? What Americans Can Learn From European Public Policies.

96 f o r e i g n a f fa i r s
 Europe Reborn

This is a curious bit of history to recall today, as critics ring the eu’s
death knell once again. They point to a familiar list of omens—institu-
tional impotence, voters’ disillusionment with Brussels, and the threat
of losing the United Kingdom—to suggest that the organization may
soon unravel. Doomsayers can be found across Europe’s political
spectrum. They include Euroskeptics on the far right, such as the
leader of France’s National Front party, Marine Le Pen, who declared in
October 2013 that the eu would “collapse as the Soviet Union collapsed.”
They also include Europhiles on the political left, such as Joschka
Fischer, Germany’s former foreign minister and longtime Green Party
leader, who recently warned that the eu was in danger of implosion.
This time around, the eu indeed has serious reasons for concern.
Public trust in eu institutions has hit all-time lows, and Euroskeptic par-
ties made record gains in elections for the European Parliament in May
2014. And the eu’s economic challenges today far exceed those of 30
years ago. Although the continent appears to have weathered the worst
of the eurozone crisis, which roiled Europe between 2009 and 2012,
Europe’s economy remains in dire straits. Some feeble signs of recovery
aside, the eu continues to teeter on the brink of deflation and risks fall-
ing into a triple-dip recession, as growth languishes and unemployment
levels hover near record highs in southern Europe. Many citizens, espe-
cially the young, no longer associate the eu with greater freedom and
opportunity; instead, they blame it for financial pain, prolonged jobless-
ness, and a lack of democratic choice. Compounding the problem, the
eu has appeared weak in the face of Russia’s aggression on its doorstep
and Hungary’s slide toward autocracy within its own borders.
Reversing the eu’s flagging fortunes will not be easy, but the relent-
less focus on its problems has obscured another reality. A convergence
of factors—including capable new leaders, the gradual emergence of
a new economic policy consensus, and, paradoxically, the mounting
threats to the eu’s territorial integrity from outside and within—
offers Europe a window of opportunity in which to revive the union,
recast its policies, and win back public support. To pull off such a
turnaround, the eu will first have to get its economic house in order,
refocus on growth, and fix the governance institutions that stand
behind its common currency. European leaders must also adopt a
more resolute and unified stance on security in order to strengthen
the eu’s geopolitical role in its neighborhood. Moreover, the eu must
reclaim its credibility as a bastion of economic and political freedom,

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Matthias Matthijs and R. Daniel Kelemen

defending not only the integrity of the euro system but also the
shared democratic values that bind together its member states. All of
those steps are possible, however, and if they are taken, the union’s
future will be much brighter than critics expect.
The stakes could not be higher. A failure to act decisively would
lead to further stagnation and, ultimately, irrelevance. But taking
resolute steps could poise Europe for another rebirth.

In good hands
A number of recent developments have converged to create a rare
political opening for the eu. First, the organization’s new crop of
leaders promises to be the strongest to head the organization since
the Delors era. Foremost among them is Jean-Claude Juncker, the
European Commission’s new president. The cognac-sipping Lux-
embourger has faced criticism for belonging to the eu’s old guard
and therefore being an unlikely candidate to rejuvenate Europe.
But Juncker can turn this weakness into his main strength. His vast
institutional knowledge—he might have sat through more European
Council meetings than anyone alive—makes him far better prepared
than his predecessor, José Manuel Barroso, was to help Europe’s
decision-makers break through logjams and seal deals.
Juncker also enjoys the respect and backing of most heads of Euro-
pean government, having helped them navigate past economic crises
as the former chair of the Eurogroup, a council of the eurozone’s fi-
nance ministers. And thanks to a change in the process through which
the president of the commission is elected, Juncker also has an explicit
mandate from the European Parliament. Prior presidents were ap-
pointed directly by the European Council, before the parliament en-
dorsed them. But in 2014, the parliament managed to link the president’s
selection directly to the outcome of the parliamentary elections: the
body’s party groups nominated candidates who then campaigned for
the post. When the center-right European People’s Party, which nom-
inated Juncker, emerged victorious in the May 2014 elections, the par-
liament pressed national governments to select him. Juncker thus
became the first commission president to have been elected, albeit still
indirectly, by eu citizens—a position that equips him with greater au-
thority to shape eu policy than his predecessors had.
Moreover, Juncker embodies the sensible centrist coalition that
has powered every previous successful grand bargain over European

98 f o r e i g n a f fa i r s
 Europe Reborn

Curtain call: hanging the EU flag in Barcelona, May 2008

integration. Indeed, he is probably “the most socialist Christian

Democrat there is,” in the words of Daniel Cohn-Bendit, a left-wing
German member of the European Parliament. And in performing
his job, he will be backed by an impressive new team of European
commissioners (who together make up the eu’s executive arm and
manage its policy portfolios). This set of incoming commissioners
includes more heavyweight political players than any preceding
group: nine former prime ministers or former deputy prime ministers
and 19 former cabinet ministers.
Meanwhile, the European Council will be headed by former Polish
Prime Minister Donald Tusk, a far stronger leader than his predecessor,
the inconspicuous Herman Van Rompuy of Belgium (who was nick-
named the “gray mouse” of European politics for his unassuming lead-
ership style). Tusk is one of the few eu leaders who won reelection after
the global financial crisis. Following his victory, he went on to shepherd
Poland through three additional years of steady economic growth, even
as most of Europe faltered. And his strong working relationship with
R e ut e rs / A lb e rt G e a

Chancellor Angela Merkel of Germany has invited hope that the duo,
dubbed “Tuskel,” will prove more effective at holding Europe together
than was the odd couple known as “Merkozy”—Merkel and former
French President Nicolas Sarkozy, whose often crackling partnership
defined the eu’s hesitant early response to the euro crisis.

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Matthias Matthijs and R. Daniel Kelemen

These new leaders are taking charge at a time when a new economic
consensus has finally begun to take shape. Fearing deflation and yet
another recession, European policymakers have become wary of the
eu’s narrow focus on austerity. Supporters of austerity, led by Merkel,
champion budget discipline as the only way to restore European financial
stability, but the policy has also produced adverse side effects, including
persistently high unemployment and dangerously low levels of inflation.
Many European leaders have grown increasingly desperate to stimulate
economic growth. The most visible proponent of this emerging
consensus is the president of the European Central Bank, Mario
Draghi, who last August told a group of the world’s central bankers that
European governments should work in concert with the bank to
encourage lagging consumption and investment—a vision, dubbed
“Draghinomics” by some, that has been steadily gaining supporters.

Circling the wagons

External and internal threats to European unity have also yielded a
renewed sense of solidarity. Nothing focuses the European mind quite
like the sight of Russian tanks rolling westward. In the two decades
preceding the Ukraine crisis, eu countries repeatedly promised to
integrate their security and defense policies but failed to deliver. Yet
unions of states tend to pull together when their members confront
a common external threat. Ironically, Russian President Vladimir
Putin just might be the leader who will finally succeed in pushing
Europe to cooperate on defense after all others failed.
Indeed, a resurgent Russia on Europe’s doorstep has finally spurred
the eu to action. Although member states had initially been split in
their reactions to the Russian annexation of Crimea in March 2014,
Moscow’s continued intervention in eastern Ukraine and the downing
of Malaysia Airlines Flight 17 over Ukraine in July (almost certainly by
Russian-backed separatists) have brought about a much-needed display
of unity. The eu has since responded by imposing retaliatory sanctions
on Russia and renewing its efforts to cut its reliance on Russian energy.
In another encouraging sign, this closing of the ranks enjoys whole-
hearted U.S. support—a marked change from 12 years ago. Back then,
during the transatlantic rift over the Iraq war, Washington’s policy
reinforced the division between old and new Europe. The new U.S.
approach to European security, however, rests on two watchwords:
pooling resources and sharing the burden.

100 f o r e i g n a f fa i r s
 Europe Reborn

Just as Russian saber rattling has forced eu countries to draw

closer, so, too, could the threat of a British exit ultimately strengthen
the union. An attempt by the United Kingdom to leave the eu would
almost certainly spark a more pointed continent-wide conversation
about the benefits of European integration.
British Prime Minister David Cameron has promised to hold an “in
or out” referendum on the country’s eu membership by the middle
of 2017 if his Conservative Party wins this year’s elections. But even
if a referendum does take place, an
“out” vote appears unlikely—in large
part because Cameron himself would
Many Europeans no longer
work to avoid it. An exit not only associate the EU with
would damage the British economy freedom and opportunity;
but also could trigger a renewed push instead, they blame it for
for independence by Scotland, which
remains more pro-eu than the rest of financial pain.
the United Kingdom. His bluster aside,
Cameron dreads this outcome. He would far prefer a different
scenario: lobbying the eu for greater concessions before person-
ally campaigning for an “in” vote. For their part, Juncker, Merkel,
and Tusk have all emphasized their willingness to work with the
United Kingdom to address its concerns, short of limiting the
eu’s free movement of workers. In fact, during his presidential
campaign last spring, Juncker promised to work out a “fair deal”
with London.
If Cameron can win adequate concessions for the United Kingdom,
then a British referendum could actually end up strengthening the
union. The run-up to the vote would likely include a spirited cam-
paign in favor of the “in” option, during which Cameron would extol
the benefits of eu membership and other major European leaders
would implore the British people to remain in the European family. A
display of solidarity of this kind would represent a welcome change
from the routine hurling of blame at Brussels by European leaders
looking to deflect attention from their own policy shortfalls. It would
also remind Europe’s citizens of the benefits the union affords them.
An “in” vote by the United Kingdom would put the issue to rest for
at least a generation, bolster public support for the eu across the
continent, and give eu policymakers the boost necessary to undertake
critical reforms.

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Matthias Matthijs and R. Daniel Kelemen

Growing pains
To seize the opening before them and reboot the European project, eu
leaders must pursue a new agenda. Taking bold, decisive action on a
number of fronts would revive the European economy, win back disen-
chanted voters, and reestablish the union’s authority on the world stage.
First, European policymakers must shift their economic focus
from austerity and fiscal rules to investment and growth. For too
many years, eu economic policy has been dictated by German fiscal
conservatives, imposing unsustainable demands on member states
on the eurozone’s periphery, such as Greece and Portugal. The
emphasis on austerity might have been politically necessary when
the euro crisis began, providing a dose of pain to discourage govern-
ments from expecting future eu bailouts. But this policy has also
stunted growth, encouraged deflation, and fed resentment across the
continent. The time has come for European leaders to halt their single-
minded and self-destructive pursuit of budget tightening.
New economic evidence shows unambiguously that too much aus-
terity can deepen economic downturns; fiscal stimulus, by contrast,
can produce a far greater boost to growth when implemented during
severe recessions. Even the International Monetary Fund, generally
a proponent of reining in government spending, criticized the eu’s
pursuit of austerity as too dogmatic in its 2012 World Economic Out-
look. It also warned, in a 2013 analysis, that excessively low inflation
was aggravating income inequality in the eurozone by deepening un-
employment and stressing the poor. German resistance has so far
prevented a loosening of the rules, but Germany looks increasingly
isolated in its rigid stance. It appears likely that looming deflation
and flagging growth could strengthen Germany’s support for broader
investment initiatives—and even make the country more willing to
tolerate slight reinterpretations of fiscal rules.
To roll back austerity, eu leaders could borrow a page from Japanese
Prime Minister Shinzo Abe’s “three arrows” playbook and combine
two short-term fixes—monetary expansion and fiscal stimulus—
with longer-term structural reforms. On the monetary front,
Draghi has already fired the first arrow, pledging in 2012 that the
European Central Bank would do “whatever it takes” to save the
euro. This past October, the bank began a round of private-sector
quantitative easing, purchasing bank assets to inject cash into the
economy. In this round, the bank committed itself to buying one

102 f o r e i g n a f fa i r s
 Beyond Borders
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New Council Special Reports
U.S. Policy to Counter
Nigeria’s Boko Haram
The militant Islamist group Boko Haram’s increasingly bold
attacks in Nigeria—most notably its April kidnapping of nearly
three hundred female students—threaten to fuel further Muslim-
Christian violence and destabilize West Africa, making the group
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Africa policy studies.

Read the report: www.cfr.org/Nigeria_CSR

CSR 70 · ISBN 978-0-87609-610-9 · 44 pages

Strategic Stability
in the Second Nuclear Age
Since the end of the Cold War, a new nuclear order has emerged,
shaped by rising nuclear states and military technologies that
threaten stability. George Mason University’s Gregory Koblentz
urges the Obama administration to work with other nuclear
states to address sources of instability in the near term and
establish processes for multilateral arms control efforts over the
longer term.

Read the report: www.cfr.org/second_nuclear_age

CSR 71 · ISBN 978-0-87609-611-6 · 65 pages
 Europe Reborn

trillion euros in covered bonds (low-risk debt securities issued by

banks) and asset-backed securities (bundles of loans that banks
package and resell) in order to clean up the balance sheets of euro-
zone banks and spur private lending to businesses.
These initial measures disappointed some investors, who feared
that there were simply not enough such assets in the eu market and
had hoped that the European Central Bank would commit to buying
sovereign bonds—a more radical option that remains on the table.
But the purchases have demonstrated that the bank stands ready to
take decisive measures to stimulate the European economy.
Quantitative easing alone is not enough to rekindle growth, how-
ever. This policy must work in concert with the second arrow: fiscal
measures that would directly stimulate lagging demand. The Euro-
pean Commission looks set to do its part. A new 300 billion euro
investment fund proposed by Juncker would raise aggregate demand
by channeling money into infrastructure projects and add firepower
to the European Investment Bank. But policymakers must take
more steps at the national level, where the real budgetary resources
lie. Europe’s stronger northern economies should stimulate demand
through fiscal measures. Germany, in particular, should allow its wages
at home to rise faster than in the rest of Europe in order to boost
German citizens’ purchasing power.
Finally, eu governments need to make more headway on the third
arrow by liberalizing their labor and services markets. These meas­
ures would make it easier to hire and fire people and allow for more
competition. Policy shifts of this kind would cause inevitable pain to
vested interests and previously sheltered sectors, which explains why
they have been so hard to implement. Tough reforms, however, would
be easier to push through in the climate of growth that fiscal stimulus
could help generate.

Shoring up the euro

Eu leaders must also restore confidence in the euro and the eu’s
monetary union. Perhaps miraculously, despite its travails, the single
currency remains popular with European voters. Over two-thirds of
the eurozone population supports the euro today—the same percentage
as before the crisis. European leaders should demonstrate that they,
too, continue to stand behind the euro and will ensure its stability in
the future.

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Matthias Matthijs and R. Daniel Kelemen

From its inception, Europe’s economic and monetary union was

incomplete in crucial respects. The introduction of the euro central-
ized monetary policy but left fiscal policy largely in the hands of
national governments. This dichotomy has made it difficult to adjust
to economic shocks that affect member states differently. Moreover,
although the single market allowed banks to offer financial services
across borders, the responsibility for regulating these banks fell to
individual governments. The dangers inherent in that structure be-
came apparent as the eurozone crisis unfolded and cascading bank-
ing crises threatened the solvency of member states that lacked
adequate rescue mechanisms. To paraphrase Mervyn King, former
governor of the Bank of England, eu banks were European in life
but national in death.
Eu leaders reacted with a series of reforms that addressed defi-
ciencies in the eurozone’s governance and restored some measure of
stability. But this work remains incomplete. In particular, the eu’s
banking union—encompassing a set of rules and institutions that
would supervise and regulate eurozone banks—remains half-baked
and inherently vulnerable to future shocks. The eu should now bring
this project to completion.
As part of the effort, the eu should consider introducing common
deposit insurance and accelerating the establishment of an emergency
credit line for failing banks. These measures would help transform the
public image of the eu from an enforcer of austerity to a protector of
wealth. Depositors visiting eurozone banks, for example, should see
clear placards (similar to the ubiquitous Federal Deposit Insurance
Corporation stickers displayed at U.S. banks) assuring them that the
eu guarantees their savings.
The eu has taken major steps toward the banking union over the
past three years: it has empowered the European Central Bank to
regulate Europe’s largest banks and set up the Single Resolution
Mechanism, a central authority for handling bank failures. So far, how-
ever, it has not put in place a centralized system of deposit insurance.
Moreover, the Single Resolution Mechanism remains incomplete, and
its policies remain far too convoluted to effectively deal with large
bank failures. Germany has led the opposition to these measures,
fearing that German savers might eventually be forced to bail out
depositors in Italy, Spain, and elsewhere. Defenders of the eurozone
should counter this narrative by stressing that a stable currency

104 f o r e i g n a f fa i r s
 Europe Reborn

union—which Germany favors—will eventually require a banking

union with common deposit insurance and a common fiscal backstop.
Finally, in the longer term, the eu should consider issuing limited
amounts of eurobonds, a common instrument that would pull together
the debts of the countries using the euro. Merkel and German Finance
Minister Wolfgang Schäuble have consistently opposed such a move,
out of fear of building what they call a “debt union.” Admittedly, even
a well-designed and limited eurobond scheme would create some moral
hazard. But advocates of this strategy must stress its many potential
benefits. Eurobonds would ensure financial-market stability, enhance
the euro’s standing as a global reserve currency, increase the liquidity
of the European bond market, and provide the eurozone with the
common safe asset it so desperately needs in times of crisis. These
assured benefits far outweigh the potential costs.

A Bastion of values
Even as European countries deepen their economic integration, they
must remember that European values are just as important to defend as
financial stability. Russia’s aggression in Ukraine has provided a dramatic
reminder of the security risks European countries face—and of the eu’s
persistent failure to craft unified foreign and security policies. This
shortfall is not for lack of public support. According to Eurobarometer
surveys (regular polls conducted by the European Commission), despite
the growing disillusionment with the eu, more than 70 percent of Euro-
peans—including majorities in every member state—want the union to
develop a common security and defense policy. Yet national govern-
ments have thus far ignored their publics’ wishes and remained loyal to
their countries’ powerful national defense industries.
Ironically, the United Kingdom’s quest to renegotiate the terms of
its eu membership might offer a rare opportunity to break the impasse.
As European leaders try to accommodate the United Kingdom’s
demands for reform in other areas, they should encourage the country
to take on a stronger leadership role on foreign and security matters.
As a start, the United Kingdom could lead efforts to press other member
states to live up to their previous commitments to pool defense resources
and share military capabilities. Although the notion that the United
Kingdom would approve a truly common European defense policy may
seem far-fetched today, it is not an impossible proposition. As its own
military budget shrinks and its risk of becoming a second-rank military

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Matthias Matthijs and R. Daniel Kelemen

power grows, the United Kingdom could be tempted by the allure of

saving costs while enhancing its prestige to assume greater leadership.
More fundamentally, there can be no credible European security
and defense policy without the United Kingdom, the country that
remains Europe’s strongest military power (rivaled only by France).
Inviting London to take on more responsibilities in this area would go
some way toward offsetting its lesser involvement in other fields of
European integration and its absence from the monetary union.
The eu’s collective security would benefit from greater cooperation
in other fields as well. Energy policy is a case in point. A sure way to
counter Russia’s stranglehold on European energy supplies is to establish
a true European energy union—a path that Tusk advocated last
spring. If created, this institution would jointly negotiate gas contracts
on behalf of all eu member states and coordinate their responses should
Russia interrupt its deliveries. An energy union would also help aug-
ment infrastructure needed to import liquefied natural gas from other
suppliers, including the United States. Even though progress in this
arena has been slow—due to conflicts of interest and disagreements
among countries on burden sharing—the threat to energy supplies
posed by Putin’s increased aggression may convince Europe to unite.
Internal threats to the eu’s integrity might prove even more dangerous
than external ones, and the eu must act decisively to defend democracy
and the rule of law inside its borders. A number of eu member states have
experienced democratic backsliding in recent years. Hungary, above all,
represents a critical test of the eu’s resolve. Since sweeping to power in
2010, Viktor Orban, Hungary’s prime minister, has eliminated democratic
checks and balances, undermined judicial independence, hobbled inde-
pendent media, installed loyalists in nearly all key government positions,
and rigged election laws to favor his own party. In July, Orban publicly
declared his intention to abandon liberal democracy in favor of building
an “illiberal state,” citing China, Russia, Singapore, and Turkey as role
models. Despite these developments, however, Hungary has remained an
eu member state in good standing. The eu’s tentative response—issuing
critical reports and bringing legal actions before European courts—has
failed to deter Orban and has raised profound doubts about the union’s
political will to defend the very values it claims to represent.
The eu must take a much tougher line with the Orban regime. The
European Commission should launch the so-called Article 7 procedure,
which would allow the European Council to suspend Hungary’s voting

106 f o r e i g n a f fa i r s
 Europe Reborn

rights owing to serious and persistent breaches of the eu’s fundamental

values. And more important, eu leaders need to denounce Orban’s
actions. For far too long, leaders of the European People’s Party faction
in the European Parliament, a group that counts Orban’s own political
party as a member, have shielded Orban’s government from criticism in
the interest of partisan loyalty. These leaders—who include Juncker,
Merkel, and Tusk—must now declare that Orban’s tactics betray the
principles for which they and the rest of Europe stand.
To date, Orban has often succeeded in turning eu criticism to his
advantage with populist rhetoric that accuses Brussels of meddling in
Hungary’s internal affairs. But if center-right leaders from across
Europe—members of Orban’s own political family—join eu officials
in denouncing his actions, Orban will not be able to continue to spin
this tale.
The eu presents itself as a union of democratic values and has
exerted a magnetic pull on neighboring countries undergoing demo-
cratic transitions. The recent pro-democracy protests in Ukraine, which
toppled the corrupt Yanukovych government in February 2014, were a
reminder that those struggling for democracy view the eu as a bastion
of freedom. But if the eu allows even one member state to slide into
autocracy, it will irreversibly diminish the meaning of eu membership.

EURO-MOJO
Skeptics have been planning the eu’s funeral for decades, but time and
again, the union has refused to die. During the eu’s latest and most pro-
found crisis, national governments once more chose to reaffirm and
deepen their commitments. This rapid growth of eu power, however, has
given rise to a number of misguided and counterproductive policies
that have undercut public support and left the eu in a deep malaise.
European citizens today largely ignore the eu’s many achievements or
take them for granted, instead equating the organization with economic
pain and feckless leadership. The union endures, but it has lost its mojo.
The eu has worn out its default strategy of muddling through cri-
ses. Lurching from one calamity to the next has damaged the credibil-
ity of Brussels and national governments alike. It is time for a bold
and far-reaching agenda. To see a Europe truly reborn and fit for the
twenty-first century, eu leaders must reassert with confidence—on
the economy, on security, and on democracy—that Europe is stronger
when it stands united.∂

Januar y/Februar y 2015 107

 Return to Table of Contents

Leaving the West Behind

Germany Looks East
Hans Kundnani

R
ussia’s annexation of Crimea in March 2014 was a strategic
shock for Germany. Suddenly, Russian aggression threatened
the European security order that Germany had taken for
granted since the end of the Cold War. Berlin had spent two decades
trying to strengthen political and economic ties with Moscow, but
Russia’s actions in Ukraine suggested that the Kremlin was no longer
interested in a partnership with Europe. Despite Germany’s depen-
dence on Russian gas and Russia’s importance to German exporters,
German Chancellor Angela Merkel ultimately agreed to impose
sanctions on Russia and helped persuade other eu member states to
do likewise.
Nevertheless, the Ukraine crisis has reopened old questions about
Germany’s relationship to the rest of the West. In April, when the
German public-service broadcaster ard asked Germans what role
their country should play in the crisis, just 45 percent wanted Germany
to side with its partners and allies in the eu and nato; 49 percent
wanted Germany to mediate between Russia and the West. These
results led the weekly newsmagazine Der Spiegel, in an editorial
published last May, to warn Germany against turning away from
the West.
Germany’s response to the Ukraine crisis can be understood
against the backdrop of a long-term weakening of the so-called West-
bindung, the country’s postwar integration into the West. The fall
of the Berlin Wall and the enlargement of the eu freed the country
from its reliance on the United States for protection against a power-
ful Soviet Union. At the same time, Germany’s export-dependent
economy has become increasingly reliant on demand from emerging
hans kundnani is Research Director at the European Council on Foreign Relations and
the author of The Paradox of German Power. Follow him on Twitter @hanskundnani.

108 f o r e i g n a f fa i r s
 Leaving the West Behind

markets such as China. Although Germany remains committed to

European integration, these factors have made it possible to imagine
a post-Western German foreign policy. Such a shift comes with high
stakes. Given Germany’s increased power within the eu, the country’s
relationship to the rest of the world will, to a large extent, determine
that of Europe.

the german paradox

Germany has always had a complex relationship with the West. On
the one hand, many of the political and philosophical ideas that be-
came central to the West originated in Germany with Enlighten-
ment thinkers such as Immanuel Kant. On the other hand, German
intellectual history has included darker strains that have threatened
Western norms—such as the current of nationalism that emerged in
the early nineteenth century. Beginning in the latter half of the nine-
teenth century, German nationalists increasingly sought to define
Germany’s identity in opposition to the liberal, rationalistic principles
of the French Revolution and the Enlightenment. This version of
German nationalism culminated in Nazism, which the German histo-
rian Heinrich August Winkler has called “the climax of the German
rejection of the Western world.” Germany, therefore, was a paradox:
it was part of the West yet produced the most radical challenge to it
from within.
After World War II, West Germany took part in European inte-
gration, and in 1955, as the Cold War heated up, it joined nato. For
the next 40 years, the Westbindung, which led Germany to cooperate
and pursue joint security initiatives with its Western allies, became
an existential necessity that overrode other foreign policy objectives.
Germany continued to define itself as a Western power through the
1990s. Under Chancellor Helmut Kohl, a reunified Germany agreed
to adopt the euro. By the end of the decade, the country appeared to
have reconciled itself to the use of military force to fulfill its obligations
as a nato member. After 9/11, Chancellor Gerhard Schröder pledged
“unconditional solidarity” with the United States and committed
German troops to the nato mission in Afghanistan.
Over the past decade, however, Germany’s attitude toward the
rest of the West has changed. In the debate about the 2003 invasion
of Iraq, Schröder spoke of a “German way,” in contrast to the “American
way.” Since then, Germany has hardened its opposition to the use

Januar y/Februar y 2015 109

Hans Kundnani

of military force. After its experience in Afghanistan, Germany

appears to have decided that the right lesson from its Nazi past is
not “never again Auschwitz,” the principle it invoked to justify its
participation in the 1999 nato military intervention in Kosovo,
but “never again war.” German politicians across the spectrum now
define their country as a Friedensmacht, a “force for peace.”
Germany’s commitment to peace has led the eu and the United
States to accuse Germany of free-riding within the Western alliance.
Speaking in Brussels in 2011, U.S. Defense Secretary Robert Gates
warned that nato was becoming “a two-tiered alliance . . . between
those willing and able to pay the price
and bear the burdens of alliance com-
Germany has produced mitments, and those who enjoy
the most radical challenge the benefits of nato membership, be
to the West from within. they security guarantees or head-
quarters billets, but don’t want to
share the risks and the costs.” He
singled out for particular criticism those nato members that spend less
on defense than the agreed-on amount of two percent of gdp;
Germany spends just 1.3 percent. In the past few years, France has
similarly criticized Germany for its failure to provide sufficient support
for military interventions in Mali and the Central African Republic.
One reason Germany has neglected its nato obligations is that the
Westbindung no longer appears to be a strategic necessity. After the
end of the Cold War, the eu and nato expanded to include some
central and eastern European countries, which meant that Germany
was “encircled by friends,” as the former German defense minister
Volker Rühe put it, rather than by potential military aggressors, and
it was therefore no longer reliant on the United States for protection
from the Soviet Union.
At the same time, Germany’s economy has become more depen-
dent on exports, particularly to non-Western countries. In the first
decade of this century, as domestic demand remained low and Ger-
man manufacturers regained competitiveness, Germany became in-
creasingly dependent on exports. According to the World Bank, the
contribution of exports to Germany’s gdp jumped from 33 percent
in 2000 to 48 percent in 2010. Beginning with Schröder, Germany
began to base its foreign policy largely on its economic interests and,
in particular, on the needs of exporters.

110 f o r e i g n a f fa i r s
 Leaving the West Behind

It’s complicated: Putin and Merkel in Berlin, June 2012

Increasing anti-American sentiment among ordinary Germans

has contributed to the foreign policy shift, too. If the Iraq war gave
Germans the confidence to split from the United States on issues of
war and peace, the 2008 global financial meltdown gave it the confi-
dence to diverge on economic issues. For many Germans, the crisis
highlighted the failures of Anglo-Saxon capitalism and vindicated
Germany’s social market economy. The revelations in 2013 that the
U.S. National Security Agency had been conducting surveillance on
Germans and eavesdropping on Merkel’s cell-phone calls further
strengthened anti-American sentiment. Many Germans now say that
they no longer share values with the United States, and some say
that they never did.
To be sure, Germany’s liberal political culture, a result of its Western
integration, is here to stay. But it remains to be seen whether Germany
Reute rs / Thomas Pete r

will continue to align itself with its Western partners and stand up
for Western norms as it becomes more dependent on non-Western
countries for its economic growth. The most dramatic illustration of
what a post-Western German foreign policy might look like came in
2011, when Germany abstained in a vote in the un Security Council
over military intervention in Libya—siding with China and Russia over

Januar y/Februar y 2015 111

Hans Kundnani

France, the United Kingdom, and the United States. Some German
officials insist that this decision did not prefigure a larger trend. But a
poll conducted shortly after the vote by the foreign policy journal
Internationale Politik found Germans to be split three ways over whether
they should continue to cooperate primarily with Western partners;
with other countries, such as China, India, and Russia; or with both.

the new ostpolitik

Germany’s policy toward Russia has long been based on political
engagement and economic interdependence. When Willy Brandt
became chancellor of West Germany in 1969, he sought to balance
the Westbindung with a more open relationship with the Soviet Union
and pursued a new approach that became known as the Ostpolitik,
or “Eastern policy.” Brandt believed that increasing political and
economic ties between the two powers might eventually lead to
German reunification, a strategy his adviser Egon Bahr called Wandel
durch Annäherung, “change through rapprochement.”
Since the end of the Cold War, economic ties between Germany
and Russia have expanded further. Invoking the memory of Brandt’s
Ostpolitik, Schröder began a policy of Wandel durch Handel, or “change
through trade.” German policymakers, and particularly the Social
Democrats, championed a “partnership for modernization,” in which
Germany would supply Russia with technology to modernize its
economy—and, ideally, its politics.
These ties help explain Germany’s initial reluctance to impose
sanctions after the Russian incursion into Ukraine in 2014. In deciding
whether or not to follow the U.S. lead, Merkel faced pressure from
powerful lobbyists for German industry, led by the Committee on
Eastern European Economic Relations, who argued that sanctions
would badly undermine the German economy. In a show of support
for Russian President Vladimir Putin, Joe Kaeser, the ceo of Siemens,
visited the Russian leader at his residence outside Moscow just after
the annexation of Crimea. Kaeser assured Putin that his company,
which had conducted business in Russia for roughly 160 years, would
not let “short-term turbulence”—his characterization of the crisis—
affect its relationship with the country. In an editorial in the Financial
Times in May, the director general of the Federation of German
Industries, Markus Kerber, wrote that German businesses would
support sanctions but would do so “with a heavy heart.”

112 f o r e i g n a f fa i r s
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Germany’s heavy dependence on Russian energy also caused Berlin

to shy away from sanctions. After the 2011 Fukushima nuclear disaster
in Japan, Germany decided to phase out nuclear power sooner than
planned, which made the country increasingly dependent on Russian
gas. By 2013, Russian companies provided roughly 38 percent of
Germany’s oil and 36 percent of its gas. Although Germany could
diversify away from Russian gas by finding alternative sources of
energy, such a process would likely take decades. In the short term,
therefore, Germany has been reluctant to antagonize Russia.
For her support of sanctions, Merkel has faced pushback not just
from industry but also from the German public. Although some in
the United States and in other European countries have accused the
German government of going too easy
on Russia, many within Germany have
felt that their government is acting too
Germans are split over
aggressively. When the German jour- whether to cooperate
nalist Bernd Ulrich called for tougher with Western partners
action against Putin, for example, he or with countries such
found himself inundated with hate mail
that accused him of warmongering. Even as Russia and China.
Frank-Walter Steinmeier, Germany’s
foreign minister, long perceived to be sympathetic to Russia, has
faced similar accusations. The National Security Agency spying
revelations only increased sympathy for Russia. As Ulrich put it in
April 2014, “When the Russian president says he feels oppressed by
the West, many here think, ‘So do we.’”
That type of identification with Russia has deep historical roots. In
1918, the German writer Thomas Mann published a book, Reflections
of a Nonpolitical Man, in which he argued that German culture was
distinct from—and superior to—the cultures of other Western nations,
such as France and the United Kingdom. German culture, he argued,
fell somewhere between Russian culture and the cultures of the rest of
Europe. That idea has experienced a dramatic resurgence in recent
months. Writing in Der Spiegel in April 2014, Winkler, the historian,
criticized the so-called Russlandversteher, Germans who express support
for Russia, for repopularizing “the myth of a connection between the
souls of Russia and Germany.”
In crafting a response to Russia’s annexation of Crimea, then,
Merkel had to walk a fine line. She sought to keep open the possibility

Januar y/Februar y 2015 113

Hans Kundnani

of a political solution for as long as possible, spending hours on the

phone with Putin and sending Steinmeier to help mediate between
Moscow and Kiev. It was only after Malaysia Airlines Flight 17 was
shot down on July 17, 2014, allegedly by pro-Russian separatists, that
German officials felt comfortable adopting a tougher stance. Even
then, public support for sanctions remained tepid. An August poll by
the ard found that 70 percent of Germans supported Europe’s sec-
ond round of sanctions against Russia, which included banning visas
for and freezing the assets of a list of prominent Russian business-
people. But only 49 percent said that they would continue to back
sanctions even if they hurt the German economy—as the third round
of sanctions likely will.
Popular support for sanctions could slip further if Germany goes
into recession, as many analysts say it might. Although German
businesses have reluctantly accepted the sanctions, they have contin-
ued to lobby Merkel to ease them. And even as its economic efforts
come under threat, Germany has made it clear that military options
are not on the table. Ahead of the nato summit in Wales in September,
Merkel opposed plans for the alliance to establish a permanent
presence in eastern Europe, which she argued would violate the 1997
nato-Russia Founding Act. Put simply, Germany may not have the
stamina for a policy of containment toward Russia.

pivot to china
Germany has also grown closer to China, an even more significant
harbinger of a post-Western German foreign policy. As it has with
Russia, Germany has benefited from increasingly close economic ties
with China. In the past decade, German exports there have grown
exponentially. By 2013, they added up to $84 billion, almost double
the value of German exports to Russia. Indeed, China has become the
second-largest market for German exports outside the eu, and it may
soon overtake the United States as the largest. China is already the
biggest market for Volkswagen—Germany’s largest automaker—and
the Mercedes-Benz S-Class.
The relationship between Germany and China grew only stronger
after the 2008 financial crisis, when the two countries found them-
selves on the same side in debates about the global economy. Both
have exerted deflationary pressure on their trading partners, criticized
the U.S. policy of quantitative easing, and resisted calls from the United

114 f o r e i g n a f fa i r s
 Leaving the West Behind

States to take action to rectify macroeconomic imbalances in the

global economy. Germany and China have, simultaneously, become
closer politically. In 2011, the two countries began holding an annual
government-to-government consultation—in effect, a joint cabinet
meeting. The event marked the first time that China had conducted
such a broad-based negotiation with another country.
For Germany, the relationship is primarily economic, but for China,
which wants a strong Europe to counterbalance the United States,
it is also strategic. China may see Germany as the key to getting
the kind of Europe it wants, partly because Germany appears to
be increasingly powerful within Europe but perhaps also because
German preferences seem closer to its own than do those of other eu
member states, such as France and the United Kingdom.
The tighter Berlin-Beijing nexus comes as the United States
adopts a tougher approach to China as part of its so-called pivot to
Asia—and it could pose a major problem for the West. If the United
States found itself in conflict with China over economic or security
issues—if there were an Asian Crimea, for instance—there is a real
possibility that Germany would remain neutral. Some German
diplomats in China have already begun to distance themselves from
the West. In 2012, for example, the German ambassador to China,
Michael Schaefer, said in an interview, “I don’t think there is such
a thing as the West anymore.” Given their increasing dependence on
China as an export market, German businesses would be even more
opposed to the imposition of sanctions on China than on Russia.
The German government would likely be even more reluctant to
take tough action than it has been during the Ukraine crisis, which
would create even greater rifts within Europe and between Europe
and the United States.

A German europe
Fears of German neutrality are not new. In the early 1970s, Henry
Kissinger, then the U.S. national security adviser, warned that West
Germany’s Ostpolitik could play into the hands of the Soviet Union
and threaten transatlantic unity. He argued that closer economic
ties with the Soviet Union would increase Europe’s dependence on
its eastern neighbor, thereby undermining the West. The danger
Kissinger foresaw was not so much that West Germany might leave
nato but, as he put it in his memoir, that it might “avoid controversies

Januar y/Februar y 2015 115

Hans Kundnani

outside of Europe even when they affected fundamental security

interests.” Fortunately for Washington, the Cold War kept such
impulses in check, as West Germany relied on the United States for
protection against the Soviet Union.
Now, however, Germany finds itself in a more central and stronger
position in Europe. During the Cold War, West Germany was a
weak state on the fringes of what became the eu, but the reunified
Germany is now one of the strongest—if not the strongest—power
in the union. Given that position, a post-Western Germany could
take much of the rest of Europe with it, particularly those central
and eastern European countries with economies that are deeply
intertwined with Germany’s. If the United Kingdom leaves the eu,
as it is now debating, the union will be even more likely to follow
German preferences, especially as they pertain to Russia and China.
In that event, Europe could find itself at odds with the United
States—and the West could suffer a schism from which it might
never recover.∂

116 f o r e i g n a f fa i r s
 Sponsored Section

Madagascar
A NEw ERA

“I t is time to end the Malagasy paradox.”

With this bold, forward-looking statement,
the democratically elected President of Madagascar,
TREASURE
ISLAND
H.E. Hery Rajaonarimampianina, perfectly en- Ideally positioned at the crossroads of fast-growing
capsulates the country’s challenges in its quest to Africa and Asia, Madagascar is a jewel in terms of
become a driving force in Africa and sets the road natural capital, flora, and fauna. Given its size and di-
ahead for the country. International indicators have versity, it is no surprise that the country has earned
welcomed Rajaonarimampianina’s arrival to power, the nickname of the “island continent.”
putting an end to the political turmoil that reigned Superlatives abound to describe the ecosystem of
from 2009 to 2013. the island. Surrounded by five thousand kilometers of
The Malagasy paradox consists of two diverging coastline with beautiful lagoons and landscapes, Mad-
circumstances. Although Madagascar is unique in its agascar has 5 percent of the world’s biodiversity, of
incomparable biodiversity, exceptional mineral en- which more than 70 percent are to be found nowhere
dowment, and vibrant and engaged youth, years of else on earth. Often associated with the famous le-
political mismanagement and disrespect for the rule murs that have become the country’s symbol, together
of law have left 92 percent of its 22 million inhabit- with its baobabs and travelers palm trees, Madagascar
ants below the poverty line. For Rajoanarimapianina, is also home to 190 types of amphibians, 250 types of
political will, good governance, and inclusive politics reptiles, and thousands of plant varieties. In addition
can reverse this situation. to this exceptional environment, Madagascar’s land is
extremely fertile but remains largely unexplored.
With the election of H.E. Hery Statistically speaking, the country’s potential is even
Rajaonarimampianina in January 2014, the more impressive.With its supply of gold, nearly half of
one-year anniversary of a sound reform program the world’s sapphires, and a huge variety of precious
for sustainable and inclusive development marks stones such as rubies and emeralds, the country is the
new Eldorado for mining, a sector which accounts for
the time for Madagascar to enter a new era and
only 1 percent of its gross domestic product.
unlock its tremendous potential. Finally, the Big Island’s favorable climate, which
Though five years of political, economic, and social ranges from temperate to tropical, facilitates the ex-
turmoil diverted the country away from its develop- ploitation of diversified cultivation. Madagascar is one
ment goals, the Malagasy people are proving their of the few countries capable of exporting agricultural
ability to overcome crises. January 2015 marks the products throughout the year and across the sea-
one-year anniversary of Rajaonarimampianina’s elec- sons. The country currently produces 80 percent of
tion and of a sound reform program for sustainable the world’s vanilla and is one of the leading exporters
and inclusive development. of spices and essential oils.

1
 Sponsored Section

RETURN TO DEMOCRACY THE PATH TOWARD INCLUSIVE

The international community has praised the political GROWTH
transition underway as a decisive turning point in Mad- The island intends to take advantage of its new
agascar’s development. The president’s determination democratic breath to accelerate development. Ac-
and policies to reinstate the rule of law and good gov- cording to the International Monetary Fund (IMF),
ernance represent a first step toward the restoration Madagascar’s economic growth is projected to be at
of solid democratic foundations. In his words, the “rule 3 percent in 2014 and should rise to 4 percent in
of law and good governance are the pillars of Mada- 2015. But it will not stop there: “We aim to achieve
gascar’s reconstruction.” He continues: “Only through double-digit growth from 2016,” predicts the Min-
these two founding principles will we be able to nor- ister of Commerce and Consumer Affairs, Narson
malize our relations with donors, international inves- Rafidimanana. To turn this goal into reality, Mada-
tors and all the democratic countries in the world.” gascar is developing a new National Development
“Rule of law and good governance are the Plan (NDP), which will serve as the reference frame-
pillars of Madagascar’s reconstruction.” work to support the country’s economic recovery
for the next five years.
H.E. Hery Rajaonarimampianina The NDP also marks the government’s will to re-
President of Madagascar gain autonomy in establishing Madagascar’s develop-
Since taking office, the eighth president of Madagas- ment strategy after years under the supervision of
car has clearly distanced himself from the former tran- international institutions. Minister of Economy Heri-
sitional regime by forming a government of national lanto Raveloharison, notes categorically: “We must
unity to launch necessary structural reforms to se- identify and meet citizens’ expectations to restore
cure a stable and prosperous future. In spite of politi- the credibility of the State…If Madagascar does not
cal challenges, including the return of ousted President have any development plan, investments will be fo-
Marc Ravalomana to the island in October 2014, Presi- cused on the priorities established by international
dent Rajaonarimampianina’s determina- donors.” This new strategic roadmap will be pivotal
tion and policies to reinstate the in establishing wide-reaching inclusive growth. Ac-
rule of law and achieve national cording to Roger Kolo, “the Malagasy people…have
reconciliation represent a first demonstrated tremendous mental strength and
step toward the restoration solidarity to withstand years of poverty. It is now a
of solid democratic founda- great time to give them hope for the future.” The
tions. This new government importance placed on education, health, and infra-
is unified in its commitment structure in the amended 2014 financial law attests
to emerge from the five-year to the government’s determination to step over the
political crisis and put an end poverty line and achieve sustainable growth. The law
to the bad practices linked to aims to integrate the $150 million of additional bud-
former regimes. Prime Minister getary support received from international donors
Roger Kolo backs the president in this since the president’s appointment. “It is necessary
approach: “Nearly 40 percent of Madagascar’s budget that the budgetary allocation has a real impact on the
is directly or indirectly diverted. The establishment of Malagasy people. It is our responsibility to optimize
a good governance process starts with a strict control public spending to achieve tangible results and im-
of public spending.” With political risk now minimized, prove their lives,” concludes Minister of Finance and
Madagascar is ready to begin a process of national rec- Budget, Jean Razafindravonona.
onciliation through an independent judicial system and
better wealth distribution across the country. This will
be fundamental in building institutional integrity and
To learn more, visit:
will keep Madagascar on its democratic course. www.countrystrategic.com/madagascar2015
2
TOP
1
5MADAGASCAR REASONS TO INVEST IN

A Stable and Democratic Country

The recent democratic election of Madagascar’s new president
Hery Rajaonarimampianina marks a welcome return to stability
x

and good governance, paving the way for growth.

An Investor-Friendly Environment

2
Madagascar’s government is committed to establish an attractive
environment for the international investment community.
● Balanced and effective public-private partnership (PPP) policy
● Modernized investment code
● Clear and transparent legal framework

A Strategic Location
Madagascar, the world's fourth largest island, is ideally positioned at

3 the crossroads between the fast-growing African and Asian markets.

Preferential market access to the United States (Africa Growth
Opportunity Act), Europe (Madagascar-EU) and Africa (Common
Market for Eastern and Southern Africa).

An Exceptional Ecosystem
● Over 18 million hectares of usable land still unexploited

4
● 5,000 kilometers of coastline lined with coral beaches and lagoons
● 80 percent of endemic species
As an active and engaged partner in the Wealth Accounting and
Valuation of Ecosystem Services (WAVES) initiative since 2011,
Madagascar is committed to integrate the value of its natural
capital into national planning.

An Untapped Potential
Internationally recognized for its immense underground wealth,

5
including deposits of cobalt, nickel, iron, graphite, bauxite, uranium,
and 50 percent of the world’s sapphires, Madagascar has recently
joined the club of oil producers in Africa.
“Madagascar can build on the abundance of its natural
resources to obtain sustainable growth”. World Bank, 2014

For more information:

Ministry of Economy and Planning
http://www.mei.gov.mg/
 Sponsored Section

AN INTERVIEw wITH

HIS EXCELLENCY HERY

RAJAONARIMAMPIANINA
>> The newly-elected president talks about
a return to democratic and economic
stability, structural reforms and the
future of Madagascar’s relations with
the United States.
A fter almost five years of regions that have the highest system and an effective policy to
political crisis, what are your concentration of the country’s fight corruption.
priorities as President to wealth to participate in the eco-
What specific measures are
start a new chapter in Mada- nomic development of Madagas-
necessary to generate an in-
gascar’s development? car. Every Malagasy should have
clusive economic growth to
the same opportunities to access
From 2009 to 2013, Madagas- benefit all Malagasy people,
education and healthcare.
car was ostracized by the inter- with special attention to vul-
national community. Today, our “Madagascar is not a land nerable groups?
country is entering a new era. Our development strategy must
The Malagasy people and I want
of adventure, it is a land of
be coherent, inclusive and sus-
to turn the page on fifty years of opportunity. I urge foreign tainable. We must focus on the
poverty and write a new chapter investors to come and rural areas which account for
of our story. We want to end “the explore this land which offers nearly 80 percent of the popula-
Malagasy paradox” in which our tion. The Malagasy agriculture is
country has tremendous natural
all the necessary guarantees
still archaic. It must be modern-
resources yet still figures among and incentives.” ized to become more competitive
the world’s poorest economies. H.E. Hery Rajaonarimampianina and productive. My objective is to
My ambition is to bring the improve agricultural productiv-
Malagasy people what they have
President of Madagascar
ity. This will contribute towards
always aspired to, namely peace, My responsibility is to regain achieving two main goals: food
happiness, and prosperity. We authority through the rule of law. self-sufficiency and increased
were hit by several crises caused It is a prerequisite for the es- farm income.
by political mismanagement in a tablishment and enforcement of
context of economic inequality. good governance in Madagascar. Encouraging greater private
These events resulted in signifi- Rule of law and good governance sector participation in Mada-
cant social and regional gaps. We are the pillars of Madagascar’s gascar’s economy is one of
must learn from these crises to reconstruction. Only through your priorities. What makes
build the country’s future, hence these two founding principles Madagascar a unique destina-
my motivation in preaching the will we be able to normalize tion for investors?
importance of establishing an in- our relations with donors, in- Firstly, under my responsibility, the
clusive and sustainable growth. ternational investors, and all Malagasy government aims to re-
This vision is based on the con- the democratic countries in the assert the authority of the state.
cept of national reconciliation world. These two principles are We will put a secure business en-
which applies primarily to the also essential for the implemen- vironment in place for both peo-
economic sphere. We need the tation of an independent judicial ple and goods to ensure long-term

4
 Sponsored Section

profitability for investments. present in Madagascar), Boeing, large mining and in-
Then, in line with our growth strategy, Madagas- frastructure corporations, and universities have all
car will focus on developing a comprehensive infra- shown an interest in partnering with us.
structure framework and an efficient training plan. Madagascar is regaining its place in the interna-
The primary strength of Madagascar lies in its youth. tional community through its reintegration within
We must take advantage of it. Malagasy youths are the AGOA. This agreement will be accompanied by
well-educated and highly capable of contributing to the creation of tens of thousands of jobs in Mada-
the development of the country. gascar. The AGOA is first and foremost an institu-
Moreover, Madagascar is a peaceful country. We tional synergy between Madagascar and the United
do not share borders with any other countries and States. It will also lead to increased commercial
we have never been at war. Finally, our island has exchanges between American and Malagasy com-
diverse natural resources and unique biodiversity. panies. As well as the reinstatement of Madagascar
Madagascar is not a land of adventure, it is a land in the AGOA, other partnerships with American
of opportunity. I urge foreign investors to come and agencies such as the Millennium Challenge Cor-
explore this land which offers poration (MCC) should be re-
all the necessary guarantees launched.
and incentives.
What is unique about the
Your participation in the Malagasy model of public-
U.S.-Africa summit last Au- private partnerships (PPPs)?
gust and the reintegration Madagascar wishes to develop
of Madagascar in the African win-win partnerships with re-
Growth Opportunity Act spect for each other’s sover-
(AGOA) testifies to the abil-
eignty. Sharing and respecting
ity of Madagascar to become
our policy of regional and in-
a privileged partner of the
clusive development are two
United States. How would
elements at the heart of our
you like to use this momen-
partnership policy. In all the
tum to increase bilateral
projects we undertake with
trade and develop synergies
foreign investors, we attach
with the United States?
great importance to training
The U.S.-Africa Summit was a historic occasion that and technology transfer.
reflected the special attention given by the United
States to the African continent as a whole. Africa is What would be your message to the readers
waking up just as China did thirty years ago. Building of this feature and the participants in the an-
on an exceptional growth rate, a young population, nual meeting of the World Economic Forum
and significant natural resources, Africa should oc- in Davos?
cupy a prominent place in the community of nations. Madagascar has changed. This change is reflected in
For this to happen, Africa faces a number of chal- our ambition to work toward inclusive growth and
lenges in the reorganization of production chains sustainable development. Madagascar wants to es-
and in good governance. tablish a secure and attractive environment for in-
For Madagascar specifically, this meeting marked vestors. I sincerely hope to see investors benefiting
the recognition of our return to the international from the advantages offered by Madagascar: the dy-
scene, not only from the United States, but from all namism of our population, our unique biodiversity,
African countries. The summit was an opportunity our tourism potential and our natural resources.
to seek new partnerships in agriculture, energy and As a democratically-elected president, I want to
education and to discuss opportunities for further emphasize that Madagascar is a country of law com-
collaboration between Malagasy and American com- mitted to respecting the fundamental principle of
panies. Companies including Exxon Mobil (already good governance.

5
 Sponsored Section

BACK IN THE GLOBAL SPOTLIGHT

>> Africa’s new hub of opportunity
F ollowing the internationally-praised appointment of national acceptance is fundamental; not only does it con-
Hery Rajaonarimampianina, Malagasy officials have been tribute towards “restoring trust between the Malagasy
taking part in meetings with other world leaders and posi- government and investors” but it also offers guarantees to
tioning the country as the new opportunity hub in Africa. foreign companies: “Madagascar is fully engaged with the
After five years of diplomatic isolation, the return of the World Bank Group to secure foreign investment through
island to the community of nations began with the par- the Multilateral Investment Guarantee Agency (MIGA).”
ticipation of the President in the African Union Summit in “Investors who arrived after the election of the
January 2014. Since then, Madagascar has been renewing
old friendships from summit to summit and steadily regain-
President realize that the country is changing
ing its place on the international scene, while showcasing […] it is the right time to invest in Madagascar.”
the new investment prospects that are rapidly arising in
Eric Robson, Deputy CEO of the Economic
the island.The country has now been reinstated in the ma-
Development Board of Madagascar (EDBM)
jor trade zones including the Indian Ocean Commission
(IOC), the Common Market for Eastern and Southern Af- With political risk minimized, the participation of private
rica (COMESA), the Southern African Development Com- capital in Madagascar’s economy will be essential to con-
munity (SADC) and the United States-sponsored African tinuing along the path of growth. According to Eric Rob-
Growth and Opportunity Act (AGOA). son, Deputy CEO of the Economic Development Board
Madagascar’s new global status goes hand-in-hand with of Madagascar (EDBM)—an investment agency acting as
the support of international donors such as the World the interface between the private sector and the adminis-
Bank and the International Monetary Fund (IMF) in the tration—“investors who arrived after the election of the
implementation of the government’s economic policy. President realize that the country is changing […] it is the
right time to invest in Madagascar.”
Now that the State has been widely recognized as a
trusted partner, Madagascar’s government is eager to cre-
ate the ideal framework for the empowerment of the pri-
vate sector. Entrusted with this task, the Minister of Econ-
omy and Planning, Herilanto Raveloharison, is determined
that the attractiveness of Madagascar to the investment
community lies in the preservation of the country’s pre-
By connecting the island to the world, Air Madagascar’s mission cious resources. In his words, “over 80 percent of our re-
is to become the country’s engine of growth. sources are endemic to Madagascar and their preservation
should be a prerequisite for their exploitation.” As such,
As the Minister of Industry and Private Sector Develop- the Minister calls for the ongoing commitment of investors
ment, Jules Etienne Rolland, rightly notes, this inter- in Madagascar’s future development.
Supporting growth through Public-Private Partnerships (PPP)
Building on an improved business cli- and Budget, Jean Razafindravonona. A and Meteorology, Ulrich Andriantiana,
mate and the renewed dialogue with new Ministerial Department for the pro- summarizes the principle as follows:
private companies, the government is motion of PPPs composed of financial, “A PPP policy is effective only when
committed to establishing a modernized fiscal and customs experts has recently each side is satisfied with the terms of
PPP framework. “This new policy will in- been created in this regard and its mis- the agreement. We need the State to
tensify the use of concession contracts sion will be to drive the new strategy retain some control, whatever form of
through the Build-Operate-Transfer implemented by the government. The partnership is chosen.” The priority now
(BOT) principle and will greatly contrib- Malagasy model of PPP is based on a bal- is to consolidate dialogue between the
ute towards financing large-scale invest- anced relationship between the govern- Malagasy government and the private
ment projects and anticipated public ment and private enterprises, creating a sector to establish a common vision and
utilities,” explains the Minister of Finance win-win situation. Minister of Transport improved business climate.
6
 Sponsored Section

BUILdING TOMORROw
>> Interview with Rivo Rakotovao, Minister of State in charge of Infrastructure and
Spatial Planning
The creation of a Ministry of and Spatial Planning has put in place a now engaged in a process of good
State in charge of Infrastruc- strategy based on three principles: a governance and in the establishment
ture and Spatial Planning dem- modern land policy, a national spatial of clear legislation to secure invest-
onstrates the priority given to planning scheme and the creation of ment. I am convinced that we need
this sector of the economy by a Directorate-General responsible private partners who believe in the
H.E. President Rajaonarimam- for the monitoring of major infra- potential of Madagascar and that
pianina. What is the motiva- structure projects. Finally, securing their presence will be fundamental in
tion behind this decision? concessions through a clear regula- developing our economy. My office
This decision is at the heart of Pres- tory framework is essential to reas- is committed to taking into account
ident Hery Rajaonarimampianina’s sure investors. the specific characteristics of each
vision of a modern and developed The United States announced company interested in our country.
Madagascar. Despite the support of its commitment to invest $14
the international community, Mada-
“We are ready to engage in
billion in Africa during the first
gascar is still lacking both rural and U.S.-Africa summit in July 2014.
a constructive dialogue with
urban infrastructures. Based on this How will Madagascar take ad- international investors in a
fact, we decided to develop a com- vantage of this opportunity to spirit of respect and mutual
prehensive and coordinated infra- develop the U.S.-Madagascar
structure strategy for the next fifty
understanding.”
relationship?
years. This will contribute toward The participation of Madagascar Rivo Rakotovao
stimulating domestic consumption in the U.S.-Africa Summit and our Minister of State in charge of
as well as directly and indirectly reintegration into AGOA are both Infrastructure and Spatial Planning
creating jobs. tremendous assets in boosting Madagascar is now on the right
What policies are made by your Madagascar’s economy and in future track and has considerable potential
ministry to strengthen the par- job creation.This will contribute to- in all sectors of the economy.The role
ticipation of foreign investors wards unlocking the market poten- of the Ministry of State in charge of
in the development of major tial of Malagasy products. The State Infrastructure and Spatial Planning is
infrastructure projects? of Madagascar will support national to secure investment and earn the
At the moment, the government can companies in this process and make trust of the Malagasy people. Mada-
only participate with up to half the sure that our products meet inter- gascar attaches great importance to
required budget for the implementa- national standards. the principle of reciprocity: we under-
tion of infrastructure projects in the What makes Madagascar an at- stand and accept companies’ profit-
country. Our priority is to establish tractive destination for invest- ability requirements and we expect
public-private partnerships to pro- ment? them to comply with our legal frame-
vide new sources of funding in order Madagascar undoubtedly has a stra- work. Major infrastructure projects
to develop our infrastructure net- tegic geographical position with a will emerge very quickly.We are ready
work. Our role is to be transparent significant maritime territory. In ad- to engage in a constructive dialogue
and send a clear message to any in- dition, the return to constitutional with international investors in a spirit
ternational companies which are in- order is a strong signal to the in- of respect and mutual understanding.
terested in Madagascar. The Ministry ternational investment community. Nothing is impossible as long as we
of State in charge of Infrastructure We have demonstrated that we are respect each other.

Hydroelectric damn operated by state utility Jirama 7

Sponsored Section

FEEdING MAdAGASCAR
ANd BEYONd
>>In a country where 77.8 percent of the population
lives in rural areas, agriculture is undoubtedly the
backbone of the Malagasy economy.
Agriculture, Ravatomanga cites two short-term goals: First, he
which represents hopes Madagascar’s production will feed the country and
20 percent of the its neighboring islands, which lack arable land. Second,
country’s gross domes- he aims for the country to become the Indian Ocean’s
tic product (GDP), is an effec- food basket, a measure favored by the Commission of the
tive growth engine and bears huge potential for fu- Indian Ocean’s countries at their July 2014 summit. The
ture development. In accordance with African Union first step will be to achieve food self-sufficiency, starting
frameworks, notably the Comprehensive Africa Ag- with rice. Ravatomanga explains: “Madagascar currently
riculture Development Program (CAADP), Presi- produces 2.5 million tons of milled rice annually. We are
dent Rajaonarimampianina has cited agriculture as aiming to achieve self-sufficiency in rice by 2016,” insisting
a way to lift the country out of poverty and achieve that “this is a realistic goal.” Capitalizing on the country’s
sustainable and inclusive growth. huge natural resource potential, from crop cultivation to
fishing, “there is strong political will to transform this po-
THE MALAGASY GREEN tential into investment opportunities,” he concludes.
REVOLUTION THE MALAGASY bRAND:
Only 25 percent of exploitable land is currently being
cultivated, leaving significant potential on the world’s PRODUCTS Of EXCEPTION
fourth largest island. Guided by the ambition to meet Madagascar already benefits from an international brand
the 2003 Maputo Declaration Target (devoting 10 per- for some of its high-value products, which are recognized
cent of the national budget to agriculture), the Ministry around the globe as being the highest quality. Famed
of Agriculture and Rural Development is launching a worldwide for its vanilla production which accounts for
locally-owned green revolution. In line with the recom- 80 percent of the global demand, Madagascar also ranks
mendations of the 2014 Africa Progress Panel report to highly for shrimps, spices, and essential oils such as ylang-
reduce poverty and inequality more rapidly, the Mala- ylang, cinnamon, and cloves. The quality of the soil also
gasy government is seeking to boost its agriculture and makes Madagascar’s coffee and chocolate beans among
fisheries sectors through facilitated access to loans and the world’s finest. To protect the island’s fragile ecosys-
insurance for farmers. tem and to meet the needs of an increasing number of
“Our country currently uses only a quarter of socially responsible consumers, the Minister of Agricul-
ture and Rural Development is “currently working on the
the arable land. There is so much potential in possibility of a transition towards fully organic farming,”
Madagascar.” following in the footsteps of countries such as Morocco.
Roland Ravatomanga The minister also aims to merge modern agricultural
Minister of Agriculture and Rural Development techniques, which preserve the natural properties of
the soil and produce, giving priority to environment-
Minister of Agriculture and Rural Development, Ro- friendly fertilizers. The protection of the island is also
land Ravatomanga, an agronomist heading the Min- fundamental to long-standing private sector opera-
istry since 2011, categorically states: “Our country cur- tors such as TAF Products’ manufacturer, the Greek-
rently uses only a quarter of the arable land. There is born entrepreneur Panayotis Taloumis. Although he
so much potential in Madagascar.” To fully benefit from proudly explains that the world’s best coffee and choco-
these opportunities, he calls for “support from the pri- late contain Malagasy beans, like many of his peers, he
vate sector to develop agriculture” in win-win partner- also insists that investments in Madagascar must take
ships with the Malagasy State. long-term considerations into account.
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 Sponsored Section

Celebrating the renewed U.S.-Madagascar

friendship
A s the U.S. government increas- the Socota Group, a front-runner in perspective, they offered a true les-
ingly turns its attention toward the the textile industry: “Madagascar is son in integrity. They have always re-
African continent and recently an- undoubtedly a leader in the labor- spected the rule of law, which results
nounced $7 billion in new financing intensive manufacturing industry … today in their support for the demo-
under the Doing Business in Africa If a company succeeds in Madagascar, cratically elected President.” To fully
(DBIA) campaign, Madagascar has a it has the potential to succeed on a understand AGOA’s effect on Mada-
number of assets that could make larger scale throughout the African gascar’s economy, one should refer to
it a preferred destination for U.S. continent.” the situation in 2008. Before the tran-
investors. An observation shared by “As the U.S. saw the Malagasy
Peter W. Hallinan, President of the RETURN TO AGOA
American Chamber of Commerce in The renewed U.S.-Madagascar
political situation from a
Madagascar (Amcham): “Madagascar friendship has been highlighted by the disinterested perspective, they
should naturally be a regional hege- decision on June 26, 2014 to reinstate offered a true lesson in integrity.
mon…there is only one place on the Madagascar’s eligibility under the Af- They have always respected
globe with the growth opportunity rican Growth and Opportunity Act the rule of law, which results
of Africa and the geopolitical safety (AGOA).This return of Madagascar to today in their support for the
of Australia, and that is Madagascar. the family of AGOA nations reflects
There is a lot of commonality be- the government’s efforts to improve
democratically elected President.”
tween the Malagasy and Americans. transparency and strengthen demo- Zouzar Bouka, Founding
The Malagasy are a very entrepre- cratic rule, and offers exciting op- Board Member of Amcham and
neurial people.” portunities to expand bilateral trade. Chairman of Vision Madagascar
Following the 2009 coup d’état, the Zouzar Bouka, founding board sition period, which marked an end to
United States suspended all non-hu- member of Amcham and Chairman of the U.S.-Madagascar economic part-
manitarian activities and direct assis- the fast-growing company Vision Mad- nership, AGOA products accounted
tance to Madagascar’s governmental agascar (VIMA) stresses the political for 36 percent of the country’s gross
authorities. But today, both countries dimension of this announcement: “As domestic product (GDP) and 85
are opening a new chapter of collab- the United States saw the Malagasy percent of its textile exports were
oration. Scott Reid, chief executive political situation from a disinterested destined for the United States at
officer and executive director of the that time. Armed with the conviction
Amcham, explains why Madagascar is AGOA in Figures that the U.S.-Madagascar relationship
an ideal place for American compa- ●●Duty-free benefits for needs to be strengthened in the fu-
nies that seek to do business in Africa: approximately seven thousand ture, President Rajaonarimampianina
“We are part of Africa and Asia—it items including apparel, took advantage of his participation at
is the best of both worlds–and as an the U.S.-Africa Summit and the sixty-
footwear, minerals, motor
island, there isn’t the geopolitical risk ninth session of the UN General As-
vehicle components, agricultural
of common borders. In addition, with sembly last September to advocate
products, chemicals and steel
a population of only 22 million peo- Madagascar’s inclusion in AGOA and
ple, it is relatively easy to penetrate ●●Direct creation of forty thousand to seek an extension beyond 2015.
the market.” Building on its strategic jobs and an additional two
location and its highly-skilled, low- hundred thousand indirectly
cost labor force, Madagascar is des- ●●A total export figure of $1
tined to become the natural gateway billion for textile products
to Africa. This ambition is echoed by expected in five years
Salim Ismail, chairman and CEO of
9
COMPANY HIGHLIGHT

VIMA Group
CREATING A NEW MADAGASCAR
Founded in 2000 by Zouzar Bouka, Vision Madagascar Antananarivo City Hall, built by VIMA Construction in 2010
(VIMA) acts as the host for all foreign companies
“The secret of change is to focus all of your energy, not on fighting the old, but
wishing to establish themselves in Madagascar by
on building the new.” This well-known quote from Socrates encapsulates the
accompanying them along their development road and
vision of VIMA Group’s Chairman, Zouzar Bouka, who has a deep conviction that
offering solutions and services to help them grow. In
the key to Madagascar’s success is to be open to the world: “Foreign direct
15 years, VIMA Group has successfully diversified its investment in Madagascar will provide employment and training for people.”
activities to become a leader in the construction, real In one of the world’s poorest countries, the Group has made it a mission to
estate, procurement, and wood industries. Building contribute to the Malagasy welfare by easing the arrival of foreign investors
on its recognized experience with prestigious clients, to the island. “VIMA Group guides foreign companies at every step of the way,
the Group is now ready to accelerate its development from their arrival to their sustainable establishment in Madagascar, and helps
and become a major player in the support of oil and to build entities tailored to their needs,” Bouka explains. As a pioneer in the
gas companies coming to Madagascar. VIMA also construction of business parks and as an exclusive partner of Regus—the
looks to new opportunities in sectors such as energy, largest provider of flexible offices solutions—VIMA is perfectly placed to meet
mining and tourism. the highest standards of quality and performance. Building on significant
experience with a variety of organizations, VIMA CONSTRUCTION has proven
Zouzar Bouka its ability to design and build a large portfolio of properties, including that
From Antananarivo to Washington for the diplomatic mission of South Africa and the impressive Antananarivo
City Hall. “At first, investors will be provided with a short-term office thanks
Born in Madagascar, the 44-year-old visionary
to Regus, then we will arrange the office space they need through VIMA
businessman has a special relationship with the U.S.
CONSTRUCTION,” he continues. However, the Group’s ambition goes further:
After having spent several years in Florida, he decided
VIMA REAL ESTATE is currently erecting Majungasaurus Mall, one of the
to return to his home country and has been driven by
biggest industrial parks ever created in Madagascar. Located in the economic
his entrepreneurial spirit and the strong conviction
hub of Mahajanga, the 646,000-square-foot project will offer premium
that it is possible to “get things moving”. But Bouka’s
facilities to international businesses specialized in AGOA activities. And with
fondness for the American continent has never
the arrival of fiber optic connection developed by Orange in 2015, Bouka wants
left him and he has rapidly become an ambassador
“Madagascar’s West Coast to become our Silicon Valley; a city dedicated to IT
for the U.S.A. on the Big Island. He believes the U.S.
exports based on the development model of Bangalore.” In addition, the Group
and Malagasy cultures can complement each other:
is the holder of Century 21’s master franchise in Madagascar, Mauritius
“Madagascar attaches great importance to community
and the Seychelles. According to the Chairman, “this activity is still under
efforts whereas in the U.S., there is more focus on
development but is fully in line with our strategy to support foreign investors
personal accomplishment. Each culture can learn
in the country, responding to their housing needs.” The company has also
from the other and find the right balance”.
extended its scope of activities to procurement through its branches VIMA
As a Founding Board Member and Immediate Past
SERV’ and VIMA OIL AND GAS. In Bouka’s words, “the added value of VIMA
President of the Amcham in Madagascar, the Chairman
SERV’ and VIMA OIL AND GAS lies in their ability to provide business products
of VIMA has played a pivotal role in strengthening
and services in a very short time.” With the latter, the Group has become a
the relationship between the two countries. In 2010
privileged partner of specialized petroleum product suppliers. “We already
and 2014, he was selected to attend the Summit on
have a Board in place and we are in talks with Brazilian, U.S., and British
Entrepreneurship initiated by President Obama. More
companies”, Bouka concludes. As the exclusive licensee of World Trade
recently, VIMA Group was the only Malagasy company
Centers Association, VIMA organizes sporting events, such as the Marathon
to accompany H.E. Hery Rajaonarimampianina to
of Antananarivo, and is aiming to construct a prestigious building. The final
the U.S.-Africa Leaders Summit. In his opinion, “this
branch of the Group is VIMA WOODS, the only forest tree company running
Summit highlighted the efficient American way of
under Forest Stewardship Council (FSC) standards. “We comply with rigorous
doing business and forging partnerships through
safety and environmental norms and we do not have a detrimental impact on
effective networking.”
the forest’s natural growth” Bouka enthuses.

Explorer Business Park

BP 12128 Antananarivo 101, Madgascar Full interview of Zouzar Bouka available at:
T +261 20 330 93 W www.visionmadagascar.com www.countrystrategic.com/madagascar2015/vima
 Sponsored Section

INdUSTRIAL REVIVAL
>>Interview with Jules Etienne Rolland, Minister of Industry and
Private Sector Development
Could you share the priorities The foundation of our strategy is the is a synonym for
of your Ministry with us? establishment of incentives for inves- hope for the Mala-
Our priority is to restore investors’ tors. Specifically, we will soon be cre- gasy population and for
confidence by creating a sound and ating a Special Economic Zone (SEZ) its industry players. Not only will it
attractive business climate through and two free trade zones (FTZ). benefit the textile industry, but it will
effective public-private partnerships. Prompted by my department, there also offer a unique opportunity to
To this end, we work in close collab- are also plans to launch three etha- find new methods of industrial coop-
oration with the Economic Develop- nol production plants and an overall eration. In particular, I see areas such
ment Board of Madagascar—under aim to reach a total of fifty plants as mining, petroleum, agriculture
the Ministry of Industry and Private across the country by 2015. These and the processing of semi-precious
Sector Development—to support projects are extremely promising be- stones as offering the most potential
and facilitate the participation of cause Madagascar offers a favorable for expanding trade between the
foreign investors in the country. The environment for the cultivation of nations. Beyond AGOA, I seek the
Ministry of Industry and Private Sec- sugar cane.The development of etha- establishment of additional partner-
tor Development is fully engaged nol will create jobs while revitalizing ships with American Development
with the President in his fight against the country’s industry. Funds such as the Millennium Chal-
poverty, helping him to achieve the With the reinstatement of lenge Corporation or the Power Af-
goal of creating five hundred thou- Madagascar to AGOA, which rica initiative. As the world’s largest
sand jobs by the end of his term. sectors have you identified as foreign investor, the United States is
What concrete steps does the offering the most promising a partner of choice for Madagascar
Ministry take to encourage the opportunities for cooperation and we have much to learn from the
participation of private capital with the United States? American entrepreneurial spirit and
in Madagascar’s economy? The return of Madagascar to AGOA industrial know-how.

DZAMA RUMS Natural Jewels of the Malagasy Industry

It was in Nosy-Be, an is- demand. He explains, “like the gemstones of Madagascar,

land paradise in the Mo- DZAMA rum gradually takes on different colors and
zambique Channel, that differing aspects of intensity and light.” For Vidzar, this
Compagnie Vidzar’s story has led to rapid expansion thanks to meticulous attention
started some thirty years to the products’ quality, an impeccable marketing strategy
ago in 1982. Among fields and a profound respect for Malagasy traditions.
of ylang-ylang, cloves, black pepper and vanilla, entrepre- Undoubtedly, DZAMA rums are among the world’s best:
neur Lucien Fohine realized that Madagascar’s exceptional international competitions, such as the Miami Rum Fes-
natural flora was an environment ripe for sugar canes, yield- tival, have regularly acknowledged the outstanding qual-
ing rum with a distinctive flavor. He created the company ity of the products. The company recently set itself a new
Vieux Rhum de Dzamandzar—subsequently shortened to challenge to conquer the world’s biggest rum consumer
Vidzar—by setting up a distillery in the city of Dzamand- market: the United States. While the United
zar and baptized his rum DZAMA to remind consumers of States may be more familiar with rums from
the product’s origins. the Americas, Fohine says: “We offer a novel
DZAMA rums rapidly conquered the taste buds of regional product compared to the more traditional
and national markets and are now recognized as being rums” in a market where “there are genuine
Madagascar’s finest rums. When Fohine’s oenologist son connoisseurs.” He admires Bacardi, while
with international training, Franck, became head of the maintaining its differentiation strategy.
company in 1996, he began to bring the flavor of DZAMA DZAMA is an “alternative to the rums U.S.
rums to the attention of the world. He has since developed customers already know.” How so? “We of-
innovative premium rums to meet global consumer fer a spicier rum with hints of vanilla.”

Compagnie Vidzar SARL

Immeuble Dzama Anosibe Angarangarana, BP 4403, Tananarive, Madagascar +261 (0) 20 22 612 43 dzama-international.com/site/
Sponsored Section

THE NEw ELdORAdO

>> Madagascar is renowned for its rich biodiversity and its
abundant natural resources, making the country a world-
class destination for mining and petroleum companies.
MINING: PATHWAY TO PROSPERITY OIL: A NEW SEA Of OPPORTUNITIES
Madagascar’s supply of precious metals—gold, near- With the current high oil prices and declining investment
ly half of the world’s sapphires, and a huge variety opportunities worldwide, Madagascar is perfectly posi-
of other gemstones such as rubies and emeralds— tioned to attract oil companies that are looking for new
makes it a bountiful and largely unexplored land. growth leverage. Although the country’s hydrocarbon po-
Mining contributes between 0.5 and 1.5 percent to tential has been explored for over a century, the island has
the country’s gross domestic product (GDP) and is only recently come to the investment community’s atten-
expected to rise to at least 8 percent by 2018. tion. Last June, Madagascar Oil S.A. launched the first sale
Driven by two major projects in development— of crude oil, leading Madagascar into the exclusive club of
Ambatovy and QIT Madagascar Minerals—the oil producers. The Big Island is therefore living through a
Malagasy mining industry offers exciting prospects pivotal period in the development of the oil industry. It
for the years ahead. Joéli Valérien Lalaharisaina, took advantage of the unique momentum to carry out
minister attached to the presidency for strategic re- “Oil companies will benefit from a
sources, notes that “in addition to these two large modernized regulatory framework inspired
mining projects, exploration for coal in the south of
the island, bauxite in Manantenina, and iron in Soala-
by the best practices in other countries but
la, are extremely promising prospects for investors.” adapted to the specificities of Madagascar.”
Established with the support of the World Bank Bonaventure Rosanaivo, CEO of OMNIS
in 2002, the law on large-scale mining investments an in-depth reform of its petroleum code. Developed by
has helped ensure regulatory stability and incen- the Office des Mines Nationales et des Industries Stratégiques
tives for investors. Additionally, in order to accel- (OMNIS), the State regulatory authority and promotion
erate the development of the mining industry and agency for strategic resource industries, this new code
encourage companies to resume their activities, will facilitate the arrival of foreign partners. Bonaven-
the ministry has appointed a committee in charge ture Rasoanaivo, chief executive officer of OMNIS, out-
of reviewing the mining framework. Lalaharisaina lines the key elements of the new petroleum code. “The
explains: “We plan to revise the current mining general principle of the future petroleum code is good
code soon in order to strike a better balance be- governance,” which implies clearly identifying all agencies
tween private and public interests.” The govern- in charge of oil policy in Madagascar. Another priority, he
ment is aware that only sustainable and transpar- adds,“is the simplification of the regulatory framework to
ent management of Madagascar’s non-renewable make it more transparent and more efficient for foreign
underground resources will enable the island to investors.” The code will also improve local content, in-
maximize the benefits of the mining sector for the creasing the extent to which the output of the extractive
economy. The decision to lift the suspension of industry sector generates further benefits for the econo-
Madagascar from the Extractive Industries Trans- my. Finally, particular attention will be paid to environmen-
parency Initiative (EITI) in June 2014 marks an im- tal protection to ensure the preservation of the unique
portant step in that direction. “Our reintegration biodiversity of the island. As summarized by Rasoanaivo:
into the EITI system reflects a desire to establish a “Oil companies will benefit from a modernized regulatory
sustainable, balanced and inclusive management of framework inspired by the best practices in other coun-
the mining industry,” concludes the minister. tries but adapted to the specificities of Madagascar.”

A Country Strategic feature (countrystrategic.com)

Publisher: Stephen de Vasconcellos-Sharpe; Global Director: Taylor E. Russell; Art Director: Anastasia Caramanis
Country Directors: Julie Mandoyan, Stanislas Albert
yOu cAN rELy ON Our EXpErIENcE
Major international oil companies such
as EXXON Mobil and TOTAL are already
operating in Madagascar.
Sixteen international oil companies have
concluded 23 production sharing contracts.
OMNIS (Office des Mines Nationales et des
Industries Stratégiques) is the lead institution
promoting partnership with international oil
companies. Strengthened by its 38 years of expe-
rience in the oil industry, it implements Mada-
gascar’s national policy in terms of oil and gas
exploration and exploitation, and updates explo-
ration data on a systematic basis in order to
better facilitate explorations.
Hydrocarbon potential
Madagascar is embedded in 820,000 km2 of sedi-
mentary basins onshore and offshore, favorable
for hydrocarbon exploration, especially on the
west coast. Additionally, 264 free offshore blocks
and 39 onshore blocks will shortly be subject to
promotional campaign.
New petroleum code
Madagascar’s petroleum code and the decree
on mining exploration, exploitation and trans-
portation were initially promulgated in 1996.
In order to better address the current reality in
the sector, OMNIS and the Ministry of Strategic
Resources are preparing a new code. This frame-
work will reflect the international context, industry
practices and, of course, will provide incentives
for international oil companies.

OMNIS
Trusted partner of the
world’s leading oil companies
BP 1 BIS, Rue Razanakombana, Ambohijatovo, Antananarivo 101 MADAGASCAR
T: + 261 20 22 354 91/ 22 242 83 | W: www.omnis.mg | E: secdg@omnis.mg
New Blog:
Net Politics
www.cfr.org/cyber

On Net Politics, experts in CFR’s Digital and Cyberspace Policy Program

investigate the impact of information and communication technologies
on security, privacy, and international affairs.

Net Politics is the latest addition to CFR’s roster of seventeen blogs

covering a range of issues, including conflict prevention, energy and the
environment, as well as regions such as the Middle East, Africa, and
Asia. View all blogs at: www.cfr.org/blogs

View the guide by scanning this code

with your mobile device.
For more information, contact Global
Communications and
Media Relations at 212.434.9888
or communications@cfr.org.
 Return to Table of Contents

Under the Sea

The Vulnerability of the Commons
Robert Martinage

I
n recent years, U.S. officials have grown increasingly fearful of a
massive cyberattack, one capable of crippling infrastructure and
crashing markets. In 2010, William Lynn, then deputy secretary
of defense, wrote in these pages that cyberspace was “just as critical to
military operations as land, sea, air, and space.” As defense secretary,
Leon Panetta warned of a “cyber–Pearl Harbor.” And in 2013, James
Clapper, the director of national intelligence, put cyberattacks at the
top of his annual list of transnational threats.
Yet as Washington has poured billions of dollars into shoring up its
defenses in the virtual world, it has largely ignored the physical infra-
structure that allows cyberspace to exist in the real one. Today, roughly
95 percent of intercontinental communications traffic—e-mails, phone
calls, money transfers, and so on—travels not by air or through space
but underwater, as rays of light that traverse nearly 300 fiber-optic
cables with a combined length of over 600,000 miles. For the most
part, these critical lines of communication lack even basic defenses, both
on the seabed and at a small number of poorly guarded landing points.
And a mounting tally of small-scale breaches points to the potential
for large-scale damage.
Washington’s neglect of undersea infrastructure extends beyond
cables to an increasingly important source of global oil and gas sup-
ply: deep-water drilling. Today, offshore rigs in the Gulf of Mexico
account for some 25 percent of total U.S. oil and gas production—a
figure the Department of Energy predicts could reach 40 percent by
2040. Outside the United States, global production from deep-water
wells has risen from 1.5 million barrels per day in 2000 to over six
million barrels per day in 2014. As the infrastructure for offshore
robert martinage is a Senior Fellow at the Center for Strategic and Budgetary
Assessments. From 2010 to 2013, he served as Deputy Undersecretary of the U.S. Navy.

Januar y/Februar y 2015 117

Robert Martinage

drilling grows more sophisticated and widespread, it is also becoming

more susceptible to attack, with the potential consequences exceeding
those of the giant 2010 oil spill in the Gulf of Mexico.
Although human activities underwater are regulated by numerous
international bodies, no single entity has both the authority and the
ability to take the lead. In the United States, the Coast Guard is
responsible for enforcing security plans at the largest offshore energy
platforms and protecting underwater structures at some ports. Yet no
government agency or department has responsibility for the defense
of the country’s submerged energy and cable infrastructure. As a
consequence, two of the most critical sectors of the U.S. economy—
communications and energy—could easily fall prey to a well-organized
terrorist plot or a foreign attack. Fortunately, Washington still has
time to correct course.

what lies beneath

British engineers laid the first submarine telegraph line across the
English Channel in 1850. Eight years later, an effort backed by the
American financier Cyrus Field bridged the Atlantic, linking Ireland
to Newfoundland with a telegraph wire that eventually transmitted
almost seven words per minute. After Alexander Graham Bell invented
the telephone in 1876, the first underwater telephone cable soon
followed, carrying conversations beneath the San Francisco Bay.
Although the number of cables proliferated, their speed and capacity
stagnated until the introduction of two key advances during the
1920s and 1930s: coaxial copper cores and polyethylene insulation,
which allowed individual cables to carry multiple voice channels
and provided improved durability. In subsequent decades, capacity
soared, rising from 36 voice channels per cable in the 1950s to around
4,000 in the 1970s. Nevertheless, installation and maintenance
costs remained high, making satellites decidedly more attractive for
carrying telephone traffic. Until the 1980s, satellites could provide
almost ten times as much capacity as submarine cables while requiring
only one-tenth as large an investment.
But then fiber-optic technology revolutionized global communica-
tions. In 1988, a consortium of British, French, and U.S. telecommuni-
cations firms laid the first fiber-optic cable across the Atlantic.
Tat-8, as the line was called, could carry 40,000 telephone calls
simultaneously—an order of magnitude greater than most existing

118 f o r e i g n a f fa i r s
 Under the Sea

coaxial cables could handle and at a fraction of the previous cost.

Today’s fiber-optic cables can transmit an amount of data equivalent
to the entire printed collection of the Library of Congress in about
20 seconds.
As a result, companies, governments, and individuals can send
and receive more data than ever before. In 1993, Internet users trans-
mitted around 100 terabits of data in a year; today, they send about
150 terabits every second. And this number is expected to exceed
1,000 terabits by 2020, fueled in large part by the expansion of cellular
networks in Africa, Asia, and the Middle East.
Nearly all that data will travel along the seabed. Imagine, then,
how damaging a determined attack on undersea infrastructure could
be. One need only consider the destruction possible from natural
causes and inadvertent interference.
In 2006, an undersea earthquake near
Taiwan snapped nine cables. It took
Some 95 percent of
11 ships 49 days to finish repairs, intercontinental
while China, Japan, the Philippines, communications travel
Singapore, Taiwan, and Vietnam lost underwater.
critical communication links, disrupting
regional banking, markets, and trade.
In 2007, Vietnamese fishermen seeking to salvage copper from a
defunct coaxial cable pulled up active lines instead, disrupting
Vietnam’s communications with Hong Kong and Thailand for
nearly three months and requiring repairs that cost millions. Given
the scarcity of equipment and personnel, it could take months, if not
years, for the United States to recover from a large-scale, coordinated
assault. Attackers wouldn’t even need to target U.S. assets, since
U.S. traffic flows through more than a dozen other countries that
serve as major hubs for the global undersea cable network.
Much of this infrastructure allows the global economy to function.
Every day, swift, the Society for Worldwide Interbank Financial
Telecommunication, transmits some 20 million messages to more than
8,000 banking organizations, security institutions, and corporate
customers in nearly 200 countries, reconciling trillions of dollars’
worth of assets across global financial markets. Intercontinental
Exchange, which operates a global network of currency exchanges
and clearing-houses, typically processes over ten million contracts each
day, covering the energy, commodity, financial, and equity derivatives

Januar y/Februar y 2015 119

Robert Martinage

markets. Without the undersea fiber-optic network, this type of

electronic banking and commerce simply could not happen. And in
the event that the cable system shut down, millions of transactions
would be cut short.
Thanks to a number of factors, moreover, a major attack turns out
to be surprisingly feasible. For one, fiber-optic cables, which are
typically one to two inches thick, generally follow routes that avoid
high-traffic shipping lanes, fishing areas, and sensitive environmental
locations. Although that helps minimize the risk of accidental damage,
it means that cables tend to land at only about two dozen major sites
around the world. Of the roughly 40 major submarine cables that
connect the United States to the world’s global
undersea communications network, nearly
all make landfall at narrow stretches of coast
in California, Florida, New Jersey, New York,
and Oregon. On the East Coast, nearly every
transatlantic cable comes ashore within only
tens of miles of one another in the New York–
New Jersey area.
To make matters worse, maps of many cable
routes are easily accessible to the public. Every
year, operators report around 100 to 150 cases of
major damage, roughly 70 percent of which are the
result of human activities such as fishing and anchoring.
That’s why submarine cable locations appear on nautical
charts. Some cables even have acoustic beacons to make them
easier to find. Information about global cable routes, meanwhile, is
available on the Internet, making it easy to discern a given country’s
weak spots.
With detailed coordinates at their fingertips, foreign militaries
could target U.S. cables using remote-controlled submarines equipped

120 f o r e i g n a f fa i r s
 Under the Sea

with high-resolution sonar and loaded with explosives. The

barrier to entry for this type of undersea warfare is rela-
tively low, as several different companies now sell such tech-
nology on the consumer market. In fact, thousands of
undersea vehicles, operated semiautonomously or
remotely, are already in service worldwide. A well-
financed terrorist group could easily get
its hands on one in order to target key
cables and junction points. It could also
opt for brute force, using
fishing trawlers equipped with
deep-sea grappling hooks to
maul cables in shallower waters.
The global undersea cable
network does have a good deal
of spare capacity, enabling the
swift rerouting of global com-
munications traffic in the event
of an emergency like the
2006 Taiwan earthquake.
Yet a well-planned attack
could take this into account,
targeting multiple intercontinental sub-
marine cables, shore-based terminals, and coastal connection points.
In the attack’s aftermath, service providers would likely struggle to
cooperate, scrambling to repair their own networks by hoarding
skilled personnel and scarce hardware.

crude awakening
The first offshore oil rigs appeared in California in 1896, not long
after the first undersea telephone lines were put in place. But the

Januar y/Februar y 2015 121

Robert Martinage

industry stalled for decades. In the late 1940s, drilling came to a

virtual standstill owing to disputes between state and federal au-
thorities over the power to issue leases for oil exploration. But in
1953, U.S. President Dwight Eisenhower, who had campaigned on
the issue, passed legislation empowering states to grant leases for
activity up to three (and in some cases nine) nautical miles from
the coastline and the U.S. Department of the Interior to sign off on
drilling in areas beyond state jurisdiction. At first, U.S. offshore oil
production rose steadily, from 133,000 barrels per day in 1954 to
1.7 million in 1971. Following a slew of new regulations in the 1970s
and a steep decline in oil prices in the 1980s, however, growth slowed
once again.
As interest waned, a dramatic shift was quietly under way in the
Gulf of Mexico. New platform and drilling technologies were making
it affordable to tap rich reserves of oil and gas at greater depths.
Whereas an average-performing well
in shallow water typically yielded a
Undersea cable cutting few thousand barrels of oil per day,
was once a regular part deep-water fields provided upward of
of warfare. 10,000 barrels. Shell’s Auger field,
which the firm discovered in 1987,
eventually reached a maximum output of over 100,000 barrels. Using
newly available three-dimensional seismologic tools, other energy
companies, including Amoco, British Petroleum, Conoco, Exxon,
and Mobil, also took part in the deep-water hunt.
Like the global undersea cable network, the United States’ deep-
water drilling infrastructure is rapidly expanding while remaining
almost entirely undefended. Drilling operations around the world,
whether in the Bay of Bengal or the South China Sea, face similar risks.
What’s more, as offshore energy infrastructure grows more complex,
it is also developing new weaknesses. Today, a single production plat-
form might draw on several undersea fields tens of miles apart. Each of
those fields might have multiple wells linked by remotely controlled
pipelines—potential targets for a hostile force. These mega-platforms
are becoming increasingly important sources of supply: although the
Gulf of Mexico is home to over 4,000 platforms, roughly one percent
of them produce nearly 75 percent of the region’s total output.
A major attack on deep-water drilling infrastructure could have
many immediate effects, but two stand out. First, the environmental

122 f o r e i g n a f fa i r s
 Peterson Institute for International Economics

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 Under the Sea

damage could be devastating. Residents around the Gulf of Mexico

are still feeling the repercussions of the 2010 explosion on bp’s
Deepwater Horizon rig, and the cleanup costs have already reached
into the tens of billions. Yet Deepwater Horizon was only one of
thousands of production platforms and drilling rigs in the Gulf of
Mexico, many of which belong to vast networks of undersea wells,
pumps, and valves connected by thousands of miles of pipeline.
Second, an attack could cause a major disruption in global energy
supplies. About one-third of global oil production now occurs off-
shore, with the largest fields in the Persian Gulf and the Caspian
Sea. Onshore facilities along the Gulf Coast that are connected to
sea-based ports by submarine pipelines account for over 40 per-
cent of total U.S. oil-refining capacity and over 30 percent of U.S.
natural-gas-processing capacity. Both in the United States and
elsewhere, oil companies have increasingly ventured into deep and
ultradeep water (greater than 1,000 and 5,000 feet, respectively).
Over the past decade, global investment in offshore oil and gas
infrastructure has steadily increased, from about $100 billion to over
$300 billion annually. The estimated volume of newly discovered
oil and gas reserves in deep water now exceeds that onshore and
in shallow water. And by 2035, forecasts suggest, deep-water wells
will account for 11 percent of total global production, up from six
percent in 2013.

drilling down
Submarine infrastructure is already vulnerable to attack and will
become even more so in the coming years, especially as undersea
vehicles grow more advanced and accessible. Unprotected cables
and energy infrastructure could provide adversaries with all kinds
of opportunities to gain the upper hand. Hostile forces could, for
instance, plant explosive charges in sensitive locations and threaten
to pull the trigger. Or they could set off explosions without warning,
throwing markets into chaos and disrupting military command-and-
control systems. State and nonstate actors could conduct anonymous
attacks or act under a false flag. Attributing responsibility for a
covert attack would prove challenging, making deterrence extremely
difficult. Such moves wouldn’t be unprecedented, of course: before
undersea fiber optics dominated global communications, cable cutting
was a regular part of warfare. In 1914, the United Kingdom severed

Januar y/Februar y 2015 123

Robert Martinage

all five of Germany’s undersea cables in the English Channel the day
after declaring war, and belligerents regularly snipped enemy cables
during World War II. But today, it would be more difficult to sever fiber-
optic lines without affecting a much larger and more interdependent
system—making a potential attack all the more damaging.
Washington, meanwhile, has been slow to protect this Achilles’
heel. The Coast Guard, a component of the U.S. Department of
Homeland Security, is responsible for maritime security, so protecting
undersea infrastructure would presumably fall under its brief. But
the agency remains narrowly focused on port security and, to a lesser
degree, surface platforms on the continental shelf. It has fielded
underwater surveillance systems to detect intruders and operates a
small number of unmanned undersea vehicles—but mostly to protect
ports, as well as to inspect pier structures and ship hulls.
The United States must do better. Although no panacea exists
for protecting undersea infrastructure, Washington can and should
adopt a number of concrete measures to reduce the likelihood of
an attack and the consequences if one occurs. Although it would
make sense for the Coast Guard to take on this mission, the agency
currently lacks the manpower and expertise to do so effectively. The
U.S. Navy, by contrast, has the requisite personnel and know-how
but lacks law enforcement authority. Washington should therefore
task the Coast Guard and the navy to work jointly, with new funding
specifically tied to securing undersea infrastructure.
As a first step, the United States could declare protection zones
within its existing exclusive economic zone—the maritime area in
which Washington has special exploration and resource-exploitation
rights—above critical undersea infrastructure, prohibiting unau-
thorized loitering and high-risk activities such as dredge fishing and
anchoring. Some countries, including Australia and New Zealand,
have already banned bottom trawling and anchoring near important
fiber-optic lines. Given the vast expanse of ocean that would need
to be monitored, enforcing such a ban would be difficult. But amending
existing regulations would help. U.S. laws currently require certain
types of large ships within “all navigable waters of the United States”
to publicly broadcast their speed and direction. Authorities can use
that information to monitor boats that are loitering too long in
waters above or near critical undersea infrastructure. But smaller ships
not covered by those rules can still operate huge winches capable of

124 f o r e i g n a f fa i r s
 Under the Sea

handling heavy grappling hooks or cranes that launch and retrieve

undersea vehicles. Accordingly, Washington should require all ships
with the capacity to mount an undersea assault to broadcast their
positions. Since attackers might conceal their positions, the Coast
Guard would also need to monitor the protected zones with coastal
radar, surveillance aircraft, unmanned aerial vehicles, and surface
patrols—a daunting and expensive proposition. To minimize costs,
the agency could prioritize undersea infrastructure of the highest
value, focusing on narrow fiber-optic cable corridors and a relatively
small number of mega-platforms and deep-water ports.
With the exception of crude, grappling-hook-style attacks on the
open sea and scuba-diver assaults in shallow water, nearly all other
strikes on undersea infrastructure would require underwater vehicles.
Given how dark it gets at low depths, those vehicles typically use
high-frequency sonar to guide their course. Industry could be required
to place relatively cheap sensors that detect sonar frequencies near
key undersea infrastructure and along cable routes. If the sensors were
tripped, they could alert nearby Coast Guard or navy vessels. To pro-
vide additional early warning capabilities, Washington could place
acoustic sensors on the seabed or equip unmanned underwater vehicles
to tow them in high-risk areas.
In addition to interdicting hostile vehicles, the U.S. government
could increase the physical barriers in their way. To some degree,
long stretches of submarine cables on the continental shelf already
enjoy physical protection: many are buried underneath three to ten
feet of seabed out to a water depth of about 5,000 feet. Although that
layer prevents damage from dredge fishing and anchoring, it does
not necessarily protect against explosives or physical attacks, so it
may make sense to bury the cables at even greater water depths. And
where pipelines from multiple deep-water oil fields come together,
even rudimentary fences—metal nets strung between posts secured
to the seabed—could do the trick. Since such barriers could stand
in the way of routine inspections and maintenance, they would need
to be used selectively.
Finally, Washington needs to prepare for the fallout if an attack
succeeds. Undersea equipment is difficult to replace, so building
redundant cable lines today could save billions of dollars in the
future. To minimize the risk that a single attack could trigger a
system­wide failure, the federal government could mandate new cable

Januar y/Februar y 2015 125

Robert Martinage

landing sites and offer tax incentives to firms that invest in redundant
cable systems and backup hardware. Similarly, encouraging firms to
build more deep-water ports—currently, oil and natural gas tankers
rely on just a few—would make it more difficult for an attack on some
of them to disrupt energy markets. There are also ample opportunities
to cut red tape by streamlining the burdensome regulations that
govern construction on the seabed. At the federal level, the permitting
process can involve more than a half dozen agencies and take anywhere
from a few weeks to a few years to complete. And pursuing a new
global accord to monitor, protect, and repair transoceanic submarine
cables would allow Washington to share the burden of repairing those
cables in times of crisis.
Such policies would not be foolproof, but they would make it
harder for an adversary to launch a successful attack. Their cost would
be relatively low in comparison to the potential losses that would
result from a global communications traffic jam or a massive oil spill.
Yet the greatest barrier to reform is not funding; it is invisibility.
Fiber-optic cables and offshore oil rigs work well and out of sight,
and consumers tend to treat such critical infrastructure like oxygen,
acknowledging its importance in theory but assuming its continued
presence. If taken away, however, the effects would surely prove suf-
focating; minimizing the chances of a worst-case scenario, however
remote they might seem, would be well worth the investment.∂

126 f o r e i g n a f fa i r s
 Return to Table of Contents

Darkness Invisible
The Hidden Global Costs of Mental Illness
Thomas R. Insel, Pamela Y. Collins, and
Steven E. Hyman

F
our years ago, a team of scholars from the Harvard School
of Public Health and the World Economic Forum prepared a
report on the current and future global economic burden of
disease. Science and medicine have made tremendous progress in
combating infectious diseases during the past five decades, and the
group noted that noncommunicable diseases, such as heart disease
and diabetes, now pose a greater risk than contagious illnesses. In
2010, the report’s authors found, noncommunicable diseases caused
63 percent of all deaths around the world, and 80 percent of those
fatalities occurred in countries that the World Bank characterizes as
low income or middle income. Noncommunicable diseases are partly
rooted in lifestyle and diet, and their emergence as a major risk,
especially in the developing world, represents the dark side of the
economic advances that have also spurred increased longevity, urban-
ization, and population growth. The scale of the problem is only going
to grow: between 2010 and 2030, the report estimated, chronic non-
communicable diseases will reduce global gdp by $46.7 trillion.
These findings reflected a growing consensus among global health
experts and economists. But the report did contain one big surprise:
it predicted that the largest source of those tremendous future costs
would be mental disorders, which the report forecast would account
for more than a third of the global economic burden of noncommuni-
cable diseases by 2030. Taken together, the direct economic effects of
thomas r. insel is Director of the National Institute of Mental Health.
pamela y. collins is Director of the Office for Research on Disparities and Global
Mental Health at the National Institute of Mental Health.
steven e. hyman is Director of the Stanley Center for Psychiatric Research at the
Broad Institute of Harvard and MIT.

Januar y/Februar y 2015 127

Thomas R. Insel, Pamela Y. Collins, and Steven E. Hyman

mental illness (such as spending on care) and the indirect effects (such
as lost productivity) already cost the global economy around $2.5 trillion
a year. By 2030, the team projected, that amount will increase to around
$6 trillion, in constant dollars—more than heart disease and more than
cancer, diabetes, and respiratory diseases combined.
These conclusions were dramatic and disturbing. Yet the report
had virtually no impact on debates about public health policy, mostly
because it did not manage to dislodge persistent and harmful misper-
ceptions about mental illness. In wealthy countries, most people
continue to view mental illness as a problem facing individuals and
families, rather than as a policy challenge with significant economic
and political implications. Meanwhile, in low-income and middle-
income countries and within international organizations, officials tend
to view mental illness as a “First World problem”; according to that
view, worrying about mental health is a luxury that people living in
severe poverty or amid violent conflict cannot afford.
In reality, in countries of all levels of wealth and development,
mental illness affects almost every aspect of society and the economy.
And far from lacking relevance or urgency in poor and war-torn
countries, mental illness often contributes to the very dysfunctions
that plague such places. Moreover, breakthroughs in therapy and
treatment have significantly improved the efficacy—and lowered the
cost—of caring for people who suffer from mental illness, even in
places that have traditionally lacked access to mental health services.
Policymakers, mental health professionals, and advocates for the
mentally ill should take advantage of this progress. To do so, they
first must change the way people—including they themselves—think
about and talk about mental illness.

brain drain
People underestimate the costs and significance of mental illness for
many reasons. At the most basic level, policymakers and public health
officials tend to view mental illness as fundamentally different from
other medical problems. But just like other diseases, mental illnesses
are disorders of a bodily organ: the brain. In this respect, they are no
different from other noncommunicable diseases.
Most people also do not realize just how common mental disorders
are, in part because such illnesses are stigmatized and thus often hidden.
The U.S. Department of Health and Human Services estimates that

128 f o r e i g n a f fa i r s
 Darkness Invisible

The hidden epidemic: in a mental hospital in Shanxi Province, China, October 2010

in 2012, 43.7 million Americans over the age of 18 suffered from some
kind of mental disorder—18.6 percent of the country’s adult population.
Nearly ten million of those people, or 4.1 percent of adult Americans,
struggled with serious mental illnesses, such as psychotic disorders.
Even in the United States, where treatment for such problems is
relatively accessible, many people do not seek or receive care until
their disorders have become chronic and disabling, a length of time
that one recent study found to be 11 years, on average.
Mental disorders are also far more disabling than most people real-
ize, often preventing the afflicted from working, studying, caring for
others, producing, and consuming. In a 2012 report on the global
economic burden of disease, the World Health Organization noted
that mental illnesses and behavioral disorders account for 26 percent
of the time lost to disability—more than any other kind of disease.
The impact of mental illnesses is magnified by the fact that such
disorders afflict mostly young people, in contrast to other chronic
R euters / S tringer

noncommunicable diseases, such as heart disease or cancer, which

generally appear later in life. A 2005 study conducted by researchers
at Harvard Medical School, the University of Michigan, and the
National Institute of Mental Health found that 75 percent of adults
suffering from mental illness reported that their symptoms began

Januar y/Februar y 2015 129

Thomas R. Insel, Pamela Y. Collins, and Steven E. Hyman

before they turned 25. The first signs of psychosis in people with
schizophrenia typically arrive between the ages of 18 and 23; autism
begins to affect people before the age of three. Such early onset explains
why mental disorders represent by far the largest source of disability—
and hence lost productivity—for people between the ages of 15 and
44, a crucial period in life during which people transition from school
to work, find partners, start families, and build careers.
Another little-understood aspect of mental disorders is that they
are not merely disabling; they are deadly. Although many factors lead
people to end their own lives, the American Foundation for Suicide
Prevention estimates that mental illness plays a role in 90 percent
of suicides. The World Health Organization estimates that some
800,000 people commit suicide every year, 75 percent of them in
low-income and middle-income countries. Globally, more than twice
as many people die from suicide as die from homicide each year, and
suicide is the second-largest source of mortality for people aged 15 to
29, topped only by traffic accidents.
Finally, mental disorders act as a gateway to a range of other costly
public health problems. Suffering from a mental illness increases one’s
chances of contracting hiv and of developing heart disease, pulmonary
diseases, and diabetes; it also raises one’s risk of homelessness, poverty,
and institutionalization, including imprisonment—all of which
represent further burdens on society.

attention deficit
Despite these profound costs, mental illness receives surprisingly
little attention and resources from governments and international
organizations. Globally, annual spending on mental health amounts
to less than $2 per person; on average, low-income countries spend
less than 25 cents per person. The median amount that countries
spend on mental health equals less than three percent of the
median amount that they spend on all health care, even though mental
illness accounts for over 20 percent of all health-care costs. And
the poorer the country, the worse the problem: the World Health
Organization estimates that the majority of countries at low and
lower-middle levels of income devote less than two percent of their
health budgets to treating mental disorders. In such countries, up
to 85 percent of people with severe mental illness receive no treat-
ment at all.

130 f o r e i g n a f fa i r s
 Darkness Invisible

Losing It
Top Ten Sources of Time Lost to Disability Globally From All Medical
Causes, by Percentage
Mental and behavioral disorders 26%

Musculoskeletal diseases 14%

Neurological and sense-

13%
organ conditions

Infectious diseases 8%

Nutritional deficiencies 7%

Respiratory diseases 7%

Injuries 6%
Endocrine, blood, and
immune disorders; diabetes 4%

Cardiovascular diseases 3%

Genitourinary diseases 3%

source: World Health Organization, 2012.

Even wealthy countries devote few resources to mental disorders

relative to the economic costs they impose. According to the Centre
for Economic Performance at the London School of Economics,
mental illness costs the British economy around 70 billion pounds
in lost productivity and health-care expenditures every year and
accounts for 23 percent of the burden that disease places on the
United Kingdom, and yet the National Health Service devotes only
13 percent of its expenditures to mental disorders. Nor are interna-
tional organizations any better attuned to the problem: mental illness
went completely unmentioned in the un’s Millennium Development
Goals (mdgs), and until recently, most of the major organizations
addressing global health and disaster relief paid little attention to the
mental health needs of the populations they served.
Owing to this lack of attention and awareness, the costs of treating
mental illness often fall outside health-care sectors. In the United
States, for instance, most states have almost completely dismantled
the system of mental hospitals that once oversaw care for the mentally
ill. As a result, Americans with serious mental illness are ten times
as likely to be imprisoned as to be in hospitals. In a sense, through
welfare programs, social services, and jails and prisons, many countries

Januar y/Februar y 2015 131

Thomas R. Insel, Pamela Y. Collins, and Steven E. Hyman

wind up spending on the effects of mental illness—such as unemploy-

ment, homelessness, and incarceration—rather than the underlying
causes. In the United States, such indirect costs represent two-thirds
of the economic burden of mental health problems—a figure that
makes sense considering that 30 percent of the country’s chronically
homeless and more than 20 percent of the people incarcerated in the
United States suffer from a mental disorder.

a first world problem?

Compared with wealthy countries, low-income and middle-income
countries face an even starker challenge when it comes to mental
health: a lack of expertise and a shortage of professionals. Residents of
wealthy countries enjoy a relatively high concentration of mental health
specialists: high-income countries have, on average, nine psychiatrists
for every 100,000 people. But almost half of the world’s population
lives in countries where, on average, there is only one psychiatrist for
every 200,000 people; in many African countries, there is only one
psychiatrist per every one million people.
In the short term, these numbers are not likely to improve much.
But people suffering from mental illness in poorer places could benefit
from a relatively new trend in the field: the so-called task-sharing
approach, in which professionals train a range of providers—from
nurses and social workers to peers and family members—to care for
those with mental illness. Controlled trials have already demonstrated
the promise this approach holds, even in places with few established
mental health resources. In a report published in The New England
Journal of Medicine in 2013, a team led by Judith Bass, a mental health
specialist at Johns Hopkins University, described a controlled trial
it had carried out in 2011 involving around 400 women in 16 villages
in the Democratic Republic of the Congo who had suffered sexual
violence and exhibited symptoms of posttraumatic stress disorder,
depression, or anxiety. To test the efficacy of a task-sharing ap-
proach to caring for these women, clinical experts from the United
States spent five or six days training local women in how to provide
cognitive-processing therapy, which focuses on helping people to
stop avoiding their problems and instead solve them by changing
their behavior.
The local assistants used that approach to treat one set of the
victims of violence, 70 percent of whom suffered from symptoms of

132 f o r e i g n a f fa i r s
 Darkness Invisible

depression and anxiety disorders before the trial began. A control

group of other victims, 83 percent of whom were experiencing such
symptoms, received only individual support from the assistants.
The results were remarkable: after six months, only ten percent of the
women who had received the cognitive-processing therapy still appeared
to be suffering from depression or anxiety disorders, compared with
42 percent of those who had received just individual support.
In a 2008 article in The Lancet, a team of researchers reported
similar results from a controlled trial in rural Pakistan, in which the
team trained community health workers to provide a form of treat-
ment resembling cognitive-behavioral therapy to women struggling
with prenatal or postpartum depression. Women in 20 rural areas
received treatment from the trainees; a control group of women in
20 other areas received care from workers who had not been trained.
When the treatment period ended, only 23 percent of the women
who had received care from the trained workers showed symptoms
consistent with prenatal or postpartum depression, compared with
53 percent of those in the control group.
The results in Congo and Pakistan suggest that task-sharing
approaches can produce results equal to or even better than those
achieved by such treatments in wealthy countries, where they
have been used, to cite one example, to care for U.S. military vet-
erans struggling with posttraumatic stress disorder. And in both
Congo and Pakistan, women who received psychotherapeutic
treatment showed not only substantial decreases in symptoms but
also improvements in overall health and well-being. Nor were
they the only beneficiaries: the women who received such treatments
in Pakistan were also more likely to obtain crucial vaccines for
their children.

paging bill gates

Another obstacle hindering mental health care in the developing world
is that many donors, public health specialists, and government officials
believe that mental illness cannot be addressed with the kinds of
low-cost, simple interventions that have made such a difference in
the fight against other diseases in poor countries—think of polio
vaccines and bed nets to prevent the spread of malaria, for example.
In fact, similarly safe, effective, and inexpensive treatments exist for
the most prevalent mental disorders.

Januar y/Februar y 2015 133

Thomas R. Insel, Pamela Y. Collins, and Steven E. Hyman

Medications that relieve the most disabling symptoms of depres-

sion, psychosis, anxiety, and bipolar disorder have been available
for five decades and now exist in relatively inexpensive generic for-
mulations. A 2012 World Health Organization study showed that
among 58 low- and middle-income countries, a typical course of such
psychiatric medications costs, on average, approximately four percent
of an individual’s daily income. Although such treatments must be
prescribed and managed by medical professionals, the paucity of
psychiatrists in poorer countries would not necessarily present an
obstacle to making psychiatric medications more widely available.
After all, even in the developed world, most antidepressants and
anti-anxiety medications are prescribed not by psychiatrists but by
primary-care practitioners.
But perhaps the most promising new treatments for the most
common mood and anxiety disorders have emerged thanks to tech-
nological innovation. As the Internet and mobile technology have
spread, psychological treatments are no longer limited to those who
can visit a psychotherapist’s office. More than five billion people all
over the world now have access to mobile devices that could allow
them to receive psychotherapeutic interventions ranging from text
messages that provide self-help strategies to computer games that
incentivize positive changes in behavior. A group of psychiatric
researchers in Australia recently found that a Web-based program
reduced depressive and anxiety symptoms by allowing users to
complete interactive modules on topics such as “managing fear and
anxiety” and “tackling unhelpful thinking.” And even in places
where few people have smartphones, the spread of basic cellular ser-
vice means that providers can still reach far more potential patients
by phone than ever before.

out of the shadows

Even if donors, international organizations, and governments came to
better understand the massive costs associated with mental illness and
the feasibility of treatments, genuine progress would still rely on a
number of systemic changes. First, there is a basic need for increased
awareness of the scope of the problem. In rich and poor countries
alike, mental health advocates must do a better job of explaining to
officials and the public the true costs of mental illness, encouraging
people to understand how the problem affects not only individuals and

134 f o r e i g n a f fa i r s
 Darkness Invisible

families but also entire communities and economies. “No health with-
out mental health” has become a rallying cry for reformers, but such
slogans frequently fall on deaf ears. Mental health advocates could
win more allies within the medical profession by drawing attention to
the fact that improved mental health leads to better overall health.
Second, countries at every economic level must better integrate
mental health care into their broader health-care systems. In wealthy
countries, two simple steps would help: preparing more primary-care
providers to treat mental disorders and creating incentives for mental
health specialists and general medical practitioners to share facilities
and establish partnerships, which would make it easier for people to
get psychiatric and psychological care. In poorer countries, one step
toward better integration would be to give community health workers,
who already monitor basic health needs, the ability to screen for com-
mon mental disorders, as well. For example, nurses who help patients
stick to their hiv medication regimens could incorporate mental
health screening into their routines.
Finally, the international community needs to make a formal com-
mitment to reducing the global economic burden of mental illness.
Although mental illness affects the achievement of several of the
un’s mdgs, such as empowering women, reducing child mortality,
improving maternal health, and reversing the spread of hiv, the
goals made no mention of mental health. Now, the process of drafting
successors to the mdgs, the so-called Sustainable Development
Goals, is well under way. Mental health advocates involved in the pro-
cess are pushing for the establishment of specific targets, including a
ten percent reduction in suicide by 2020 and a 20 percent increase in
treatment for severe mental disorders by the same date. These are
achievable goals, but meeting them will require political will, public
and private investment, and coordination among the health, financial,
social-service, and educational sectors.
Such steps will go a long way toward reducing the damage mental
disorders inflict on societies and economies all over the world. But for
such measures to succeed, policymakers and experts must first pull
mental illness out of the shadows and into the center of debates about
global public health.∂

Januar y/Februar y 2015 135

 Return to Table of Contents

The G-Word
The Armenian Massacre and the Politics
of Genocide
Thomas de Waal

O
ne hundred years ago this April, the Ottoman Empire began
a brutal campaign of deporting and destroying its ethnic
Armenian community, whom it accused of supporting Russia,
a World War I enemy. More than a million Armenians died. As it
commemorates the tragedy, the U.S. government, for its part, still
finds itself wriggling on the nail on which it has hung for three
decades: Should it use the term “genocide” to describe the Ottoman
Empire’s actions toward the Armenians, or should it heed the warn-
ings of its ally, Turkey, which vehemently opposes using the term
and has threatened to recall its ambassador or even deny U.S. access
to its military bases if the word is applied in this way? The first
course of action would fulfill the wishes of the one-million-strong
Armenian American community, as well as many historians, who
argue that Washington has a moral imperative to use the term. The
second would satisfy the strategists and officials who contend that
the history is complicated and advise against antagonizing Turkey,
a loyal strategic partner.
No other historical issue causes such anguish in Washington. One
former State Department official told me that in 1992, a group of top
U.S. policymakers sat in the office of Brent Scowcroft, then national
security adviser to President George H. W. Bush, and calculated that
resolutions related to the topic were consuming more hours of their
time with Congress than any other matter. Over the years, the debate
has come to center on a single word, “genocide,” a term that has acquired
such power that some refuse to utter it aloud, calling it “the G-word”
Thomas de Waal is a Senior Associate at the Carnegie Endowment for International
Peace and the author of the forthcoming Great Catastrophe: Armenians and Turks in the
Shadow of Genocide. Follow him on Twitter @TomdeWaalCEIP.

136 f o r e i g n a f fa i r s
 The G-Word

instead. For most Armenians, it seems that no other label could possibly
describe the suffering of their people. For the Turkish government,
almost any other word would be acceptable.
U.S. President Barack Obama has attempted to break this dead-
lock in statements he has made on April 24, the day when Armenians
traditionally commemorate the tragedy, by evoking the Armenian-
language phrase Meds Yeghern, or “Great Catastrophe.” In 2010, for
example, he declared, “1.5 million Armenians were massacred or
marched to their death in the final days of the Ottoman Empire. . . .
The Meds Yeghern is a devastating chapter in the history of the
Armenian people, and we must keep its memory alive in honor of
those who were murdered and so that we do not repeat the grave
mistakes of the past.”
Armenian descendants seeking recognition of their grandparents’
suffering could find everything they wanted to see there, except one
thing: the word “genocide.” That omission led a prominent lobbying
group, the Armenian National Committee of America, to denounce the
president’s dignified statement as “yet another disgraceful capitulation
to Turkey’s threats,” full of “euphemisms and evasive terminology.”
In a sense, Obama had only himself to blame for this over-the-top
rebuke. After all, during his presidential campaign, he had, like most
candidates before him, promised Armenian American voters that he
would use the word “genocide” if elected, but once in office, he had
honored the relationship with Turkey and broken his vow. His 2010
address did go further than those of his predecessors and openly
hinted that he had the G-word in mind when he stated, “My view of
that history has not changed.” But if he edged closer to the line, he
stopped short of crossing it.

history as battleground
Back in 1915, there was nothing controversial about the catastrophe
suffered by ethnic Armenians in the Ottoman Empire. The Young
Turkish government, headed by Mehmed Talat Pasha and two others,
which ruled what was left of the empire, had entered World War I the
year before on the side of Germany, fighting against its longtime foe
Russia. The leadership accused Christian Armenians—a population
of almost two million, most of whom lived in what is now eastern
Turkey—of sympathizing with Russia and thus representing a potential
fifth column. Talat ordered the deportation of almost the entire people

Januar y/Februar y 2015 137

Thomas de Waal

to the arid deserts of Syria. In the process, at least half of the men
were killed by Turkish security forces or marauding Kurdish tribesmen.
Women and children survived in greater numbers but endured appalling
depredation, abductions, and rape on the long marches.
Leading statesmen of the time regarded the deportation and
massacre of the Armenians as the worst atrocity of World War I.
One of them, former U.S. President Theodore Roosevelt, argued in
a 1918 letter to the philanthropist Cleveland Dodge that the United
States should go to war with the Ottoman Empire “because the
Armenian massacre was the greatest crime of the war, and failure to
act against Turkey is to condone it.”
Some of the best sources on the horrific events were American.
Because the United States had remained neutral during the war’s
early years, dozens of its diplomatic officials and missionaries in the
Ottoman Empire had stayed on the ground and witnessed what
happened. In May 1915, Henry Morgenthau, the U.S. ambassador
in Turkey, delivered a démarche from the Ottoman Empire’s three
main adversaries—France, Russia, and the United Kingdom—that
denounced the deportation of the Armenians. The statement condemned
the Ottoman government for “crimes against humanity,” marking the
first known official usage of that term. In July 1915, Morgenthau cabled
to Washington, “Reports from widely scattered districts indicate
systematic attempts to uproot peaceful Armenian populations.” These
actions, he wrote, involved arbitrary arrests, torture, and large-scale
deportations of Armenians, “accompanied by frequent instances of
rape, pillage, and murder, turning into massacre.”
At the other corner of the Ottoman Empire, Jesse Jackson, the U.S.
consul in Aleppo, watched as pitiful convoys of emaciated Armenians
arrived in Syria. In September 1916, Jackson sent a cable to Washington
that described the burial grounds of nearly 60,000 Armenians near
Maskanah, a town in today’s northern Syria: “As far as the eye can reach
mounds are seen containing 200 to 300 corpses buried in the ground pele
mele, women, children and old people belonging to different families.”
By the end of World War I, according to most estimates of the
time, around one million Armenians had died. Barely one-tenth of
the original population remained in its native lands in the Ottoman
Empire. The rest had mostly scattered to Armenia, France, Lebanon,
and Syria. Many, in ever-greater numbers over the years, headed to
the United States.

138 f o r e i g n a f fa i r s
 The G-Word

History boys: Armenians demonstrating against Turkey in Athens, April 2013

From the 1920s on, the events of the Great Catastrophe became
more a matter of private grief than public record. Ordinary Armenians
concentrated on building new lives for themselves. The main political
party active in the Armenian diaspora, the Armenian Revolutionary
Federation (which had briefly ruled an independent Armenia in 1918–
20, before it became a Soviet republic), expended most of its efforts
fighting the Soviet Union rather than Turkey. Only in the 1960s
did Armenians seriously revive the memory of their grandparents’
suffering as a public political issue. They drew inspiration from
“Holocaust consciousness,” the urge for collective remembrance
and action that brought together the Jewish people after the 1961
trial of Adolf Eichmann for Nazi war crimes.
The Republic of Turkey, founded by Mustafa Kemal in 1923, was a
state rooted in organized forgetting—not only of the crimes commit-
ted in the late Ottoman period against Armenians, Assyrians, and
R euters / Yannis B ehrakis

Greeks but also of the suffering of the Muslim population in a string

of wars in Anatolia and the Balkans prior to 1923. As the new Turkish
state developed, the vanishing of the Armenians became a political,
historical, and economic fait accompli. In Turkey, only one substan-
tial book addressing the issue was published between 1930 and the
mid-1970s.

Januar y/Februar y 2015 139

Thomas de Waal

When Turkish historians finally returned to the topic in the late

1970s, they did so in response to a wave of terrorist attacks on Turkish
diplomats in Western Europe, most of them carried out by Armenian
militants based in Beirut. The campaign set off a war among nation-
alist historians. A simplistic Armenian narrative told of Turkish per-
petrators, callous international bystanders, and innocent Armenian
victims, downplaying the role that radical Armenian political parties
had played in fueling the crackdown. Countering this story was an
even cruder narrative spun by some pro-Turkish scholars, several of
whom were receiving funding from the Turkish government. That
story line portrayed the Armenians as traitors and Muslims as victims
of scheming Christian great powers that sought to break up the
Ottoman Empire.
The United States served as the main arena for these assertions and
denials. In one book published in 1990, Heath Lowry, the head of the
newly established Institute of Turkish Studies in Washington, D.C.,
pursued a common line of Turkish argument: casting doubt on the
authenticity of Westerners’ eyewitness testimonies. His account, The
Story Behind “Ambassador Morgenthau’s Story,” alleged that Morgenthau
was an unreliable witness. Others argued that U.S. missionaries were
untrustworthy sources because of their anti-Muslim bias. Over
the years, efforts to discredit dozens of primary sources have grown
increasingly tortuous. The U.S.-based Turkish website Tall Armenian
Tale, for example, laboriously tries to cast doubt on every single one
of the hundreds of eyewitness testimonies of the massacre.
A more legitimate line of historical inquiry has focused on the
hitherto overlooked tribulations of Muslims in Anatolia and the
Caucasus during World War I. These accounts have pointed out that
the Armenians were not the only people to face persecution in eastern
Turkey. The Kurdish and Turkish populations, too, suffered grievously
at the hands of the Russian army, which contained several Armenian
regiments, when these forces occupied swaths of eastern Turkey not
long after the Armenian deportations. Later, in 1918–20, Muslim
Azerbaijanis were deported from the briefly independent Republic of
Armenia before it was conquered by the Bolsheviks.
The wartime context of the Armenian massacre and the multiple actors
involved—in addition to Armenians and Turks: Assyrians, Azerbaijanis,
Greeks, Kurds, British, Germans, and Russians—make it harder to tell
the story in all its nuance. The history of the Armenian genocide lacks

140 f o r e i g n a f fa i r s
DangerousWorld_Foreign Affairs_BW.qxp_Layout 1 11/7/14 2:32 PM Page 1

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 The G-Word

the devastating simplicity of the Holocaust’s narrative. But a new gen-

eration of historians has finally taken up the challenge of explaining the
full context of the tragedy. Some of them, such as Raymond Kevorkian,
are Armenian, whereas others, including Donald Bloxham and Erik-Jan
Zurcher, hail from Europe. Several come from Turkey, including Fikret
Adanir, Taner Akcam, Halil Berktay, and Fuat Dundar.
At the heart of most of these histories lies a hard kernel of truth:
although Muslims suffered enormously during World War I, in both
Anatolia and the Caucasus, the Armenian experience was of a different
order of pain. Along with the Assyrians, the Armenians were subjected
to a campaign of destruction that was more terrible for being organized
and systematic. And even though some Armenian nationalists helped
precipitate the brutal Ottoman response, every single Armenian suffered
as a result. As Bloxham has written, “Nowhere else during the First
World War was the separatist nationalism of the few answered with
the total destruction of the wider ethnic community from which the
nationalists hailed. That is the crux of the issue.”

word as weapon
If the issue of the experience of the Armenians in World War I were
merely a matter of historical interpretation, a way forward would be
clear. The huge volume of primary source material, combined with
Armenian oral histories, authenticates the veracity of what Armenians
recall—as does the plain fact that an entire people vanished from their
historical homeland. All that historians have to do, it would seem, is
fill out the context of the events and explain why the Young Turks
treated the Armenians the way they did.
But what dominates the public discourse today is the word “genocide,”
which was devised almost three decades after the Armenian deportations
to designate the destruction not just of people but also of an entire
people. The term is closely associated with the man who invented it,
the Polish-born Jewish lawyer Raphael Lemkin. Lemkin barely escaped
the horror of the Holocaust, which wiped out most of his family in
Poland after he immigrated to the United States. As he would later
explain in a television interview, “I became interested in genocide
because it happened so many times. It happened to the Armenians,
and after the Armenians, Hitler took action.”
Lemkin had a morally courageous vision: to get the concept of geno-
cide enshrined in international law. His tireless lobbying soon paid off:

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Thomas de Waal

in 1948, just four years after he invented the term, the United Nations
adopted the Genocide Convention, a treaty that made the act an inter-
national crime. But Lemkin was a more problematic personality than
the noble crusader depicted in modern accounts, such as Samantha
Power’s book A Problem From Hell. In his uncompromising pursuit of his
goal, Lemkin allowed the term “genocide” to be bent by other politi-
cal agendas. He opposed the Universal
Declaration of Human Rights, adopted a
The Armenian genocide week after the Genocide Convention,
lacks the devastating fearing that it would distract the interna-
simplicity of the Holocaust. tional community from preventing fu-
ture genocides—the goal that he thought
should surpass all others in importance.
And he won the Soviet Union’s backing for the convention after
“political groups” were excluded from the classes of people it protected.
The final definition of “genocide” adopted by the un had several
points of ambiguity, which gave countries and individuals accused of
this crime legal ammunition to resist the charge. For example, Article
2 of the convention defines “genocide” as “acts committed with intent
to destroy, in whole or in part, a national, ethnical, racial or religious
group, as such.” The meaning of the words “as such” is far from clear.
And alleged perpetrators often deny that the destruction was “committed
with intent”—an argument frequently made in Turkey.
Soon, however, only a careful few were bothering to refer to the un
convention in evoking the term. In the broader public’s mind, the
association with the Holocaust gave the word “genocide” totemic
power, making it the equivalent of absolute evil. After 1948, the legal
term that had initially been created to deter mass atrocities became an
insult traded between nations and peoples accusing each other of past
and present horrors. The United States and the Soviet Union each
freely accused the other of genocide during the Cold War.
The Armenian diaspora saw the word as a perfect fit to describe what
had happened to their parents and grandparents and began referring
to the Meds Yeghern as “the Armenian genocide.” The concept helped
activate a new political movement. The year 1965 marked both the
50th anniversary of the massacre and the moment when the Armenian
diaspora made seeking justice for the victims a political cause.
In the postwar United States, it was normal practice to put the
words “Armenian” and “genocide” together in the same sentence. This

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 The G-Word

usage came with the assumption that the un convention—one of its

first signatories was Turkey—had no retroactive force and therefore
could not provide the basis for legal action related to abuses committed
before 1948. For instance, in 1951, U.S. government lawyers submitted
an advisory opinion on the Genocide Convention to the International
Court of Justice, in The Hague, citing the Turkish massacre of the
Armenians as an instance of genocide. In April 1981, in a proclama-
tion on the Holocaust, U.S. President Ronald Reagan mentioned
“the genocide of the Armenians before it, and the genocide of the
Cambodians which followed it.”
Political circumstances changed this thinking in the 1980s. Reagan
himself performed an abrupt about-face following the 1982 assassi-
nation of Kemal Arikan, the Turkish consul general to the United
States, by two young Armenian militants in Los Angeles. The death
of a diplomat of a close nato ally in Reagan’s own home state enraged
and embarrassed the president. He and his team concluded that on
three of the foreign policy issues that concerned them the most—the
Soviet Union, Israel, and terrorism—Turkey was staunchly on the
U.S. side. Armenians, by contrast, were not.
Seven months after the killing of Arikan, the State Department’s
official bulletin published a special issue on terrorism, which included
a piece titled “Armenian Terrorism: A Profile.” A note at the end of the
article said, “Because the historical record of the 1915 events in Asia
Minor is ambiguous, the Department of State does not endorse allega-
tions that the Turkish government committed a genocide against the
Armenian people. Armenian terrorists use this allegation to justify in
part their continuing attacks on Turkish diplomats and installations.”
In response to furious Armenian complaints, the bulletin ended up
publishing not one but two clarifications of that statement. But from
that point on, a new line had been drawn by the executive branch, and
the term “Armenian genocide” was outlawed in the White House.

Deadlock on the hill

Congress, meanwhile, was plowing its own furrow. By the 1970s, one
million Armenians lived in the United States. Younger generations
were no longer willing to limit the discussions of their ancestors’ deaths
to Sunday dinners, requiem services, and low-circulation newspapers.
Many Armenian Americans who had political savvy and wealth, such
as the Massachusetts businessman Stephen Mugar, began to lobby

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Thomas de Waal

Congress. They found an ally in the Speaker of the House of Rep-

resentatives, Tip O’Neill, whose congressional district included the
de facto capital of the Armenian American community: Watertown,
Massachusetts. In early 1975, urged on by Mugar and others, O’Neill
managed to get the House to pass a resolution authorizing the
president to designate April 24 of that year as the “National Day of
Remembrance of Man’s Inhumanity to Man” and observe it by hon-
oring all victims of genocide, “especially those of Armenian ancestry
who succumbed to the genocide perpetrated in 1915.”
That occasion marked the only time Congress has passed any kind
of resolution recognizing the Armenian genocide. In 1990, the Senate
spent two days in fierce debate over whether April 24 should again be
officially designated as a national day of remembrance, this time of
the “Armenian Genocide of 1915–1923.” Kansas Senator Bob Dole led
the argument in favor of the motion, but opponents managed to block
it. Ever since, with the White House opposed to officially recognizing
the phrase “Armenian genocide,” resolutions of this kind have failed.
They have become an increasingly tired and predictable exercise:
however much historical evidence the Armenian lobbyists produce to
support their case, the Turks play the trump card of national security,
lightly threatening that a yes vote would jeopardize the United States’
continued use of the Incirlik Air Base, which is on Turkish territory, a
key supply hub for U.S. military operations in the region. In 2007,
when one genocide resolution appeared certain to pass the House, no
fewer than eight former secretaries of state intervened with a joint
letter advising Congress to drop the issue—which it ultimately did.
The fight for genocide recognition has now become the raison d’être
for the two dominant Armenian American organizations, the Armenian
Assembly of America and the Armenian National Committee of
America. They do not conceal that the campaign helps them preserve
a collective identity among the Armenian diaspora—an increasingly
assimilated group that is losing other common bonds, such as the
Armenian language and attendance at services of the Armenian
Apostolic Church. But they do not like to admit that the campaign
has also damaged their cause. For many Americans, the phrase
“Armenian genocide” now evokes not a story of terrible human
suffering but an exasperating, eye-roll-inducing tale of lobbying and
congressional bargaining. Inevitably, the need to secure votes for
any given resolution on the topic means that the memory of the

144 f o r e i g n a f fa i r s
 The G-Word

Ottoman Armenians is cheapened by being tied to other items of

congressional business. What results is routine horse-trading, as in,
“You vote for the farm bill, and I’ll back you on the genocide resolution.”
A few thoughtful Armenians object to such genocide-recognition
lobbying campaigns on the grounds that they turn the deaths of their
grandparents into one big homicide case. They see that their fellow
Armenians are less interested in grieving for the dead than in demon-
strating outside the Turkish embassy with pictures of dead bodies—
the more gruesome, the better—and struggling to prove something
that they already know to be true. The obsession with genocide,
argues the French Armenian philosopher Marc Nichanian, “forbids
mourning.”
Armenian campaigners have a point when they contend that their
pursuit of genocide recognition has had the benefit of focusing Turkey’s
mind on an issue that the country would rather have forgotten. But
their campaign has also heightened
Turkish passions, since their efforts have Turkish society has begun
indirectly strengthened the Turkish to revisit the dark pages of
nationalist story line of World War I.
That partial, but not entirely inaccu- its past.
rate, account portrays the great powers
of the time as conspirators plotting to undermine the Ottoman
Empire. Consequently, any resolution passed by a modern great
power condemning Turkey’s historical crimes would only inflame
a sore spot.
Fueling this paranoia, many Turkish policymakers have expressed
their suspicion that a genocide resolution would pave the way for ter-
ritorial concessions. These fears have little basis in reality. Although
some radical groups, such as the Armenian Revolutionary Federation,
continue to make territorial claims, the Republic of Armenia has all
but officially recognized Turkey’s current borders. Reestablishing full
diplomatic relations between the two countries, which have been on
hold since the Armenian-Azerbaijani war in the early 1990s, would
make this recognition formal. No statements made by a political party
that last ruled Armenia in 1920 can change that reality.
As for reparations, it is hard to see how Washington’s adoption of the
word “genocide” would make the case for them. Most international
legal opinions are clear that the un Genocide Convention carries no
retroactive force and therefore could not be invoked to bring claims

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Thomas de Waal

on dispossessed property. Such a scenario is all the more difficult to

imagine because it would trigger a nightmarish relitigation of the whole
of World War I, during which not only Armenians but also Azerbaijanis,
Greeks, Kurds, and Turks were robbed of their possessions in Anatolia,
the Balkans, and the Caucasus. Yet the invocation of the controversial
word still fills Turkey with dread.

A TURKISH THAW
The only good news in this bleak historical tale comes from Turkey
itself. Since the election in 2002 of the post-Kemalist government led by
the Justice and Development Party (known as the akp), in a process
largely unconnected to outside pressure, Turkish society has begun to
revisit some of the dark pages of its past, including the oppression of the
non-Turkish populations of the late Ottoman Empire. This growing
openness has allowed the descendants of forcibly Islamized Armenians to
come out of the shadows, and a few Armenian churches and schools have
reopened. Turkish historians have begun to write about the late Ottoman
period without fear of retribution. And they have finally started to chal-
lenge the old dominant narrative, which the historian Berktay has called
“the theory of the immaculate conception of the Turkish Republic.”
From the Armenian standpoint, this opening has been too slow.
But it could hardly have proceeded at a faster pace. As one of the
key figures behind the thaw, the late Istanbul-based Armenian jour-
nalist Hrant Dink, pointed out, Turkey had been a closed society for
three generations; it takes time and immense effort to change that.
“The problem Turkey faces today is neither a problem of ‘denial’ or
‘acknowledgement,’” Dink wrote in 2005. “Turkey’s main problem is
‘comprehension.’ And for the process of comprehension, Turkey seri-
ously needs an alternative study of history and for this, a democratic
environment. . . . The society is defending the truth it knows.”
In that spirit, Dink, a stalwart of the left and a confirmed anti-
imperialist, criticized genocide resolutions in foreign parliaments on
the grounds that they merely replicated previous great-power bullying
of Turkey. He saw his mission as helping Turks understand Armenians
and the trauma they have passed down over generations, while help-
ing Armenians recognize the sensitivities and legitimate interests of
the Turks. Dink’s stand broke both Turkish and Armenian taboos, and
he paid the highest price for his courage: in 2007, he was assassinated
by a young Turkish nationalist.

146 f o r e i g n a f fa i r s
 The G-Word

Dink’s insights suggest that the word “genocide” may be the correct
term but the wrong solution to the controversy. Simply put, the emotive
power of the word has overpowered Armenian-Turkish dialogue.
No one willingly admits to committing genocide. Faced with this accu-
sation, many Turks (and others in their position) believe that they
are being invited to compare their grandparents to the Nazis.
It may be that the word “genocide” has exhausted itself, and that
the success of Lemkin’s invention has also been its undoing. Lemkin
probably never anticipated that coining a new standard of awful-
ness would set off an unfortunate
global competition in which nations— The term “genocide” has
from Armenia’s neighbor Azerbaijan to
Sudan and Tibet—vie to get the label grown emotionally fraught
applied to their own tragedies. As and overly legalistic.
the philosopher Tzvetan Todorov has
observed, even though no one wants
to be a victim, the position does confer certain advantages. Groups
that gain recognition as victims of past injustices obtain “a bottom-
less line of moral credit,” he has written. “The greater the crime in
the past, the more compelling the rights in the present—which are
gained merely through membership in the wronged group.” Con-
versely, the grandchildren of the alleged perpetrators aspire to absolve
their ancestors of guilt and, by association, of a link to Adolf Hitler
and the Holocaust.
In A Problem From Hell, Power chastised the international community
for its timidity and failure to stop genocides even after this appalling
phenomenon had been named and outlawed. But the problem can be
posed the other way around: Could it be that international actors
hide behind the ambiguities of genocide terminology in order to do
nothing—and that the very power of the word “genocide” and the
responsibilities it invokes deter action? It may be no coincidence that
the first successful prosecution under the un Genocide Convention,
that of a Rwandan war criminal, came only in September 1998, nearly
50 years after the convention was adopted.
In the Armenian case, the phrase “Armenian genocide” has become
customary in the scholarly literature. Those who avoid it today risk
putting themselves in the company of skeptics who minimize the tragedy
or deny it outright. Many progressive Turkish intellectuals, too, now use
the term. Among them are such brave voices as the journalist Hasan

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Thomas de Waal

Cemal, grandson of Ahmed Cemal Pasha, one of the three Young Turkish
leaders who ran the brutal Ottoman government in 1915.
But that does not mean that Meds Yeghern is an inferior and less
expressive phrase. If it becomes more widely used, it might acquire the
same resonance as the words “Holocaust” and “Shoah” have in describing
the fate of the European Jews. There is also the legal term “crimes
against humanity,” first applied in 1915 specifically in reference to the
Armenian massacre. This concept lacks the emotional charge and the
definitional problems of the word “genocide” and covers mass atrocities
not falling under its narrow definition—those in which the perpetrators
may not have intended to eradicate an entire nation but have still
killed an awful lot of innocent people.
The challenge for the United States, then, is not simply to find a
way to once again use the term “Armenian genocide,” a phrase it has
employed before, but to do so while also accepting the limitations of
a concept that has grown emotionally fraught and overly legalistic.
The mere act of using the term, without a deeper engagement with
the history of the Armenians and the Turks, would do little to resolve
the bigger underlying question—namely, how to persuade Turkey to
honor the losses of the Ottoman Armenians and other minorities a
hundred years ago.
Having been a neutral power in 1915, the United States can assert that
it bears no historical grudge against Turkey. Washington can there-
fore help bring about the rapprochement between the Armenians and
the Turks that Dink advocated. The United States can urge Turkey
to hasten the process of historical reckoning by taking steps to keep
the small Armenian Turkish population from leaving the country, to
conserve what little Armenian cultural heritage survives in Turkey,
and to restore the place of Armenians and other ethnic minorities in
Turkey’s history books.
Armenians need to be able to finally bury their grandparents and
receive an acknowledgment from the Turkish state of the terrible fate
they suffered. These steps toward reconciliation will surely become
more possible as a more open Turkey begins to confront its past as a
whole. If that can be made to happen, everything else will follow.∂

148 f o r e i g n a f fa i r s
 reviews & Responses

Russian millennials
are more willing to
accommodate Putin’s state
than rebel against it.
– Sarah Mendelson

Generation Putin Who Lost Congo?

Sarah E. Mendelson 150 Herman J. Cohen; Charles G. Cogan;
Stephen R. Weissman 169
How to Think Like Edmund Burke
r e ut e rs / s e rg e i karpukhin

Iain Hampsher-Monk 156 Haters Gonna Hate

Christian Madsbjerg; Gregory Fried 174
Exit Music
Lawrence J. Korb; Rick Brennan 162 Nuclear Waste
James Blackwell; Barry Blechman 177
Friends Without Benefits
Robert Boggs; Nicholas Burns 165 Recent Books 180
 Return to Table of Contents

In the decade and a half afterward, I

Generation Putin observed dozens of Russian focus groups,
in Moscow, St. Petersburg, and a handful
of other cities and towns. Each time, eight
What to Expect From Russia’s to ten randomly selected participants
Future Leaders discussed critical players and moments
in their country’s development. My
Sarah E. Mendelson colleagues and I then drew on their
responses to conduct a series of nation-
ally representative public opinion surveys.
The results dimmed my initial optimism.
No Illusions: The Voices of Russia’s Future For example, most respondents thought
Leaders that Stalin had done more good than
by ELLEN MIcKIEWICZ. Oxford harm and were oblivious to the true scale
University Press, 2014, 264 pp. $29.95. of the purges that had occurred in the
1930s. Most expressed concern about the

T
wenty years ago, while working economic costs and the military casualties
for the National Democratic of the second war in Chechnya but were
Institute in Russia, I found myself untroubled by the human rights abuses
observing a focus group in the town of that took place. On the whole, the respon-
Khimki, not far from Moscow. In a drab dents felt ambivalent about democracy
apartment, my colleagues and I strained as an alternative to autocracy and often
to understand what local residents thought questioned whether Western-style
about candidates running in a by-election liberalism was the best political system
for the Russian parliament. It was a for Russia.
disorienting time, that early post-Soviet In 2005 and 2007, we probed the
period, before the wars in Chechnya, views and aspirations of young men and
the collapse of the ruble, and President women in their late teens and 20s—the
Vladimir Putin’s rise to power. But for Russian millennials. In Russian, they are
some, it held a tantalizing hope: that best described as pokolenie Putina: “the
Russia would ultimately transition to Putin generation.” My colleagues and I
democracy. I, too, felt optimistic watch- wanted to know whether the trappings of
ing the men and women in that first Putin-era prosperity—cell phones, easy
group discussion. They seemed eager access to the Internet, foreign travel—
to debate the candidates’ relative merits had inspired these people to adopt more
and clearly relished their newfound liberal values and a more international
political voice. outlook than their parents held. The
answer was no. Russian millennials wished
Sarah E. Mendelson is Director of the to see their country restored as a hyper-
Human Rights Initiative at the Center for
Strategic and International Studies. From 2010 sovereign power that would stand outside
to 2014, she served as Deputy Assistant the Euro-Atlantic community and resist
Administrator in the Bureau for Democracy, international legal norms. Most of them
Conflict, and Humanitarian Assistance at the
U.S. Agency for International Development. believed that Putin had set the country
Follow her on Twitter @SarahMendelson. on the right path. They enthusiastically

150 f o r e i g n a f fa i r s
 Generation Putin

consumed the Kremlin’s steady diet of young people to the streets in countries
Soviet nostalgia, xenophobia, homophobia, as diverse as Tunisia and Ukraine. Indeed,
and anti-Americanism. And the more they share their president’s conviction
educated they were, the more likely they that public protests do not occur sponta-
were to hold anti-American views. neously. In short, the rise of these aspiring
As part of a broad crackdown on new leaders looks likely to set back any
dissent after the eruption of antigovern- prospect of a Russian democratic awak-
ment protests in 2011, Putin has managed ening by at least a generation.
to close nearly all space in which inde-
pendent, critical voices can thrive. His Follow the leader
government has also made it harder to The group discussions that form the
conduct opinion surveys and focus core of Mickiewicz’s book took place
groups of the kind we once organized, in 12 sessions, each two hours long,
by restricting the ability of local organ­ conducted at three of Russia’s top
izations to collaborate with Western educational institutions: Moscow State
partners. The government now requires University, the Moscow State Institute
organizations that receive Western of International Relations, and the
support or funding to register as “for- National Research University Higher
eign agents,” an epithet that carries School of Economics. Many of the
connotations of espionage and disloyalty. 108 student participants, in their last or
Such restrictions make Ellen Mickiewicz’s next-to-last year of undergraduate study,
No Illusions a uniquely valuable piece of are poised to enter the top echelons of
research. Mickiewicz had good timing: the country’s public and private sectors.
she conducted a series of focus groups Tech savvy, well informed, and fluent in
with students at elite Russian universi- English, they represent a capable, if
ties in the spring of 2011. The follow- apolitical, crop of future technocrats.
ing year, Putin began his third term as The comments these young men
Russia’s president and, in July 2012, signed and women make at their roundtable
the foreign-agent legislation into law. discussions often betray the deep
Based on her exploration of the contradictions they contend with in
students’ views of their country, their their daily lives. They are disillusioned
president, the United States, democ- with the government but planning to
racy, and human rights, Mickiewicz serve it; critical of corrupt officials but
sketches a portrait of contemporary unwilling to resist them; and intensely
Russia and imagines how its future focused on the United States, a country
leaders might shape its course. She they view as both Russia’s most danger-
finds these young people to be highly ous adversary and its indispensable
skeptical of politics and extremely ally. One student, for example, faults
passive. Their interests mainly center the Russian authorities for aggravating
on completing their studies and landing social tensions but abhors the U.S.
good jobs in government agencies and government even more—in fact, she is
leading private firms. They remain convinced that the United States could
unmoved by the demands for greater launch air strikes on Russia at any mo-
freedom and dignity that brought ment. Another cheers on Russian

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Sarah E. Mendelson

anticorruption activists but still plans The book includes many such insights.
to vote for the dominant political party, But the limitations of Mickiewicz’s
whose crooked practices these activists research undermine the strength of her
expose. Yet another criticizes Russia’s conclusions. It is sometimes difficult to
“ruling top” for hoarding resources but know how much confidence to place in
holds the West morally responsible her assessments, given that Mickiewicz
for Russia’s runaway corruption and its bases them on little more than 24 hours’
citizens’ lack of trust in one another— worth of conversations with preselected
problems that he thinks stem from groups. She repeatedly defends her
Western assistance in reforming the approach, arguing that the discussions
Russian economy after the collapse of offer a glimpse into how Russia’s future
the Soviet Union. Although these young leaders will view the world. And yet,
people are patriotic and eager to change although focus groups yield valuable
the system from the inside, they are more evidence, it is impossible to know whether
willing to accommodate the government the views expressed are representative
than rebel against it. of the entire cohort of young, educated
Mickiewicz is best known for ground- Russians across the country. Only large
breaking research she has conducted on random-sample surveys could have
the influence that Russian media wield accomplished that. Mickiewicz claims
over the country’s politics, and she pays that surveys would have yielded “vastly
particular attention to the role that mass less information” than her focus groups.
media play in the lives of her subjects. This is an odd proposition, especially
Her book provides its most compelling because it suggests that Mickiewicz
insights when it dives deep into young believes she had to choose between the
Russians’ engagement with the Internet. two methods rather than letting them
Similar to elite millennials everywhere, complement each other.
these men and women live online and
draw most of their information from hands-off experience
news websites and social networking Mickiewicz’s approach might be imperfect,
platforms. Although they watch state- but it nevertheless provides a rare glimpse
controlled Channel One Russia on into how some young Russians think at a
television, they recognize it as Kremlin critical moment in Russia’s history. One of
propaganda—important to consider but, her most salient findings concerns their
in the words of one student, “not worth views on political activism and protest
trusting.” This skepticism extends to the movements. Today, young people around
government’s presence on the Internet. the world—in Brazil, Indonesia, Mexico,
When then President Dmitry Medvedev South Africa, and, most recently,
started a blog in 2008, he impressed Ukraine—have grown adept at using
observers in the United States and technology to pressure their governments
Europe but failed to win the students’ for greater transparency and accountability.
attention. The future leaders ridicule The combination of the Internet and
his blog as nothing more than a public affordable technologies has spawned
relations stunt; one of them even organic citizen movements dedicated to
describes it as “generally idiotic.” combating corruption and abuses of power.

152 f o r e i g n a f fa i r s
 Generation Putin

Putin spice latte: the Russian president’s likeness in Moscow, February 2012

But many of the future leaders pro- deepens their suspicions. The students
filed in No Illusions show little enthusi- call the United States a “competitor,” an
asm for such activism. They dismiss it “aggressor,” and, in Mickiewicz’s summary
by echoing a familiar Kremlin charge: of their words, a “puppet-master every-
antigovernment protests and demon- where in the world.”
strations reflect the hidden hand of The focus groups took place just
the United States. They simply do not seven months before Russian citizens
believe that such protests could erupt themselves poured into the streets in
without foreign sponsorship. Washing- huge numbers to protest massive election
ton, the Russian students point out, has fraud. The growing public discontent
supported and funded many of the civil was met with a government backlash,
society groups that have taken part in including a drastic curtailment of the
pro-democracy uprisings in a few post- freedoms of assembly, speech, and associa-
communist countries over the past 15 tion. Although Mickiewicz apparently
R e ut e rs / s e rg e i karpuk h i n

years. To the students, such movements did not follow up with any of her subjects
thus appear to be externally designed, to gauge their responses to those events,
to be illegitimate, and to represent a it is probably safe to assume that most
major threat to their country’s security. of them felt at best ambivalent about
The fact that the United States has also the protest movement—and that few, if
funded several civil society organiza- any, joined the anti-Putin demonstrators
tions in Russia, such as the independent in their rallies. None of the roundtable
election-monitoring group Golos, only discussions she describes suggests much

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Sarah E. Mendelson

passion for political activism. Rather, at the breakdown of order and the
as Mickiewicz explains, the students scale of the violence. But they show
accept that “change, if it comes, will little awareness of the role that Putin’s
come from the inside.” pro-Russian, nationalist rhetoric and
In general, the students do seem brutal tactics in the North Caucasus
attuned to the ferment underneath have played in enabling the rise of the
Russia’s surface in the spring of 2011, ultra-right. Moreover, although the
and many foresee the major clashes that students oppose the neo-Nazis, they
it will soon spark. But this recognition generally share their hostility toward
does not translate into active political ethnic minorities from the North
engagement. For example, several months Caucasus. “I will not trust, most of all,
before the student roundtables took people of Caucasian ethnic groups,”
place, environmental groups and anti- one participant admits, articulating a
Putin activists launched peaceful demon- commonly held view.
strations against the government’s plan
to build a highway through a beloved fresh faces, same agenda
forest in Khimki that forms part of the In a sense, Mickiewicz has produced
greenbelt around Moscow. The rallies a collective biography of the class of
met with violent resistance. One jour- people who are likely to inherit the
nalist researching corruption linked system constructed by Putin, and who
to the project was severely beaten by might one day find themselves at odds
unidentified assailants and eventually with the reform-minded activists who
died as a result of his injuries. Another unsuccessfully challenged that system
barely survived a similar attack. In a in recent years. These activists now
stunning move, the government later seem either thoroughly outgunned or
bowed to the activists’ demands and reduced to a spent force, especially in
suspended the project—a response that the wake of the post-protest crackdown
made the event an anomaly in contem- and the explosion of pro-Kremlin senti-
porary Russian politics. Yet during their ment brought on by Russia’s occupation
discussions, the students demonstrate of Crimea and support for pro-Russian
surprisingly little interest in the issue; rebels in eastern Ukraine. Today’s liberals
only six of the 108 mention it at all, appear unable to collaborate effectively
and even then, they mostly discuss it or coordinate their actions. They have
in an unemotional, detached way. Only been joined by a few interesting new
one young woman appears to be aware characters, such as the charismatic but
of the personal sacrifices the protesters xenophobic anticorruption activist
made for their cause. Alexei Navalny. But the basic building
The students express greater concern blocks of a coherent platform for civic
over another story that captured headlines action continue to elude many protest-
in late 2010: riots that exploded steps ers, as they clash with one another or
from the Kremlin and were organized form impractical ideological alliances.
by far-right, nationalist, and neo-Nazi On the other hand, the very same
groups. Transcripts of the roundtable risk aversion, self-centeredness, and
discussions register the students’ dismay detachment from politics that lead

154 f o r e i g n a f fa i r s
 Generation Putin

many of Mickiewicz’s elite subjects to among them will run up against the
support the status quo might someday unscrupulous, inefficient, and inert
work to the advantage of the activists. nature of the government they will
Although members of the anti-Kremlin join. At best, they could become
opposition have failed to put much of capable technocrats—skilled and
a dent in Putin’s machine, they have broadly sympathetic to the inevitable
learned a great deal about politics and waves of discontent that will rock
developed precisely the kinds of leader- Russia in the future, but unable, and
ship skills that seem to be lacking among often unwilling, to upend the ruling
the more conventional elites that formed establishment. It will take a major
Mickiewicz’s groups. systemic shock to break this deadlock—
One Russian millennial, in particular, a shock more powerful than either
provides an intriguing counterexample Russia’s current opposition or its aspiring
to the young people profiled in No Illusions: leaders might be able to generate. Until
Nadezhda Tolokonnikova, better known then, Russia’s future rulers can only hope
as a member of the protest punk band that their elite education has prepared
Pussy Riot, who studied at Moscow them for the country that Putin, one day,
State University at the same time as the will leave behind.∂
students in Mickiewicz’s focus groups.
Tolokonnikova was months away from
completing her philosophy degree when
she created the band in 2011. In February
2012, she took part in the band’s famous
protest inside the Cathedral of Christ
the Savior, which led to her arrest (along
with two other performers). She served
21 months in jail for her activism but
has since resumed her campaign for
democracy and human rights with
renewed dedication. Tolokonnikova is
hardly representative of her generation,
but her story hints at the possibility of
another future for Russia, one in which
nonconformism, tolerance, and individu-
alism become virtues rather than crimes.
The prospects for this future, how-
ever, appear remote, given that Russia’s
new leadership will surely be composed
of many of the young men and women
No Illusions profiles. In fact, their rise
to power seems likely to perpetuate the
status quo. These new leaders might be
patriotic and eager to right their country’s
course, but even the most reform-minded

Januar y/Februar y 2015 155

 Return to Table of Contents

what it will please them to do, before

How to Think Like we risque congratulations, which may
be soon turned into complaints.
Edmund Burke In a sense, the debate between Burke
and his antagonists—between conserva-
tism and radicalism, broadly defined—has
Debating the Philosopher’s shaped political debate in the Western
Complex Legacy world ever since, and Burke himself has
become known as “the father of modern
Iain Hampsher-Monk conservatism.”
David Bromwich is not fond of that
phrase. “No serious historian today
would repeat the commonplace that
The Intellectual Life of Edmund Burke: Burke was the father of modern conser-
From the Sublime and Beautiful to vatism,” writes the esteemed scholar of
American Independence. literature in his magnificent, beautifully
by david bromwich. Belknap written new study of the first half of
Press, 2014, 500 pp. $39.95. Burke’s career, which is the most notable
addition to a recent crop of books about

E
dmund Burke, the eighteenth- Burke. The trouble is not only that the
century British politician and line between Burke and modern conser-
writer, is today best known for vatism is hardly straight but also that
Reflections on the Revolution in France, Burke’s legacy is far too complex to be
published in 1790. In it, Burke denounced captured by any such phrase. Part of the
the revolutionaries in France and their problem, as Bromwich makes clear, are
supporters in Great Britain for what the tensions (and even paradoxes) within
he considered their misplaced faith in Burke’s own thinking and writing. His
principles such as “abstract liberty” condemnation of the French Revolution
and “the rights of men” and for their was preceded by his sympathy for the
rejection of more pragmatic, procedural American one that took place two decades
paths to ending the tyranny of heredi- earlier. This gave ammunition to his
tary monarchy. As Burke put it: radical foes, such as the critic William
Hazlitt, who later wrote that by rejecting
Property with peace and order; with the French Revolution, Burke “abandoned
civil and social manners . . . are good
things too; and, without them, liberty
not only all his practical conclusions, but
is not a benefit whilst it lasts, and is all the principles on which they were
not likely to continue long. The effect founded. He proscribed all his former
of liberty is to [let] individuals . . . sentiments, denounced all his former
do what they please: we ought to see friends, [and] rejected and reviled all
the maxims to which he had formerly
iain hampsher-monk is Professor of appealed as incontestable.”
Political Theory at the University of Exeter and Burke’s champions were (and still
the author of A History of Modern Political
Thought: Major Political Thinkers From Hobbes are) quick to defend him against such
to Marx. charges of inconsistency and hypocrisy,

156 f o r e i g n a f fa i r s
Iain Hampsher-Monk

and with some justification. And yet it is Undaunted, Bromwich sets out to
impossible to ignore the fact that Burke’s demonstrate “the originality and conti-
writings have inspired a remarkably wide nuities” of Burke’s thought. The result
range of ideologies and political programs. is an intellectual biography of the best
Nineteenth-century liberals praised Burke kind. Bromwich seeks to convey “what
for reconciling the principles of constitu- it meant to think like Edmund Burke”
tionalism with a kind of utilitarian prag- and to demonstrate the coherence and
matism. Twentieth-century Cold Warriors relevance of Burke’s moral and political
appropriated Burke for their own ends, vision. With a remarkable level of detail
casting their communist foes as modern- and sensitivity, Bromwich makes a virtue
day incarnations of the radical French out of what others lament as problem-
Jacobins whom Burke excoriated. Eco- atic: the relationship between Burke’s
nomic liberals have painted Burke as a political activity and his written works.
champion of the virtues of the free market; Bromwich is convinced that people
at the same time, others have used his today can still learn from Burke, not as
writings to argue for more state inter- political partisans but as “thoughtful
vention in the economy in the interests readers.” In Bromwich’s hands, Burke
of social cohesion. offers better lessons about how to think
Readers without such agendas often than about what to think.
have trouble drawing clear political lessons
from Burke because his writing took the no mere improviser
form of polemic commentary rather than The British have their own version of
systematic political theory. Burke himself Burke’s sobriquet, referring to him as
frequently disparaged “abstract theory,” and “the father of English conservatism.”
his insights—although often brilliant— This is also an uneasy fit, though, since
can seem aphoristic, even ad hoc. Com- Burke was actually an Irishman. Born
plicating matters further, Burke was more in Dublin in 1729 to a family with a
concerned with moral psychology and Catholic background, he was raised as
aesthetics than with politics during the an Anglican only because his father, a
early stages of his career. A Philosophical lawyer, had converted to escape the
Enquiry Into the Origin of Our Ideas of the restrictions on Catholics practicing law.
Sublime and Beautiful, which Burke wrote After graduating from Trinity College
in 1757, is a systematic treatise, a contrast Dublin, the young Burke made his way to
to his later, looser writing about politics. England, intending to follow his father’s
As Hazlitt noted in a backhanded compli- footsteps into a legal career. He soon
ment, “Mr. Burke’s literary talents were, abandoned that goal to pursue writing
after all, his chief excellence.” full time. His work attracted the atten-
And so anyone hoping to understand tion of members of England’s literary
Burke is confronted with an array of and artistic elite, including the writer
historians and philosophers of aesthetics, Samuel Johnson and the painter Joshua
politics, and political theory; social conser- Reynolds. Eventually, Burke’s rising
vatives and free-market liberals; and profile brought him into contact with the
even closet radicals—all claiming that political elite as well, and he ultimately
they hold the key to the “real” Burke. became private secretary to Lord

158 f o r e i g n a f fa i r s
 How to Think Like Edmund Burke

Rockingham, who served as prime coercive, approach to the American

minister in the mid-1760s. Around the colonies; and argued for parliamentary
same time, Burke launched his own control of royal finances.
political career and soon became nation- Bromwich gives Burke’s views on
ally prominent as a member of Parliament. such matters their due, but he is inter-
Two of the areas he represented, Wendo- ested in something deeper. He rejects
ver and Malton, were “pocket boroughs,” the view of Burke as “an anti-theoretical
with tiny electorates and controlled by critic of modern politics, a ‘pragmatic’
local landowners. But a third, Bristol, adapter to local needs.” According to
was the kind of big metropolitan district Bromwich, Burke was no mere improviser
where modern electoral politics was but rather “cherished certain abstract
emerging, and its populist dynamism ideas unconditionally.” To unearth those
and trading economy had an important ideas and to recover Burke’s thought
impact on Burke’s political writing. processes, Bromwich performs sincere,
In Parliament, Burke joined Rocking- disciplined readings of Burke’s work,
ham’s faction, known as the Rockingham albeit ones that bear the imprint of a
Whigs. The Whigs were an association scholar of English literature who is
of aristocratic politicians who identified more likely to notice an allusion to
themselves with the principles of the Shakespeare than one to Machiavelli.
Glorious Revolution of 1688—a parlia- Above all, Bromwich contextualizes
mentary (and Protestant) coup that had Burke, explaining the terms in which
replaced King James II, whom the plotters Burke understood and responded to
suspected of aspiring to a continental (and the political situations he faced and
Catholic) type of monarchical absolutism, revealing how those responses formed
with the co-regents William III and a coherent view of politics.
Mary II. Although the Whigs were
inspired by their predecessors’ suspicion putting burke to work
of royal power, their political instincts Of course, rescuing Burke from charges
were paternalist, not populist. of partisanship and theoretical flimsiness
Within this group, Burke acted as a has its own dangers. Constructing a
developer of policy, a fixer, and especially coherent theory from disparate tracts
as a spokesman; indeed, in an age of on controversial issues of the day risks
formidable orators, many considered distorting his views. Anyone seeking to
him the country’s greatest. Much of his understand Burke’s legacy faces a basic
fame rested on speeches he delivered question: To recover the historical Burke,
dealing with basic questions of parlia- must one sacrifice a politically usable
mentary government, a form that was view of him?
still just emerging. He defended the Bromwich’s book suggests that the
concept of a political “party,” which was answer to that question is no, and it
at the time a suspect term; insisted that offers a revealing portrait of Burke’s
members of Parliament act as represen- mind. If there is one underlying prin-
tatives of their constituents, rather than ciple that Bromwich seizes on, it is
as mere delegates; pushed for the British Burke’s oft-repeated claim that “the
crown to take a consensual, rather than principles of true politics are those of

Januar y/Februar y 2015 159

Iain Hampsher-Monk

morality enlarged.” This does not mean of the French Revolution, especially the
that Burke was interested in simply idea of individual human rights and the
reconciling moral principles and political need to institutionalize them, that it
practices. For Burke, knowledge of human requires a huge effort to conceive of a
nature (and culturally acquired “second” worldview that did not include them.
natures) set limits on what people could Burke did not seek to make state institu-
reasonably demand of themselves and tions conform to precise moral ideals,
others. Political theorists and politicians much less to achieve the abstract goal of
should not try to close the gap between democracy. Instead, he pushed for what
lofty moral goals and the mundane, people today might call “good gover-
grubby reality of everyday politics but nance.” At its most basic, this means
rather work within that very space, considering whether policies are suitable
recognizing it as the realm of the possible. to the customs and nature of the people
As Burke remarked in 1782, “The touch- to whom they apply and considering
stone of all theories which regard man the likely effect of any particular policy
and the affairs of men [is,] Does it suit his before establishing it. To prevent abuse,
nature in general? Does it suit his nature Burkean good governance requires
as modified by habit?” Radical revolution- constraining political power, even—
aries, he complained, “are so taken up with perhaps especially—the influence of
their theories about the rights of man, that majorities. And it requires regularity,
they have totally forgotten his nature.” consistency, and predictability when it
Despite Burke’s own insistence that comes to interpreting and enforcing laws.
he mistrusted abstract ideas, Bromwich This vision of government is difficult
draws attention to Burke’s understanding to turn into anything resembling a rule;
of their power and the way they operate— it might sound like mere common sense.
especially ideas Burke considered wrong But for Burke, such objectives—and not
or misunderstood. For example, Burke more abstract quests, such as maximizing
was less interested in whether such a equality, liberty, or wealth—represented
thing as a “natural right” existed than the important stuff of politics. Burke’s
in understanding why someone would goals cannot be achieved through the
believe in such an idea and what would mere application of logic; instead, they
follow from that belief. In this sense, require the use of political persuasion
“ideology” was one of Burke’s major and the exercise of that rare skill, judg-
concerns, even though that term was ment. This is what Bromwich means by
not coined until a few years after he thinking like Burke: understanding how
died. Burke perceived that any theory leaders arrive at the right decisions in
that loses touch with people’s natures particular cases and how they ensure that
risks perverting them, just as any theory decision-making in the future will also
that simply accepts people as they are be guided by good judgment.
is helpless to improve their condition.
Bromwich also explores Burke’s what we talk about when we
thoughts about the responsible uses of talk about burke
power. Today, democratic discourse and Burke’s political thought resists the
values rely so heavily on the principles modern assumption that a thinker can

160 f o r e i g n a f fa i r s
 How to Think Like Edmund Burke

achieve consistency only by subscribing are enabled to unite into a consistent

to a single organizing principle or set of whole the various anomalies and con-
values. The lack of such a principle in tending principles that are found in
Burke’s thought partially explains why it the minds and affairs of men.”
has proved so hard to accurately trans- Burke’s fundamental objection to revo-
pose Burke onto contemporary politics. lutions inspired by rationalistic ideals was
But Bromwich has managed to illumi- their arrogance. As he wrote in Reflections,
nate a different kind of consistency in “We are afraid to put men to live and
Burke’s thought. trade each on his own private stock of
Consider the seeming contradiction in reason; because we suspect that this stock
Burke’s implicit defense of the rebellious in each man is small, and that the indi-
colonists in the American colonies and viduals would do better to avail them-
his explicit opposition to the revolu- selves of the general bank and capital of
tionaries in France. During the 1770s, nations, and of ages.” In Burke’s view,
Burke opposed British policies in the knowledge is held not individually but
Colonies (such as the imposition of collectively—in institutions, in customs,
taxes on the American settlers) and at and even in shared prejudices. Maintain-
home (such as the use of royal finances ing a population’s allegiance to and trust
to buy influence in Parliament) that he in such institutions is a more important
thought undermined the constitutional goal than promoting efficiency or ration­
and institutional structures that safe- ality. Almost any theory, even those
guarded liberty. Two decades later, he espoused by self-proclaimed conserva-
argued that the principle of liberty as tives, can be held in an absolutistic way
espoused by the French Revolution such that it poses a threat to institutional
lacked an institutional framework that and political stability. That is perhaps
could restrain the revolutionaries them- the most crucial lesson Burke has to offer
selves, who showed little concern for modern politics.∂
the quality of representation, failed to
foster links to established communities,
and created no “upper” legislative cham-
ber to ensure continuity and stability
in governance.
In both cases, Burke sought to create
or defend institutional structures that
could protect liberty (in the American
case) and also constrain it (in the French
one). For Burke, liberty was not a para-
mount principle; nor, he warned, should
it be imposed without regard to existing
institutions and practices. Praising the
British style of government, and contrast-
ing it with the approach of the French
revolutionaries, he claimed, “We com-
pensate, we reconcile, we balance. We

Januar y/Februar y 2015 161

 Return to Table of Contents

the prospect of an extended U.S.

Exit Music military presence.
Brennan argues that a lasting Ameri-
can presence would have bolstered Iraq’s
Did Obama Bungle the Iraq fledgling security forces. As evidence,
Withdrawal? he cites a 2010 internal review by U.S.
military planners that concluded that
if U.S. troops withdrew completely
by 2011, Iraq’s security forces would
Blame Game be unable to defend the country. But
Brennan ignores public statements
Lawrence J. Korb made by David Petraeus and Raymond
Odierno, two of the last U.S. military
commanders in Iraq. In 2008, Petraeus

I
n describing what he characterizes as told Congress that the performance of
a bungled U.S. exit from Iraq, Rick many Iraqi units was “solid.” Odierno,
Brennan (“Withdrawal Symptoms,” in media appearances in June 2009, went
November/December 2014) presents an even further, claiming that Iraq’s mili-
incomplete picture. For one thing, he tary was ready to stand on its own. And
overestimates the desire among Iraq’s in 2013, Petraeus wrote in Foreign Policy
leaders for U.S. forces to stay in the that Iraqi forces had capably taken charge
country past 2011, the date by which of the country’s security by the time
Iraq and the United States agreed that U.S. troops left in 2011.
the U.S. military presence would end. In reality, the Iraqi army, like Iraq
When U.S. troops withdrew from Iraq’s itself, unraveled not because of a lack of
major population centers in 2009, U.S. training or support but because of
Iraqi Prime Minister Nouri al-Maliki Maliki’s intransigence and methodical
announced triumphantly that his coun- pursuit of sectarian interests. As Bren-
try had finally “repelled the invaders.” nan acknowledges, Maliki gutted the
It’s true that Maliki sent mixed signals Iraqi army’s officer corps, systematically
at times and that he might have exag- replacing competent Sunni officers he
gerated his opposition to the presence mistrusted with incompetent Shiite
of U.S. forces for the benefit of domestic ones he considered loyal. Maliki took a
audiences. But the Iraqi parliament similar approach with the civil service,
consistently opposed Washington’s further marginalizing the country’s
insistence that it grant legal immunity Sunni majority and Kurdish population.
from Iraqi law to U.S. troops who stayed Despite Brennan’s claims, there is
past 2011. Members of parliament knew no evidence that a residual U.S. military
their refusal to do so would doom any presence would have reined in Maliki’s
agreement on allowing U.S. troops to sectarianism. As Brennan himself admits,
remain longer. Their public stance on Maliki “failed to take any serious actions
this issue, and not Maliki’s alleged flex­ leading toward genuine Shiite-Sunni
ibility in private, is the single best gauge reconciliation.” For example, even during
of the Iraqi elite’s attitude toward the temporary “surge” of U.S. forces

162 f o r e i g n a f fa i r s
beginning in 2007, when the United
States had more than 100,000 troops on
the ground in Iraq, and despite apply-
ing heavy pressure, U.S. officials failed
to persuade maliki to act on an arrest
warrant for Lieutenant General mahdi
al-Gharawi, a maliki ally who had been
charged with running secret prisons
and torturing detainees. Instead, maliki
promoted Gharawi, placing him in charge
of Nineveh Province, where the strategi-
cally crucial city of mosul is located. In
June 2014, Gharawi abandoned his post CFR Seeking 2015–2016
when the Islamic State of Iraq and
al-Sham, or isis, attacked the city. Edward R. Murrow
When I met with maliki in 2011, I Press Fellowship
asked him if there was anything more
that U.S. President Barack Obama could Applicants
have done to make it possible for a residual
U.S. force to stay in Iraq. He answered Launched in 1949, the Edward R. Murrow
Press Fellowship seeks to promote the quality
no. If anyone jeopardized Iraq’s future, of responsible and discerning journalism that
it was maliki. exemplified the work of Edward R. Murrow.
One CFR resident fellowship is awarded each
lawrence j. korb is a Senior Fellow at the year to a distinguished foreign correspondent
Center for American Progress. From 1981 to 1985, or editor. The program enables the fellow
he served as U.S. Assistant Secretary of Defense. to engage in sustained analysis and writing,
expand his or her intellectual and professional
horizons, and extensively participate in CFR’s
active program of meetings and events.
Interested candidates who meet the program’s
Brennan Replies eligibility requirements can apply online at
www.cfr.org/fellowships between January 1

L
and March 1, 2014.
awrence Korb is correct that
Nouri al-maliki’s policies aggra- Recent Edward R. Murrow Press Fellows
vated sectarian divisions in Iraq (affiliation at time of award):

and contributed to the poor performance Barbara Demick, Bureau Chief in Beijing,
of the Iraqi military. But on a number of Los Angeles Times (2014–2015)
other points, he is wrong. Fred Kaplan, National Security Columnist,
Slate
First, Korb suggests that public Pir Zubair Shah, Reporter, New York Times
statements by two U.S. generals, David
Petraeus and Raymond Odierno, under- Council on Foreign Relations
mine my argument. But Petraeus and Fellowship Affairs
Odierno never asserted that the Iraqi 58 East 68th Street, New York, NY 10065
tel 212.434.9740 fax 212.434.9870
military was capable of defending the fellowships@cfr.org
country on its own. In April 2008, www.cfr.org/fellowships
Petraeus did tell Congress that the

163
Brennan and His Critic

performance of many Iraqi military units Kurdish parliamentarians were willing to

was “solid.” But in the same testimony, take the political risk of publicly backing
he also stated that Iraqi forces were “not legal immunity for U.S. troops who
yet ready to defend Iraq or maintain stayed past 2011. The outcome might
security throughout the country on their have been different had the Obama
own.” In June 2009, Odierno told cnn administration either started the nego-
that Iraqi forces were ready to take tiations earlier or been more willing to
responsibility for conducting indepen- compromise.
dent operations in major metropolitan Third, Korb claims that a continued
areas, but he did not say that they could U.S. military presence would not have
operate entirely without U.S. assistance. curbed Maliki’s sectarianism. It’s true that
And in his 2013 essay for Foreign Policy, Maliki often ignored Washington’s wishes
Petraeus noted only that Baghdad had even when U.S. troops were present, but
“achieved slow but steady progress in the United States frequently moderated
building the capabilities of the Iraqi Maliki’s most extreme sectarian tenden-
Security Forces” during the surge and cies. For example, Maliki refrained from
that the Iraqi military had gradually issuing an arrest warrant for a key polit-
assumed responsibility for the country’s ical rival, Iraqi Vice President Tariq
security by 2011—not that Iraqi forces al-Hashimi, until the day after U.S.
were prepared to succeed without military forces departed the country.
U.S. support. Korb is right on one important count:
Moreover, from 2009 to 2011, the U.S. Maliki holds a great deal of responsibil-
military continued to help Iraqi forces ity for jeopardizing Iraq’s future. But the
with training, logistics, maintenance, Obama administration is also at fault—
intelligence, and air support. Although for failing to develop a coherent strategy
U.S. military officials publicly applauded to protect U.S. interests in Iraq and the
the capabilities of Iraqi troops, U.S. region by safeguarding the hard-fought
forces were always there to ensure that gains made during the eight years that
they didn’t fail. This “enabling support,” U.S. forces spent in Iraq.∂
as U.S. officials called it, was available
every day, at every level of command,
in every Iraqi province, until the
American withdrawal.
Second, Korb argues that the Iraqi
parliament did not want a residual U.S.
military presence in Iraq. This is an
oversimplification. In October 2011,
every member of parliament, with the
exception of 40 members of a hard-line
Shiite Islamist party, voted in favor of
a continued U.S. troop presence—a
position overwhelmingly supported by
the Iraqi military. Due to domestic
political considerations, however, only

164 f o r e i g n a f fa i r s
 SponSored report
[www.gmipost.com] SINGAPORE

A Unique and Steady Partnership

By Ambassador Chan Heng Chee

O
n August 9, 2015, Singapore celebrates its fiftieth birthday. This date marks an important achievement
for Singapore, given its abrupt expulsion from the Federation of Malaysia. Today, Singapore is a city-
state and nation-state, the only one of its kind in the world.
In 1965, many analysts would shores for rest and recreation. of Aden. na, Malaysia, and the European
not have bet that Singapore That began Singapore’s unique But U.S.-Singapore partner- Union.
could be viable in a tumultuous and close partnership with the ship goes beyond security; the U.S. foreign direct invest-
region, much less enjoy eco- United States. countries cooperate on trade as ment (FDI) in Singapore in 2012
nomic success and stability or For more than five decades, well. was $85.2 billion, and Singapore
maintain regional peace and Singapore has been the most U.S.-Singapore total trade in is the third largest source of FDI
security. consistent and articulate sup- 2013 was $62.15 billion. It may from Asia to the United States,
The U.S.-Singapore relation- porter of a U.S. presence in the surprise many that Singapore is following Japan and Australia,
ship flourished after Singapore’s region, during Democratic and Asia’s sixth largest trading part- which total $26.2 billion.
independence; previously, the Republican administrations ner of the United States after The United States and Sin-
island was a British colony that alike. When the Philippines China, Japan, South Korea, India, gapore value an open-trading
evolved within the British or- asked the United States to leave and Taiwan. In 2013, the United system that allows flows of cap-
bit. But World War II ended the Subic Bay Naval Base and Clark States was Singapore’s fourth ital and goods and services and
British Empire, and in 1968 the Air Base, Singapore offered fa- largest trading partner after Chi- CONTINUED ON FOLLOWING PAGE
cilities to American forces.
In 1990, Singapore and
the United States signed a
memorandum of understand-
ing granting the U.S. Navy and
Air Force access to Singapore’s
military facilities. This agree-
ment underpinned the con-
cept “places not bases,” which
has been replicated elsewhere
and has facilitated the U.S. mili-
tary presence in the region. In
1991, Singapore joined the in-
ternational coalition for Opera-
tion Desert Storm, and Ameri-
can ships and aircrafts were
Ambassador-at-Large Chan Heng
refuelled and resupplied at its
Chee of Singapore
port and airport.
Labor Government announced In 2001, Singapore sup-
its intention to withdraw British ported Operation Enduring
forces east of the Suez Canal. Freedom in Afghanistan as well
This shift created new se- as Operation Iraqi Freedom in
curity and economic calcula- 2003. Defense and intelligence
tions for Singapore. Even be- cooperation became deeper
fore Singapore separated from and broader, and in 2005 Sin-
Malaysia, then Prime Minister gapore concluded a Strategic
Lee Kuan Yew considered the Framework Agreement (SFA) for
United States the only country a Closer Cooperation Partner-
that could counter the spread ship in Defense and Security
of communism globally and in to capture all the activities that
Asia. had developed and expanded.
Singapore shared a stra- Under the SFA, Singapore
tegic convergence with the welcomes the rotational de-
United States; Prime Minister ployment of up to four U.S. Lit-
Lee spoke clearly in support of toral combat ships. Elsewhere,
American intervention in Viet- Singapore has consistently
nam. In 1966, Singapore wel- worked closely with the U.S.
comed troops in Vietnam to its Navy to fight piracy in the Gulf
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A unique and steady partnership

SINGAPORE

embraces norms of transparen- over 85 percent, making Singa- push for the Trans Pacific Part- States remains the first choice
cy and accountability as essen- pore, despite its small size, the nership (TPP) to bring the trade for education, cost aside. An
tial to global prosperity, peace, United States’ thirteenth largest deal to a conclusion. This will en- estimated five thousand Sin-
and development. market. able the United States to build gaporean students study in the
The U.S.-Singapore Free More than two thousand meaningful multilevel and mul- United States, and several alli-
Trade Agreement (USS- American companies base their tifaceted trade and investment ances and collaboration arrange-
FTA) signed in 2003 was the their Asia headquarters in Singa- relationships with Asian econo- ments have been forged be-
first of its kind in Asia. Trade was pore, and approximately fifteen mies. tween universities to foster the
already healthy between the thousand Americans live work Singaporean officials, stu- transfer of knowledge, method-
two countries prior to the agree- and study in Singapore. dents, professionals, artists, ology, and learning cultures.
ment, but ten years after the Singapore, the United States, and entrepreneurs have been The Yale-NUS College, the
agreement, U.S. export of goods and ten other negotiating part- attracted to the quality Ameri- Duke-NUS Graduate Medical
to Singapore has increased by ners are waiting for the final can universities. The United School, the Peabody collabo-
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Asian roots, global reach

SINGAPORE
ration with the Yong Siew Toh search excellence and is among
Conservatory of Music, and the the world’s leaders in several
Singapore University of Tech- fields, including quantum tech-
nology and Design established nologies, cancer, and mecha-
in collaboration with the Massa- nobiology based in NUS’ three
chusetts Institute of Technology Research Centres of Excellence
are a few examples. (RCEs), as well as engineering,
But even more than the computing, materials science
quantifiable aspects of state and Asia-related research. It is
interactions, the unique U.S.- also a partner in a fourth RCE
Singapore relationship is en- that draws on the university’s
capsulated in the countries’ po- strengths in life sciences and sus-
litical and strategic discussions; tainability research.
U.S. officials express admiration Much of the research at NUS
and respect for senior states- is integrative and multi-disci-
man, Lee Kuan Yew, who devel- plinary in nature, with particular
oped friendships with American emphasis on themes such as in-
presidents and strategic thinkers. tegrated sustainability solutions
These strategic exchanges for energy, water and the envi-
continued with former Prime This year, the National Uni- a leading university hub for ronment; ageing populations;
Minister Goh Chok Tong and versity of Singapore (NUS) cel- entrepreneurship and start-ups biomedical sciences and trans-
now with Prime Minister Lee ebrates the 110th year of its in Asia. We are keen to enhance lational medicine; global-Asian
Hsien Loong. founding together with Singa- our students’ learning experience studies; finance and risk man-
The countries’ ties developed pore’s 50th year of indepen- through global entrepreneurial agement; and materials science.
in defense, economic coop- dence. The university’s history is opportunities, which in turn will The university is strongly
eration, business, and educa- intertwined with Singapore’s dra- further increase the vibrancy committed to transforming the
tion create strong bonds that matic development as a nation, of our academic community. translational impact of NUS re-
maintain a stable and resilient and is marked by a rich tradition Our strong push in applying and search to improve lives, with
relationship. While the countries’ of leadership and contribution to commercializing our research many research partnerships with
views may differ on certain is- country and society. discoveries and invention, is also industry and governmental enti-
sues, U.S.-Singapore relations Founded in 1905 as a mod- positioning NUS as a magnet ties.
have been historically strong. est medical school, NUS is today for promising start-ups and Further afield, NUS is the first
In the next couple of decades, widely known for its innovative academic entrepreneurs, drawing foreign university to establish
the global strategic climate will and rigorous education that has investors, venture capitalists and a research institute in Suzhou,
change as new security chal- nurtured generations of leaders business partners to our campus.” China. Leading companies who
lenges evolve. The contempo- and luminaries across industries, NUS has deep and long- have established research labs
rary international system is not professions and sectors in Singa- standing partnerships with lead- and partnerships at the univer-
the world of peace dividends pore and beyond. ing U.S. universities in key edu- sity include Siemens, GE, Zeiss,
we envisaged at the end of the Consistently ranked as one of cational programs. These include and Agilent
Cold War. Security challenges the top two universities in Asia the Duke-NUS Graduate Medi- NUS’ vision and strategic
— terrorism, financial crises, ris- and top 25 in the world, NUS is a cal School Singapore with Duke positioning as a leading global
ing nationalism in Asia, mari- research powerhouse with a live- University, the Yong Siew Toh university centered in Asia, is
time issues, pandemics, climate ly and cosmopolitan community Conservatory of Music with the reflected by the university’s role
change, and the environment of inquiring minds spread across Peabody Institute of the Johns as a key node in multiple global
— have required cooperation to three campuses, 16 schools and Hopkins University, and Yale- knowledge networks includ-
address global disorder. 24 university-level research insti- NUS College with Yale Univer- ing the World Economic Forum,
The United States and Singa- tutes and centres. sity. the International Alliance of Re-
pore can work together bilater- The university pioneered a search Universities, the Associa-
ally and through the Association Education and new form of residential colleges tion of Pacific Rim Universities,
of Southeast Asian Nations to entrepreneurship at the NUS University Town Universitas 21, and the ASEAN
navigate these issues to enhance The university’s education is (UTown), which has been suc- University Network.
regional stability and prosperity. distinguished by being global and cessful in creating diverse, vi- “NUS is well-poised to tackle
Singapore will continue to main- Asian. Its comprehensive cur- brant and collaborative learning the challenges of the rapidly
tain a balanced view of what it riculum and over 70 joint, con- communities. changing and complex future.
believes is in the region’s best current and double degree pro- UTown is also home to the We will continue to innovate
interest. grams with leading universities Campus for Research, Technol- and strengthen our educa-
Once the TPP concludes, around the world offer students ogy and Enterprise (CREATE), an tion and research, and develop
more steps can be taken to pro- multiple pathways. initiative of Singapore’s National and grow new strategic local
mote economic and technologi- Seven out of ten undergradu- Research Foundation. CREATE and global partnerships. Going
cal cooperation. Over the next ate students at NUS can go supports interdisciplinary re- forward, we will be placing an
fifty years, technological ad- on study abroad opportunities search groups from renowned even greater focus on preparing
vances will create new horizons with 300 top universities in 40 universities that include the Mas- future-ready graduates, trans-
for global economics, trade, pol- countries, or pursue internships sachusetts Institute of Technol- forming the translational im-
itics, and security. in high-tech start-ups through ogy, ETH Zurich, University of pact of our research and making
its six NUS Overseas Colleges, California at Berkeley, Shanghai NUS the most vibrant university
Chan Heng Chee is Ambassador-at-Large which provide a truly unique en- Jiao Tong University and Univer- enterprise ecosystem in Asia.
and Chairman of the Lee Kuan Yew Center trepreneurial educational experi- sity of Cambridge. These will enable our university
for Innovative Cities, Singapore University ence. to create even more distinctive
of Technology and Design. She was Sin-
gapore’s ambassador to the United States
NUS President Prof. Tan Strength in research and high-impact value for Sin-
from 1996 to 2012. Chorh Chuan said: “NUS is NUS has broad-based re- gapore and the world,” Tan said.
 [Global Media Inc. / www.gmipost.com] Sponsored Report

Singapore enters a new golden age

SINGAPORE

economy. Singapore continues

to offer many attractive oppor-
tunities for business both in the
republic itself and as a very ef-
fective gateway to the region.
Our roots in Singapore are as
deep as our commitment both
to the country and to the busi-
nesses which sustain it,” Mills also
said.
Singapore’s education sector
has also raised the qualifications
of its graduates by facilitating
partnerships between local insti-
tutions and foreign universities,
a development that also further
internationalized the city-state’s
future workforce.
Ahead of celebrations to mark building a reputation as a lead- This made Singapore into the So, it is no surprise that many
fifty years of independence later ing center of business services, economically vibrant and live- global businesses look to Singa-
this year, the city-state looks education, and green technol- able international hub that it is pore’s talent pool for their em-
back on how successfully and ogy, and information technology, today. So far, this has helped us ployees.
quickly this former British co- thanks to a growing community deal with our land and resource “Research has to be both in-
lonial post progressed into one of entrepreneurs and venture constraints. Even as Singapore terdisciplinary and international
of the world’s most dynamic fi- capitalists. transformed, so has the world today, as many fundamental is-
nancial centers and most stable “We have come a long way around us, which has created sues the world is facing require
economies. since independence in 1965. We new challenges and opportuni- solutions that come from differ-
Beyond its dominance in fi- first focused on education, tech- ties,” said Foreign Affairs Minister ent perspectives and specialties,”
nance and trade, Singapore is nology, trade, and the rule of law. K. Shanmugam. said Professor Bertil Andersson,
Amid the robust economic President of Nanyang Techno-
growth in the country, Singapore logical University (NTU Singa-
UCT finds perfect base for Asian operations hopes to play a dominant role in pore).
the region as the ten-member “NTU itself is a microcosm of
Ultra Clean Technology, an apply them for the benefits of Association of Southeast Asian the world with students, profes-
award-winning contract manu- the world most demanding cus- Nations moves towards eco- sors and staff representing 100
facturing solutions provider from tomers. nomic integration. nationalities. We collaborate not
California, established its Asian Amid rising demand for the “As a founding member of just across disciplines but with
headquarters in Singapore more latest state-of-the-art manu- ASEAN, Singapore places great other top academic, industry and
than five years ago to follow the facturing technologies, UCT re- importance on the grouping. We research partners,” he added.
lead of long-time customers in cently opened its Additive Man- believe it is important to main- NTU has more than 400
the semiconductor industry. ufacturing Center in Singapore. tain ASEAN’s centrality in the international partnerships. For
“The Singapore operation is The center, the largest and most evolving regional architecture, example, it has a joint medical
very significant to our comprehensive site which should be open, inclusive school set up with Imperial Col-
company as a whole. in South East Asia, is and outward-looking so that lege London and its premium
It is our Asia head- geared to providing ASEAN can serve as a neutral Renaissance Engineering Pro-
quarters and drives 3D printing technolo- platform for major powers to gram offers students a choice
all of our activities in gies and products to engage one another and the re- to spend a year at University of
the region, aside from customers around gion,” Shanmugam also said. California, Berkeley or Imperial
being a key manu- the world. Reflecting the significance of College London, with internships
facturing site for the “Singapore is Singapore on the global econo- at Silicon Valley or in Europe.
company,” explained leading the pack in my, business organizations in the Through partnerships with
UCT Senior Vice research and devel- country are among the oldest in industry giants such as Lock-
President for Asia opment of Additive the Asia and boast an impres- heed Martin, BMW and Rolls-
Lavi Lev. UCT Senior Vice Presi- Manufacturing tech-
sive roster of members, which Royce, the university translates
dent for Asia Lavi Lev
“We greatly ben- nologies. By estab- include the world’s largest com- its research into benefits for the
efit from the stable and effi- lishing our center here, UCT ex- panies. world.
cient business environment in pands its offering to its custom- “The Singapore International By interacting with people
the country, the highly skilled ers and deepen its relationship Chamber of Commerce (SICC) of different backgrounds and
workforce available to us, and with the local R&D centers and was established in 1837 and is cultures on campus and over-
the government’s keen inter- Universities” said Lev. the longest serving chamber of seas, NTU students, faculty and
est in taking the country to the UCT is encouraging com- commerce in the region. It repre- researchers benefit immensely
next level of manufacturing,” he panies in the United States to sents some of the world’s largest from being exposed to different
added. consider Singapore as business international corporations and approaches and world views.
Lev believes UCT gained its location because the city-state leading companies in Singapore,” A young, research-intensive
competitive advantage because has built a global reputation for recalled SICC Executive Director university on a rapid global rise,
of its ability to excel in qual- its central location, efficiency, Victor Mills. NTU Singapore has 33,000 un-
ity manufacturing of high value stability, high quality manufac- “Consistent engagement with dergraduate and postgraduate
products. These products require turing, and uncompromising policy and decision makers gives students in Medicine, Engineer-
the ability to anticipate the de- business practices. our members a competitive ad- ing, Business, Science, and Hu-
mand for new technologies and www.uct.com vantage in today’s ever evolving manities, Arts, & Social Sciences.
 Return to Table of Contents

coordination in the Asia-Pacific region,”

Friends Without he neglects to mention that India appears
uninterested in cooperating on this front.
Benefits The United States has included India in
multilateral strategic discussions on the
Asia-Pacific region, such as the Quadri-
Is the U.S.-Indian lateral Security Dialogue, with Australia
Relationship Built to Last? and Japan, which sought to respond to
increased Chinese power, but India has
not made such meetings a priority. New
Delhi has also been conspicuously absent
On the Rocks from the two combined naval task forces
the United States assembled to combat
Robert Boggs terrorism and piracy in the Indian Ocean.
And despite providing development
assistance to Afghanistan, India has

I
n his critique of U.S. President Barack refused to participate in the Interna-
Obama’s India policy, Nicholas Burns tional Security Assistance Force, nato’s
(“Passage to India,” September/ security mission in Afghanistan.
October 2014) correctly identifies the When India does participate in
issues that have bedeviled U.S.-Indian multilateral organizations, it routinely
relations, such as differences over interna- opposes initiatives proposed by the
tional agreements on climate change and United States and other Western powers.
trade. But he overestimates both India’s India’s opposition to interfering in other
desire to improve the relationship and countries’ domestic affairs has led New
the benefits doing so would bring. Delhi to vote against human rights
Like many advocates of stronger U.S.- resolutions in the un General Assembly
Indian ties, Burns fails to recognize that and to openly criticize un involvement in
two countries with the same system of such crises as the civil wars in Libya and
government do not necessarily develop Syria. New Delhi has also opposed the
similar interests or policies. In the case West on many economic issues, working
of India, the burdens of colonialism and with the other so-called brics nations—
economic underdevelopment have led Brazil, Russia, China, and South Africa—
it to oppose much of the U.S. agenda. to create alternatives to the World Bank,
Like China, India continues to view the International Monetary Fund, and
the United States as a presumptuous other Bretton Woods institutions.
superpower and competitor. And if India Still, Burns holds out hope that Obama
realizes its goal of becoming an economic and Indian Prime Minister Narendra
powerhouse with global influence, New Modi will “work together to promote
Delhi’s rivalry with Washington, particu- stability in India’s South Asian neighbor-
larly in South Asia, will likely intensify. hood.” If India’s actions are anything
Although Burns writes that “the to go on, however, it appears that the
United States and India should continue country prefers to work alone to maintain
to strengthen their defense and political its regional dominance—and it views

Januar y/Februar y 2015 165

Burns and His Critic

the United States as a threat. As a U.S. that would not endear him to the United
diplomat serving in South Asia from States. His endorsement of his party’s
1985 to 2004, I watched Indian officials vision of Akhand Bharat, or “undivided
repeatedly pressure neighboring countries India,” which sees most of South Asia as
not to cooperate with Washington, often belonging to India, does not bode well
because New Delhi believed, erroneously, for a more accommodative regional
that such cooperation would raise the foreign policy.
U.S. military’s profile in South Asia. In Of course, India is firmly within its
early 2014, India protested U.S. calls for rights to define its own interests and
fair and inclusive elections in Bangladesh chart its own strategies. But U.S.-Indian
because it feared that voters would not relations—and U.S. strategic interests—
elect a pro-India party. To gain lever- would be best served by a realistic
age over its neighbors, India has had appraisal of Indian values and goals,
its foreign intelligence agency provide which Burns fails to provide. Contrary
financial support to antigovernment insur- to Burns’ assertions, India is unlikely to
gencies in Bangladesh, Nepal, and Sri become a “critical partner” to the United
Lanka. Two of the insurgent groups India States anytime soon. New Delhi will
has backed—Maoist militants in Nepal strengthen its ties with Washington only
and Tamil separatists in Sri Lanka—have if doing so serves its interests; Washing-
killed thousands of civilians and been ton should do the same.
designated as terrorists by the U.S.
government. robert boggs is Professor of South Asia
Studies at the Near East South Asia Center for
Burns suggests that an increasingly Strategic Studies, in Washington, D.C., and
powerful China may spur a stronger previously worked for the U.S. State Depart-
ment for 32 years. The views expressed here
U.S.-Indian nexus in Asia. But even are his own.
though border clashes with China have
aggravated security concerns in New
Delhi, Modi openly admires China’s
development model and may prefer to
engage China diplomatically and eco-
nomically rather than try to contain it. Burns Replies
And many Indian analysts do not believe

I
that the United States would come to ndia has not always been an easy or
India’s defense if a U.S.-Indian military even compatible friend to the United
partnership provoked Chinese aggression. States. I suspect Robert Boggs and
Modi still remains a mystery to U.S. I agree on that fundamental point. We
policymakers. He appears to want the both served in U.S. administrations
United States to help revitalize India’s that tried to elevate bilateral ties with
economy, but it is unclear if he wants New Delhi. The difference between us
the longer-term political and defense may be traced, in part, to the fortune
partnership that the United States seeks of timing. During the 1980s and 1990s,
in South Asia. A staunch Hindu nation- U.S. presidents and secretaries of state
alist, Modi likely wants to continue India’s struggled to find common ground with
quest for regional dominance, a move a succession of Indian prime ministers.

166 f o r e i g n a f fa i r s
 I was fortunate, however, to work
with India on behalf of the U.S. govern-
ment at a very different time—during
President George W. Bush’s second term
in office. Bush and Secretary of State
Condoleezza Rice made building stronger directory
relations with India a major priority. We
negotiated a landmark civil nuclear Subscriber Services
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and oversaw a major expansion of trade tel: 800.829.5539
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tries. Bush and Rice produced the closest Academic Resources
relationship between Washington and www.foreignaffairs.com/classroom
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tel: 800.716.0002
Boggs’ response is an acknowledgment
of that undeniable progress. Submit an Article
Boggs also errs in describing my www.foreignaffairs.com/submit
article as a “critique” of the Obama
administration’s India policy. In fact, Bulk and Institutional Subscriptions
e-mail: jchung@cfr.org
my main argument was that India
should be a higher priority in the Advertise in Foreign Affairs
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I try to be realistic about what can international editions
and cannot be accomplished with New
Delhi. For decades, India has been a Foreign Affairs Latinoamérica
www.fal.itam.mx
difficult and often dyspeptic partner for e-mail: fal@itam.mx
the United States at the un on major
multilateral issues. Even during the Rossia v Globalnoi Politike
past few years, India has shown little (Russian)
vision or courage in working with the www.globalaffairs.ru
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United States on global trade, climate
change, or critical security threats, Foreign Affairs Report (Japanese)
from Iran’s drive for nuclear weapons www.foreignaffairsj.co.jp
to nato’s intervention in Libya. e-mail: general@foreignaffairsj.co.jp
But I don’t agree with Boggs when
he concludes that the current Indian
leadership sees the United States as a
“competitor” and that there is little

167

Burns and His Critic

real strategic value in the U.S.-Indian Boggs appears to see India as an

relationship. In fact, there have been unreliable partner. Washington will
many positive changes in relations surely continue to have its share of
during the Bush and Obama adminis- disagreements with New Delhi. But I
trations. Washington and New Delhi see a glass half full, given all that has
have both supported the Afghan gov- changed for the better under Presi-
ernment against the Taliban, and India dents Barack Obama and George W.
values the U.S. military role in Afghan- Bush in Washington’s growing, some-
istan so much that its real worry is times frustrating, but undeniably
that the United States will leave too strengthening strategic partnership
soon. As victims of Islamist terrorism, with India.∂
the two countries have become close
partners on homeland security. Their
defense ties continue to broaden and
deepen. And both share a concern about
China’s newly aggressive behavior in
the East China and South China seas.
These shared concerns with India have
produced concrete benefits for the
United States.
In many ways, China is at the
center of the new strategic cooperation
between the United States and India.
Both Washington and New Delhi will
partner with China on trade, investment,
and climate change. But the United
States and India will also compete with
China for military power in the region.
As a result, the United States and India
will continue to build closer security
ties, often in partnership with Japan,
due to a basic, common self-interest:
balancing China’s increasing power
in Asia.
I agree with Boggs that the new
Indian prime minister, Narendra
Modi, should articulate more clearly
his aims for the U.S.-Indian relation-
ship. But Boggs is on thin ice when he
suggests that Modi will pursue a
Hindu nationalist vision of an “undi-
vided India” encompassing most of the
countries of the region. There is scant
evidence for that very serious charge.

168 f o r e i g n a f fa i r s
 Return to Table of Contents

enable the Congolese to eventually take

Who Lost Congo? over. This was a naive assumption. The
Congolese military’s rank and file muti­
nied against their Belgian officers from
The Consequences of day one. The Belgian business commu­
Covert Action nity tried to preserve their investments in
the copper-rich Katanga Province and the
diamond-rich Kasai Province by financing
and arming local secessionist groups.
From Colony to Chaos Prime Minister Patrice Lumumba was as
responsible as anyone else for the chaos,
Herman J. Cohen given his fierce anti-Belgian rhetoric. As
a result of his sympathies, Soviet diplo­

S
tephen Weissman should be con­ mats started spreading money around
gratulated for his excellent research in support of Lumumba, pushing U.S.
on the cia’s involvement in Congo’s President Dwight Eisenhower to the brink
internal politics immediately after inde­ of sending in nato forces. Lumumba also
pendence (“What Really Happened in caused the Belgian business community
Congo,” July/August 2014). Nevertheless, to hire mercenaries to help the secession­
his attribution of blame for all of Congo’s ist ambitions. By August 1960, the
initial instability and the subsequent country was a total mess.
corrupt dictatorship of President Joseph What stabilized Congo during its first
Mobutu to the cia is wildly off the mark. five years was the successful un peacekeep­
Congo’s problems were a direct out­ ing mission initiated by the Eisenhower
come of Belgium’s botched transition of administration. Contractors from the un
Congo to independence in 1960. Unlike and the World Bank kept the public works
the British and the French, who started and other services going while the basics
preparing their African colonies for of Congolese politics were being sorted
independence in the early 1950s, the out. The cia’s support for Mobutu’s taking
Belgians initially planned to delay inde­ power in 1965 was truly the least bad
pendence for Congo until the 1980s, at option, given Belgium’s failure to train
the earliest. The revenue from the colony’s any Congolese cadres.
rich copper and diamond resources was The first ten years of Mobutu’s rule,
too great to contemplate losing. But in from 1965 to 1975, were actually positive.
1958, Belgium’s internal politics turned Working through the U.S. ambassador
leftward and anticolonialist, and the and the cia station chief, U.S. experts
government was forced to move Congo provided sound advice to the Congolese
toward independence with only two short government, especially when it came to
years to prepare. The result was disastrous. economic and financial management.
The Belgians decided that they could They persuaded Mobutu to accept an
transition Congo to self-rule after inde­ International Monetary Fund stabilization
pendence by maintaining their expatriate program that reduced inflation and filled
administrative control, including within store shelves with consumer goods. The
the security forces, for enough years to cia helped Mobutu co-opt the seces­

Januar y/Februar y 2015 169

Weissman and His Critics

sionists in Katanga and Kasai. When I

In Defense of Devlin
was U.S. chargé d’affaires in Congo in
1968–69, my team advised Mobutu on Charles G. Cogan
how to nationalize the copper mines in
the proper and legal fashion, a move that

I
made him popular. This good decade n his article on U.S. covert action
came to an end in 1975, when the world in Congo during the 1960s, Stephen
price of copper fell by 50 percent and Weissman asserts that “Lawrence
Mobutu found his Treasury deeply in Devlin, the cia station chief in Congo
debt and unable to pay. At that point, for most of the period, had direct influ-
corruption and mismanagement took ence over the events that led to [Patrice]
over. But political stability continued Lumumba’s death.” Having served as
until Rwandan and Ugandan invaders deputy chief of station in Congo from
overthrew Mobutu in 1997. May 1963 to July 1965, the period
Weissman’s characterization of between Devlin’s two tours as station
Mobutu’s rule as something aberrant chief, and having examined the archival
during Africa’s first three decades of record in detail, I can say with confi-
independence is not accurate. Mobutu dence that Weissman mischaracterizes
was mainstream Africa. Every indepen- Devlin’s role in the death of Lumumba.
dent African government was a one-party As the Congo crisis unfolded in the
state at the time. None allowed opposi- summer of 1960, with 1,000 Soviets
tion. Every one of them had rent-seeking having been flown into the country, by
political leaders. The only thing that set Devlin’s calculation, the U.S. government
Mobutu apart was how ostentatious his concluded that Lumumba was impossible
theft was. Governments in Côte d’Ivoire, to deal with. On August 18, 1960, the
Tanzania, and Zambia, to cite just a few National Security Council held a meeting
examples of moderate regimes that the at which President Dwight Eisenhower
U.S. government admired, routinely may have indicated that Lumumba should
diverted public revenues to private pockets be eliminated. Robert Johnson, the nsc
through their ruling political parties. That note taker at the meeting, later told the
theft was stealthy, but the net result was Church Committee, “President Eisen-
the same. And when oil production took hower said something—I can no longer
off in Angola, Gabon, and Nigeria in the remember his words—that came across
1970s, the theft in those countries made to me as an order for the assassination of
Mobutu look like an amateur. Lumumba.” On the basis of that meeting,
Although the cia was very active in Allen Dulles, the director of the cia,
Congo during that country’s first five considered that he had a mandate for
years of independence, the agency’s actual Lumumba’s assassination, and he took
impact on events there was peripheral. action accordingly.
The unhappy decolonization process was In September 1960, cia headquarters
the driving negative force. sent agents to Léopoldville to put in
motion a plan to assassinate Lumumba.
Herman J. Cohen is a former U.S. Ambassa-
dor who served as Assistant Secretary of State The main idea was to gain access to
for Africa from 1989 to 1993. Lumumba’s bungalow and place poison

170 f o r e i g n a f fa i r s
 Who Lost Congo?

there, preferably in his toothpaste. But According to Weissman, “Devlin

the highly impractical operation never gave no indication that he had voiced
materialized. Devlin, who opposed it, any opposition to the plan” to move
intentionally dragged his feet and even­ Lumumba and thus gave “a green light
tually dumped the poison into the to the transfer.” He also writes that
Congo River—even though, in a cable “Devlin’s permissive stance was undoubt­
that same month, he had said he fa­ edly a major factor in the government’s
vored “arrest or other more permanent decision to move Lumumba.”
disposal of Lumumba.” But that characterization vastly
In December, however, events were overstates Devlin’s power to stop the
set in motion that led to Lumumba’s transfer even if he had wanted to. True,
death. After his arrest by Colonel Joseph it does not appear that the U.S. gov­
Mobutu’s forces, Lumumba and two of ernment made much more than pro
his aides were taken from Léopoldville forma appeals that Lumumba not be
to the Thysville military camp down harmed. But it is doubtful that Devlin
the Congo River. Mobutu’s government could have had any influence over his
initiated informal negotiations for the fate. Devlin was much more a spectator
transfer of Lumumba to Katanga with than a participant in these events; the
Moise Tshombe, the province’s gover­ Congolese were running the show.
nor, in early January 1961. On January Although Devlin had twice saved Mobu­
12, Devlin warned the Congolese gov­ tu’s life during the turbulent summer of
ernment that the Thysville garrison 1960 by informing him of plots, Mobutu
was likely to mutiny in support of was an extraordinarily arrogant and
Lumumba, and on January 14, Devlin arbitrary figure. He later turned against
learned that Lumumba was to be trans­ Devlin, wrongly suspecting the station
ferred out of Thysville. Devlin took chief of preparing a coup against him.
no action after January 14 but wrote a
lengthy dispatch on the subject in Charles G. Cogan is an Associate at the
Belfer Center for Science and International
early February. Affairs at the Harvard Kennedy School, where
On January 17, after being flown to he authored the case study ”Containing the
Chaos: The US-UN Intervention in the Congo,
the Elisabethville airport, in Katanga, 1960–1965.”
Lumumba and his two aides were taken
away and were never seen again. The
most commonly accepted version is that
Lumumba was put to death later that
night in the presence of Godefroid Weissman Replies
Munongo, Tshombe’s close lieutenant.

A
A un report written later that year lthough the critiques by Herman
named the probable actual killer as “Col. Cohen and Charles Cogan
Huyghe, a Belgian mercenary.” As for supply useful contextual infor­
Devlin’s role, the Church Committee’s mation, I am disappointed that they
conclusion still stands: “It does not appear virtually ignore my evidence that cia
from the evidence that the United States covert action in the 1960s in Congo
was in any way involved in the killing.” helped shape and perpetuate unrepre­

Januar y/Februar y 2015 171

Weissman and His Critics

sentative, incompetent, and corrupt Congo. But it is telling that the main
regimes in that country. accomplishments he cites are Mobutu’s
To begin with, Cohen uses too broad acquiescence to the U.S. government’s
a brush to portray my view. He complains recommendations to accept an Interna-
about my “attribution of blame for all tional Monetary Fund stabilization
of Congo’s initial instability and the program and nationalize copper mines
subsequent corrupt dictatorship of in “the proper and legal fashion.” When
President Joseph Mobutu to the cia.” it came to Mobutu implementing his
What I actually wrote was that “the own ideas, many of which were aimed
agency’s legacy of clients and tech- at shoring up his political support,
niques contributed to a long-running flashy initiatives devolved into abject
spiral of decline, which was character- failures. Thus, he created a single politi-
ized by corruption, political turmoil, cal party to sustain his legitimacy, but
and dependence on Western military it soon deteriorated into a hollow shell.
intervention,” and that “the United He misspent some of the newfound
States must bear some responsibility revenue from the nationalized mines
for what Mobutu wrought.” on white-elephant projects and illicitly
In contrast, Cohen argues that the key diverted other funds. His ill-conceived
factors behind the country’s crises were policy of transferring foreign-owned
“Belgium’s botched transition of Congo agricultural and commercial businesses
to independence,” Patrice Lumumba’s to members of the political elite became
anti-Belgian rhetoric, Soviet opportun- a monumental fiasco that paralyzed the
ism, the 1975 collapse of copper prices, economy and decimated his transient
and the region’s propensity for single- popularity.
party regimes and “rent-seeking political Cohen is correct that the Mobutu
leaders”—in short, everything but the regime’s authoritarianism and corruption
massive and effective cia political and reflected broad political currents in
paramilitary interventions of 1960–68 and Africa. The era’s dominant political
their effect on subsequent U.S. policy. model was “neopatrimonialism,” a power-
Cohen even downplays the impact of ful form of political patronage that
the cia’s support for Mobutu’s 1965 coup, verged on corruption and personalized
characterizing it as a kind of obligatory rule. Yet Cohen fails to recognize that
reaction to poor decolonization. It was, Congo constituted a particular and
he says, “the least bad option, given extreme variant of the pattern. As I
Belgium’s failure to train any Congolese wrote, “Ever since the cia’s intervention,
cadres.” In reality, it was a calculated Congo’s leaders have been distinguished
effort by U.S. officials to end preelection by a unique combination of qualities:
feuding among leading cia clients, which scant political legitimacy, little capacity
threatened to provide an opening for for governing, and corruption so exten-
leftist forces. sive that it devours institutions and
Cohen emphasizes the “positive” norms.” Cohen’s view that the regimes
results of the first decade of Mobutu’s in Côte d’Ivoire, Tanzania, and Zambia
rule, a period that roughly coincided were essentially similar might appear
with Cohen’s own diplomatic focus on to get the cia off the hook, but it is not

172 f o r e i g n a f fa i r s
 Who Lost Congo?

accurate. Unlike Congo, these three Security, April 2010), I found that there
countries were headed by figures who was no independent evidence that Devlin
had led the anticolonial struggle and had stalled the plot. To the contrary, he
thereby retained some political legiti- proposed and explored eight possible
macy. Moreover, neopatrimonialism was options within three weeks, all of which
relatively subdued in Côte d’Ivoire and were turned down by his boss. He subse-
Tanzania, with the former maintaining quently asked headquarters to dispatch a
a reputation for effective governance third-country national to do the job
and the latter preserving some legal and to send him by diplomatic pouch a
norms. And none of the countries had high-powered foreign-made rifle with
such widely rampant corruption as Congo, a telescopic sight and a silencer. And
where Mobutu told his bureaucrats after Lumumba escaped from un custody,
publicly, “If you want to steal, steal a Devlin queried headquarters about
little cleverly, in a nice way.” dispatching one of his operatives to go
Cogan, for his part, rejects my after Lumumba to take “direct action.”
conclusion that Lawrence Devlin’s These events occurred more than
permissive stance was a major factor five decades ago but have only gradually
in the Congolese decision to transfer come into full light. If the United States
Lumumba to the Belgian-supported wants to improve its foreign policy, it
secessionists who murdered him. Yet needs to acknowledge and reflect on
Cogan makes no effort at all to grapple the historical record—especially where
with the considerable evidence I offer it suggests that Washington made poor
for my opposite finding. He does not choices.∂
address Devlin’s intimate working rela-
tionship with those who decided on the
transfer. That group received essential
financial support and political advice
from Devlin, habitually consulted him
on matters affecting Lumumba’s security,
and almost always heeded his counsel.
Nor does Cogan make any mention of
Devlin’s withholding of advance warning
of the transfer from Washington, which
Devlin most likely did to foreclose the
possibility that the State Department
would discourage the move on the eve of
President John F. Kennedy’s inauguration.
Cogan also backs the claim Devlin
makes in his memoir that he intentionally
dragged his feet in opposition to an earlier
order to plan Lumumba’s assassination.
In an article based on research into
declassified cia documents (“An Extraor-
dinary Rendition,” Intelligence and National

Januar y/Februar y 2015 173

 SPONSORED SECTION

Brazil, The Right Address Of Innovation In Oil And Gas

The challenges resulting from the pre-salt layer attract investments
of companies in research, development, and innovation in the country,
including the implementation of global research centers
By Alexandre Gaspari

T
he discovery of pre-salt layers and Development Bank (Banco Nacional de Desenvolvi- facility to develop asphalt binders and new paving
huge oil and natural gas reservoirs in mento Econômico e Social or BNDES), with techni- solutions, the British company BG Group will open
deep water offshore Brazil has drawn cal support from Petrobras, which aims to promote a global research center in the first quarter of 2015.
attention to the country. The new exploratory R&D, engineering and technological transfer proj- BG Group’s interest in RD&I in Brazil is not
frontier brought challenges, not only for Petro- ects, the production and marketing of products, new. The company, which will commemorate
bas, a company that drilled wells nearly seven innovative processes and services for the develop- twenty years of operations in the country in 2014,
thousand meters below the sea bed, but for oil ment of national suppliers for the production chain is a partner of Petrobras in two blocks of the so
and gas service providers globally. The pre-salt of the oil and natural gas industry. called “pre-salt cluster” in the Santos Basin BM-
layer, which is two thousand meters thick, and “Currently, Inova Petro is in the analysis phase S-9, where the Sapinhoá and Lapa Fields were
the reservoir’s high temperature and pressure, of business plans of its second bidding round. In discovered, and BM-S-11, where the Lula, Iara
require innovative solutions to assure production the first phase of this new process, 28 compa- and Iracema Fields were first found. BG is also a
and development. nies submitted 39 projects, representing a total member of the consortium that has a concession
A number of initiatives are planned to attract of R$ 688 million of investment. For the second for the BM-S-50 block, also in Santos, where the
investments for oil and gas research, develop- phase, 20 projects from 17 companies have been Sagitário prospect was discovered. In ANP’s elev-
ment, and innovation (RD&I) in Brazil. Petrobras, approved, representing a total of R$471 million. enth bid, BG acquired ten exploratory blocks in
which routinely invests in technological innova- The results on the approval of business plans the Barreirinhas Basin, in northeastern Brazil, in
tion, increased its resources and partnerships in are scheduled to be published by the end of De- a partnership with other oil companies, in 2013.
this segment by attracting equipment and service cember. In the first Inova Petro bidding notice, “In Brazil, we have found a favorable business
providers to develop research on new materials companies requested a total support of R$2.7 environment to make large investments and to
and processes in cooperation with a number of billion in the first phase; 11 business plans were carry out long-term projects. BG’s interests in
the country’s universities. selected, amounting to R$355 million in invest- Brazil in the Research and Development area are
Thematic networks—groups dedicated to spe- ments,” explained Priscila Braquinho, head of the fine-tuned to those of the Brazilian government.
cific technological strategies—are among Petro- oil and gas department and of the oil and gas Our goal is to establish a strong technological
bas’ mechanisms to boost RD&I. According to a production chain of BNDES. industrial base in all our production chain. The
Petrobas press release, 49 companies are currently Since the discovery of pre-salt areas in Brazil, company has a genuine interest in seeing Bra-
working toward this goal. Petrobras is currently several Brazilian and foreign companies have zil producing high level research. In RD&I alone,
collaborating with 122 Brazilian universities and invested in the implementation of laboratories BG Brazil will invest close to US$ 1.5 billion in
research institutions, as well as 32 science and and research centers there. These facilities are the country until 2025,” confirmed Nelson Silva,
technology institutions in 15 different countries. intended to become world references in RD&I. chief executive officer of the BG Group for Brazil.
Petrobras’ portfolio of partnerships spans The Parque Tecnológico do Rio de Janeiro (Rio So far, the British company has already in-
several levels of maturity, which, according to a de Janeiro Technological Complex), created ten vested more than $8 billion in the country. And
company press release, “vary from initiatives in- years ago on the campus of the Universidade its portfolio of oil and gas exploration and pro-
volving confidentiality agreements with the pur- Federal do Rio de Janeiro (Federal University of duction will make Brazil BG’s main business cen-
pose of exchanging information to partnerships Rio de Janeiro, or UFRJ) in Ilha do Fundão, is a ter globally. BG already ranks second—behind
consolidated in a structured portfolio of projects, successful example of private investment in R&D. Petrobas—in oil production in the country.
connected to the main poles of technological ex- Several companies have already invested in re- For this reason, Silva emphasizes the impor-
cellence of the worldwide oil and gas industry. search centers there, mainly in the oil and gas tance of investments in technological innovation
This includes national and foreign companies, sector, and investments are expanding. Schlum- in the country. “There are several strategic ad-
major suppliers of equipment and services, as berger, Baker Hughes, Halliburton, FMC, Tena- vantages in developing research and develop-
well as technology-based companies.” Further- risConfab, Siemens, Vallourec & Mannesmann, ment activities in Brazil. The construction of our
more, Petrobras is responsible for 92 percent of and EMC are some of the oil and gas equipment model, based on partnerships with universities,
investments from the approximately 30 billion providers that are installing laboratories and re- research centers, suppliers, startups and highly
Brazilian real (R$), as per a contract signed with search centers at the complex. qualified national and international institutions
the regulatory National Agency for Oil, Nat- In mid-November 2014, General Electric finds in Brazil a fertile environment for the devel-
ural Gas and Biofuels (Agência Nacional do opened its first Global Research Center in Bra- opment of innovation projects. The R&D potential
Petróleo, Gás Natural e Biocombustíveis, or ANP). zil at the Parque Tecnológico do Rio de Janeiro. is huge. The needs of the industry itself resulting
The Brazilian government has also launched pro- GE aims to developing in the offshore systems from the pre-salt and the technological chal-
grams to drive RD&I, notably Plano Inova Empresa, and submarines sector, with a focus on installing lenges imposed by exploration and production
which has a specific program for the oil and gas sec- equipment to develop the Brazilian pre-salt layer. projects have built the perfect scenario for the
tor, the Inova Petro. Inova Petro is a joint initiative The investment in the Parque Tecnológico do development and implementation of technolo-
by the Brazilian Innovation Agency (Financiadora Rio de Janeiro, however, is not exclusive to service gies to be employed in the sector in the next few
de Estudos e Projetos or FINEP) and the Brazilian providers. In addition to Petrobas, which installed a years, worldwide,” he emphasized.
 Return to Table of Contents

All the notebooks provide is further

Haters Gonna evidence that Heidegger was a flawed
person with dangerous political views.
Hate His work, like that of other philosophers
with problematic biographies, will con-
tinue to stand on its own. Marx’s ideas
Does It Matter That have survived despite his xenophobia;
Heidegger Was a Nazi? Nietzsche’s, despite his madness. Stu-
dents still read these thinkers at seminar
tables around the world, just as they
should Heidegger. However abhorrent
What We Know Heidegger’s politics, his ideas are more
relevant than ever. They tackle today’s
Christian Madsbjerg most important philosophical question:
How can humans find meaning in
modern lives?

T
he German philosopher Martin Heidegger believed that previous
Heidegger has always been a philosophers had answered this question
deeply problematic character. incorrectly, assuming that meaning came
Scholars have long known that Heidegger from external forces. For Plato, truth
was an active and unapologetic Nazi. derived from ideal forms; for Christians,
But for the most part, they managed to from God; for Nietzsche, from the
separate the man from his work. Until so-called will to power. Heidegger
now, that is: after examining several of feared that such worldviews, by direct-
Heidegger’s private notebooks, released ing people’s focus outward, estranged
just last year, Gregory Fried (“What them from their fundamental “being,”
Heidegger Was Hiding,” November/ turning them into mere resources
December 2014) argues that such a available to be optimized. Something
separation is no longer possible. can be said for that prediction: many
Fried is one of a growing number of businesses now refer to their employ-
academics who claim that Heidegger’s ees as “full-time resources,” or “ftrs.”
anti-Semitism infected his core philo- They manage them through human
sophical ideas and who have delivered, resources departments, track them on
in essence, an intellectual death sentence. spreadsheets, and dispose of those
“The notebooks will almost certainly they deem unneeded.
spell the end of Heidegger as an intel- Heidegger believed that such logic
lectual cult figure, and that is a welcome led to a nihilistic culture that alienated
development,” Fried writes. But he has people from where meaning actually
things backward: philosophers achieve lay: in deep involvement with the
immortality not by escaping the eye of world they inhabited. People were at
critics but by being subjected to critics, their best, he contended, when they
who chisel away at the uninteresting collectively engaged with their history,
and inconsistent to reveal a bedrock as the French do in what they call
of truth. “the culture of the table,” a tradition

174 f o r e i g n a f fa i r s
of cooking and conversation now under
siege from tv dinners and other pro-
cessed food. When people got in touch
with their roots, they couldn’t be reduced
to profit engines for others.
It is true that Heidegger used such
concepts to indict Jews in his note-
books, writing that they were “uproot- Assistant Editor
ing” German society and promoting
a culture of “empty rationality” and
Foreign Affairs is looking for an
“calculative skill.” But just because
Assistant Editor to join our editorial
Heidegger’s hatred made its way into
team.
the notebooks doesn’t invalidate his
use of similar concepts elsewhere, such
The Assistant editor position
as in “Building Dwelling Thinking,”
is a full-time paid job offering
his noteworthy 1951 lecture, in which
exceptional training in serious
he never referenced the Jews but still
journalism. Previous Assistant
made a stirring case for a more rooted
editors have included recent
existence.
graduates from undergraduate and
Further evidence for Heidegger’s
master’s programs. Candidates
theories can be found by looking at
should have a serious interest in
the state of the world today. Time and
international relations, a flair for
again, the culture Heidegger warned
writing, and a facility with the
against has sowed misunderstanding in
english language.
virtually every area of human affairs.
As crises of governance have gripped
The Assistant editor works for one
countries around the world, politi-
year, starting in July or August.
cians have fed the paralysis by reading
their constituents through abstract poll
For more information about how
numbers. And because banks calculated
to apply for the 2015–16 Assistant
risk according to a reductive concep-
editor position, please visit:
tion of human nature—as rational and
profit maximizing—they led the entire
financial system astray in 2008, setting www.foreignaffairs.com/Apply
the stage for a crash. If flawed ideas
are holding modern society back, then, Applications will be due
Heidegger’s offer a way forward. The February 2, 2015.
philosopher’s anti-Semitism, however
abominable, shouldn’t stand in the way.
cHristian maDsbjerg is a founding
partner of the innovation consultancy ReD
Associates.

175
Fried and His Critic

to history: the overthrow of liberal

Fried Replies universalism and the return to a society

C
hristian Madsbjerg calls me “one grounded in historical tradition. It is
of a growing number of academ- also why he saw the Jews—in his mind,
ics who claim that Heidegger’s one of the prime proponents of the
anti-Semitism infected his core philo- Western metaphysical tradition—as
sophical ideas and who have delivered, in standing in the way.
essence, an intellectual death sentence.” Madsbjerg is right that Heidegger’s
But that description misunderstands thinking still has much to offer outside
my reaction to what I termed “the the walls of the academy. The conflict
end of Heidegger as an intellectual between universalism and particularism
cult figure.” I argued that Heidegger remains the defining test of today, as the
wanted his readers to embrace genuine Islamic State of Iraq and al-Sham, or isis,
philosophical questions rather than destroys cities to forward its fundamen-
his own ossified answers—a goal best talist vision and nativist groups in Europe
served by Heidegger’s death as an attack immigrants to serve their nation-
object of intellectual hagiography. alist ones. Humanity can confront this
Taking up Heidegger’s call requires continuing challenge only by treating
walking a fine line between rejecting it seriously and philosophically. And
the philosopher outright and ignoring Heidegger can still help make sense of
his political choices. To do so, one it; important thinkers almost always
must closely examine Heidegger’s anti- have some ideas that can be broken off
Semitism and his Nazism, assessing how from their work as a whole, and one can
the questions Heidegger formulated and engage with the questions they take up
the answers he arrived at led him where without accepting their specific answers.
they did. Only then can Heidegger’s work In Heidegger’s case, however, one
retain its value. After all, one doesn’t must tread especially carefully, armed
study philosophy merely to find confir- with a full recognition of what that
mation in the views of others. Quite whole entails.∂
the opposite: readers learn the most
about themselves by confronting those
with whom they deeply disagree.
The question Heidegger took up—
of what it meant to be human—is as
ancient as philosophy itself and never
belonged solely to him. Heidegger
rejected any answer that located mean-
ing in the metaphysical, in terms of a
supreme being, entity, or system. He
argued that meaning instead came from
an existence rooted in one’s own time and
place. That is why Heidegger hoped
Hitler’s movement would occasion a
radical, even apocalyptic new beginning

176 f o r e i g n a f fa i r s
 Return to Table of Contents

Moscow could implement invasion plans

Nuclear Waste undeterred, reasonably certain that
Washington wouldn’t respond with
strategic nuclear strikes.
Why Are American Nukes Blechman and Rumbaugh also assert
Still in Europe? that many Europeans don’t want U.S.
nuclear weapons on their territory. But
those who oppose hosting such weapons
represent a small minority, and among
Let It Be nato’s top leaders, there is a strong
consensus in favor of keeping U.S.
James Blackwell weapons on the continent. The alliance’s
director of nuclear policy, Fred Frederick-

B
arry Blechman and Russell son, acknowledged as much in a speech
Rumbaugh (“Bombs Away,” July/ this past August, saying, “There is
August 2014) have revived an currently . . . no debate around that [U.S.
old argument: U.S. tactical nuclear nuclear weapons] officially at nato
weapons are militarily useless, and so headquarters.” Nato’s defense posture,
there is no reason for Washington to meanwhile, continues to rely on a mix
keep them in Europe. The problem, of nuclear and conventional capabilities.
however, is that Blechman and Rum- Blechman and Rumbaugh also
baugh would have the United States complain about the expense of tactical
draw back just as new Russian capabili- nuclear weapons. They are correct that
ties threaten its nato allies. extending the service life of the B-61
In recent years, Moscow has been bomb, the only type of nonstrategic
testing midrange cruise and ballistic nuclear weapon remaining in the U.S.
missiles, something explicitly forbidden arsenal, will cost over $8 billion. But
under the 1987 Intermediate-Range compared with other Pentagon projects,
Nuclear Forces Treaty. It has also adopted that program is reasonably affordable.
a new first-use doctrine. Whereas Russia’s (So far, it also has the uncommon distinc-
long-range nuclear weapons threaten tion of running on time and under bud-
nato members on both sides of the get.) According to the Los Angeles Times,
Atlantic, these missiles would target for example, in 2011, the U.S. Air Force
Europe alone. U.S. nuclear weapons in purchased nearly two dozen Massive
Europe are the strongest bulwark stand- Ordnance Penetrator bombs, each weigh-
ing in the way; without them, the alli- ing approximately 30,000 pounds, at a
ance’s European members could not cost of $15.7 million per bomb. These
deter a Russian strike on their own. conventional weapons are unquestionably
Such a capability is particularly crucial effective at destroying underground
given Moscow’s recent expansionism. facilities, but unlike B-61s, they will do
On any given day, the Kremlin could nothing to make Moscow think twice
move troops into Estonia, just as it did about invading its neighbors. (And each
in Ukraine. If U.S. nuclear weapons can be used only once.) Next to a con-
were gone from the European continent, ventional war, nuclear deterrence in

Januar y/Februar y 2015 177

 Europe is a bargain. What’s more, the
B-61 life-extension program will have
two other important benefits: improving
the weapon’s safety and enabling Wash-
ington to retire its last megaton-class
bomb, the B-83.
It is true that, as Blechman and
Rumbaugh point out, maintaining U.S.
The Internship nuclear capabilities in Europe will require
Program the Pentagon to replace aging fighter
planes with the F-35 Joint Strike Fighter.
The Council on Foreign Relations is seek- Equipping the F-35 to deliver nuclear
ing talented individuals who are consider-
ing a career in international relations.
bombs could raise its development cost by
around $400 million across the program.
Interns are recruited year-round on a ­semester
basis to work in both the New York City and But nato members could easily share
Washington, D.C., offices. An intern’s duties the financial burden.
generally consist of administrative work, Moreover, such investments would
editing and writing, and event coordination. still be worthwhile even if the costs were
The Council considers both undergraduate higher. Washington’s security guarantees
and graduate students with majors in Interna-
to its nato allies will stay credible only so
tional Relations, Political Science, Economics,
or a related field for its internship program. long as U.S. nuclear weapons remain on
A regional specialization and language skills
European soil. As British Prime Minister
may also be required for some positions. In David Cameron wrote in The Telegraph in
addition to meeting the intellectual require- April 2013, “Just relying on the United
ments, applicants should have excellent States to act on our behalf allows poten-
skills in administration, writing, and re-
search, and a command of word processing,
tial adversaries to gamble that one day
spreadsheet applications, and the Internet. the U.S. might not put itself at risk in
To apply for an internship, please send a order to deter an attack on the U.K.”
résumé and cover letter including the se- By arguing that U.S. tactical nuclear
mester, days, and times available to work weapons are militarily useless, Blechman
to the I­ nternship Coordinator in the Hu- and Rumbaugh miss the most important
man Resources Office at the address listed
below. Please refer to the Council’s Web
point of all: that such weapons are not
site for specific opportunities. The Coun- exclusively military tools. They also serve
cil is an equal opportunity employer. the political purpose of assuring allies and
deterring aggressors. That’s why every
U.S. president from Harry Truman to
George H. W. Bush deployed nuclear
weapons in times of crisis—and why
President Barack Obama will most likely
Council on Foreign Relations keep them in Europe.
Human Resources Office
58 East 68th Street, New York, NY 10065
james blackwell is Special Adviser to the
tel: 212.434 . 9400 fax: 212.434 . 9893
U.S. Air Force’s Assistant Chief of Staff for
humanresources@cfr.org http://www.cfr.org
Strategic Deterrence and Nuclear Integration.
The views expressed here are his own.

178
 Nuclear Waste

Pentagon will need to spend over $8

Blechman Replies billion to extend their service lives

J
ames Blackwell errs on two points. and some $400 million to equip new
First, what he portrays as a military aircraft to carry them. Those same funds
justification for keeping tactical could be used to purchase 50 to 60 F-35
nuclear weapons in Europe is really a Joint Strike Fighters, one of the U.S.
political one. Blackwell suggests that U.S. Air Force’s three highest spending
tactical nuclear weapons are necessary priorities—which is precisely the sort
to deter a Russian attack on U.S. allies of opportunity cost decision-makers
and thereby reassure those allies. But must weigh against whatever political
Blackwell assumes that Washington would message the tactical nuclear weapons
be willing to break its 70-year moratorium might convey.
on the use of nuclear weapons when it The United States has remained
could instead repel Moscow with conven- committed to nato’s defense for more
tional forces. Even if the Russians then than 60 years, deploying U.S. troops to
chose to escalate the conflict by using the continent and providing hundreds
nuclear weapons, nato could respond of billions of dollars’ worth of financial
with its large and flexible strategic nuclear support. Russian leaders would be insane
arsenal, to say nothing of British and to test that commitment by invading a
French nuclear forces. The only reason nato ally. Since tactical nuclear weap-
for Washington to keep tactical nuclear ons offer the United States no military
weapons in Europe, then, would be to advantage, they are worthwhile only if
signal its commitment to the continent’s its European allies see political value
security. in them. Yet if European leaders really
Political considerations are certainly cared about U.S. tactical nuclear weapons,
legitimate. If tactical nuclear weapons they would gladly help pay for them.
carried only the marginal expense of Tellingly, however, they have been
maintaining them, there would be no unwilling to do so.∂
need to consider phasing them out. And
if they provided even a minimal political
advantage, they could remain in Europe
indefinitely. But here’s where the second
flaw in Blackwell’s argument emerges.
Blackwell argues that tactical nuclear
weapons are relatively cheap, ignoring
the uncomfortable fact that U.S. defense
spending is capped, meaning that every
dollar Washington spends on tactical
nuclear weapons is a dollar it cannot
use elsewhere.
Regrettably, U.S. tactical nuclear
weapons are now nearing the end of
their effective lifetimes. If they are to
function beyond the next ten years, the

Januar y/Februar y 2015 179

 Return to Table of Contents

on the ideas of his mentor, the political

Recent Books scientist Samuel Huntington, who argued
that democratic governance, a healthy
market economy, and social advancement
Political and Legal all hinge on capable, impersonal, and
incorrupt state institutions. Surveying
G. John Ikenberry the history of political development
from the French Revolution to today,
Fukuyama affirms and extends Hunting-
Political Order and Political Decay: From the ton’s view. Around the world, political
Industrial Revolution to the Globalization development has followed different paths,
of Democracy as states have found various ways to
by F rancis Fukuyama. Farrar, combine the three key components of
Straus and Giroux, 2014, 672 pp. $35.00. political order: state institutions, demo-
cratic accountability, and the rule of law.

A
“ fter enlightenment, the Fukuyama pays the most attention to
laundry”—so goes an old Zen the United States, which represented the
proverb. Even after grasping vanguard of political development
truth and universal knowledge, one must throughout the twentieth century but is
still do the chores and confront the drudg- now beset by “political decay,” as Wash-
ery of everyday life. In many ways, that ington is losing its ability to govern and
is Fukuyama’s message in this second act in the public interest. Fukuyama
volume of his masterful study of political wonders whether the forces of account-
development. Fukuyama became famous ability and renewal will come to the
at the end of the Cold War after writing rescue, as they have in past democratic
“The End of History?” In that essay crises, or whether liberal democracies
(later expanded into a book), he asserted are discovering that their guiding
that the grand ideological questions about philosophy also suffers from flaws and
modernity and political order had been internal contradictions.
settled; as monarchy, fascism, and com- It is impossible to read this book and
munism fell away, liberal democracy not come away thinking it just might be
stood alone as a legitimate and successful time to reopen the debate about ideol-
system of government. Liberal democ- ogy and the direction of history. At the
racies were far from perfect and contin- very least, there is a lot of laundry to do.
ued to struggle with inequality, injustice,
and poor performance. But these were
primarily problems of “incomplete imple- The End of American World Order
mentation”; unlike its vanquished rivals, by Amitav Acharya. Polity Press,
liberal democracy was not plagued with 2014, 150 pp. $59.95 (paper, $19.95).
inherently defective or self-contradictory
principles. In this lively polemic, Acharya takes
In this book, 25 years later, Fukuyama aim at American thinkers who naively
announces quite clearly that implemen- believe that rising non-Western states,
tation is not going well. Fukuyama builds such as China and India, will eventually

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join the U.S.-led international order as answers no. To be sure, a greater propor-
enthusiastic stakeholders. Such countries, tion of people around the world are freer
he argues, hold different values from today than ever before. But Posner argues
Western states, resent the special privi- that human rights law has been largely
leges that the United States retains as irrelevant to that improvement. Liberal
a hegemonic leader, and do not agree democracies sign on to human rights
among themselves about what a post- treaties because they see the agreements
American order should look like. Acharya as cost free, believing that they them-
foresees the emergence of a “multiplex” selves already abide by the rules. Mean-
world, in which countries and regions while, authoritarian states sign on solely
will all (metaphorically) go to the same for propaganda purposes and then find
movie theater but end up watching it fairly easy to flout the rules. Posner
different films. The book presents an worries that the proliferation of human
imaginative vision of a less centralized, rights treaties encourages “rule naiveté”:
more pluralistic world, but it neglects to an illusion that Western norms can be
account for the forces of global integra- applied and impartially enforced every-
tion that propelled non-Western states where. He urges Western countries to
upward in the first place. The book also focus instead on promoting economic
fails to appreciate the complex tension development, which can achieve real
between non-Western countries’ discom- and measurable gains in improving
fort with U.S. dominance of international people’s lives.
governance institutions and their sup-
port for the ideal of an open, rule-based
international order that is not strictly Writing History in the Global Era
“American” but has rather resulted from by Lynn Hunt. Norton, 2014,
decades of push and pull among many 208 pp. $25.95 (paper, $16.95).
states, ideologies, and agendas.
Ever since the study of history became
an academic profession in the late
The Twilight of Human Rights Law nineteenth century, historians have
by Eric Posner. Oxford University been primarily occupied with writing
Press, 2014, 200 pp. $21.95. national histories. That approach has
become less tenable in recent decades
Beginning with the Universal Declaration as globalization has gained momentum.
of Human Rights, adopted by the un Meanwhile, according to Hunt, the
General Assembly in 1948, countries social and cultural theories that have
have signed on to a widening array of dominated the field since the 1950s
treaties and conventions designed to have grown stale. Studying identity,
protect human rights and backed by an gender, class, and culture remains an
expanding set of international courts, essential task, but in doing so, scholars
commissions, and monitoring bodies. tend to focus on individuals and local
But has all this human rights law and settings, ignoring global structures and
activism actually improved people’s forces. Hunt therefore sees the recent
lives? In this sharply argued book, Posner turn toward “global history” as a promising

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trend. This approach not only allows willing to initiate international conflict.
scholars to see the growing connections Weeks’ argument seems particularly
between nations in today’s world but relevant at the moment, since the resolu-
also encourages the retelling of older tion of a number of ongoing international
histories from a global or transnational standoffs might depend on whether
perspective. In Hunt’s view, the chal- certain countries—Iran and Russia,
lenge is to give the new global history for example—behave more like the
more theoretical heft and coherence first type of authoritarian state or
without resorting to teleological or more like the second.
narrowly Western-centric notions of
modernity. This challenge is not unique
to history; it is a problem at the core Economic, Social, and
of all the social sciences. Environmental

Dictators at War and Peace

Richard N. Cooper
by Jessica L. P. Weeks. Cornell
University Press, 2014, 264 pp. $75.00
(paper, $24.95). The System Worked: How the World
Stopped Another Great Depression
Commentators on international affairs by Daniel W. Drezner. Oxford
often assume that authoritarian states University Press, 2014, 280 pp. $29.95.
tend to pursue unpredictable and aggres-

M
sive foreign policies. In this important any believe that the financial
book, Weeks demonstrates that this crisis of 2008—from which
simplistic view misses important varia- the world has yet to fully
tions in how autocrats make decisions recover—represented a failure of the
about the use of force. In authoritarian international economic system. Drezner
states run by institutionalized parties argues the contrary: although the
or groups, such as the Soviet Union in system did not prevent the crisis or
the post-Stalin era and contemporary the subsequent recession, it did avoid a
China, leaders face a surprising amount catastrophe on the order of the Great
of domestic accountability over decisions Depression of the 1930s, successfully
to use force. Weeks argues that these mitigating an economic shock of even
states actually tend to take cautious and greater force than the one that hit the
prudent positions in foreign policy, global economy in 1929. The summit
not unlike leaders who must run for meetings held by the G-20 during the
reelection in democracies. In contrast, crisis were loosely coordinated but
authoritarian states in which individual provided a way for policymakers to
rulers and their immediate circles control share perspectives and ideas. And inter-
the instruments of the state and the national financial institutions, especially
military, such as North Korea and Iraq the International Monetary Fund and
under Saddam Hussein, tend to be less the World Bank, rose to the occasion
mindful of domestic opinion and more by offering enlarged and more flexible

182 f o r e i g n a f fa i r s
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lending programs. Central banks, led owned enterprises. To be sure, the latter
and often aided by the U.S. Federal still dominate important sectors of the
Reserve, also performed well. At the Chinese economy, such as banking, oil,
very least, they avoided the mistakes telecommunications, and tobacco. But
their predecessors made in the 1930s; their relative importance has greatly
as a result, significant fiscal stimulus receded and will likely continue to do
occurred in most major countries. Drezner so. Such observations make Lardy’s
hesitates to forecast the future of the book an important addition to scholar-
system, not least because serious misun- ship on China’s complex and rapidly
derstandings among politicians and the changing economy.
public continue to distort views about
the crisis and what lessons ought to be
taken from it. But he convincingly argues The End of Normal: The Great Crisis
that the system responded to a very and the Future of Growth
real stress test surprisingly well. by James K. Galbraith.
Simon & Schuster, 2014,
304 pp. $26.00 (paper, $16.00).
Markets Over Mao: The Rise of Private
Business in China In explaining the financial crisis of 2008
by Nicholas R. Lardy. Peterson and its effects, Galbraith positions himself
Institute for International Economics, outside the conventional conservative-
2014, 186 pp. $21.95. liberal spectrum. In his view, technological
change in recent years has significantly
A common view holds that economic reduced the need for some forms of labor,
reforms in China stalled or even were lowering employment levels as some jobs
reversed during the past decade—an have become obsolete and shifting the
impression reinforced perhaps by the distribution of income away from labor
Third Plenum of the Chinese Communist and toward capital and wealthy superstars.
Party, which convened in November 2013 That shift has not produced levels of
and resulted in an official call for more demand sufficient to create significant
market-oriented policies. But in this numbers of jobs. This is a more nuanced
carefully documented study, Lardy version of the suggestion that the U.S.
shows that in reality, China’s private economy (and perhaps others) has moved
sector has continued to grow and thrive into a period of so-called secular stagna-
for the past 15 years and now accounts tion. Galbraith urges Americans to adjust
for more than three-quarters of industrial their country’s institutional structures—
production and a comparable share of and their personal expectations—to
investment in industrial assets. More- accommodate a lower rate of growth than
over, China’s private sector now attracts the one that prevailed during the past half
a growing (albeit still small) share of century. He argues that U.S. economic
bank financing and enjoys notably higher policy should aim to provide greater
rates of return than the country’s public income stability through increased social
sector, suggesting that private businesses insurance, a higher minimum wage (which
are likely to continue to outpace state- would reduce the demand for low-wage

Januar y/Februar y 2015 183

Recent Books

immigrant workers), and a higher estate Trillion Dollar Economists: How

tax. He also takes reasoned but forceful Economists and Their Ideas Have
swipes at big banks, whose contributions Transformed Business
to the well-being of the U.S. economy are by Robert E. Litan. Wiley, 2014,
highly doubtful, and criticizes the outdated 400 pp. $40.00.
and oversize national security sector.
“Practical men, who believe them-
selves to be quite exempt from any
Walter Lippmann: Public Economist intellectual influence, are usually the
by Craufurd D. Goodwin. slaves of some defunct economist,”
Harvard University Press, 2014, wrote John Maynard Keynes in 1936.
424 pp. $35.00. Litan here sets out to explain a range
of ideas that originated with academic
From the early 1920s until the mid- economists and that subsequently
1960s, Walter Lippmann was among the influenced both economic policy and
most prominent American public business practices—usually for good
intellectuals, a sought-after adviser to but occasionally for ill. He includes
politicians and the author of many biographical sketches of many of those
books and more than a thousand articles economists, including such luminaries as
and columns for The New Republic, the Paul Samuelson and Milton Friedman,
Herald Tribune, and The Washington Post. but also less widely known figures,
Goodwin’s worthy book serves to such as George Dantzig, a pioneer in
remind readers that Lippmann was operations research, and Alfred Kahn,
more than a mere pundit. Lippmann who played a major role in airline
was a committed liberal, in the Euro- deregulation. Litan focuses largely
pean sense, meaning that he favored on microeconomic issues, on which
free markets and a limited role for economists tend to a agree more
government. But he was pragmatic frequently than they do on macroeco-
rather than dogmatic, and he objected nomics; for example, most economists
to the shrinking of liberalism into the agree that incentives matter and that it
notion that government’s sole role is to is important to get them right. The
protect property rights. Like his friend topics covered by the book range
Friedrich Hayek, he abhorred monopo- widely: financial innovations (espe-
lies, whether they were controlled by cially derivatives), matchmaking in
business or by unions, and he worried labor markets (and in romance), auc-
about the undue concentration of power tions, the deregulation of transporta-
in government hands—except during tion and communications, and data
wartime, when he deemed such accu- mining all receive attention. Litan also
mulated power necessary to defeat explores the possibility of applying
authoritarian Germany and Japan. He economic ideas to the challenges of
believed liberty had to be protected by traffic congestion, rising health-care
good laws, which should include help- expenditures, and climate change.
ing disadvantaged or unemployed
people and taxing unearned income.

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The Smell of Battle, the Taste of Siege: A

Military, Scientific, and Sensory History of the Civil War
Technological by Mark M. Smith. Oxford
University Press, 2014, 216 pp. $27.95.
Lawrence D. Freedman
Historians often ask readers to imagine
the intense sights, sounds, and smells
of battle. Smith goes one step further
Cowardice: A Brief History and explores how such sensory assaults
by Chris Walsh. Princeton affect the conduct of war itself. Soldiers
University Press, 2014, 304 pp. $27.95. become disoriented; their skin is irri-
tated by scrapes and infections; their

W
hy has nobody written this mouths are left dry by dust. They drink
book before? “Coward” unclean water and eat unclean fruit.
remains one of the English Smith gets into these gritty details by
language’s harshest epithets, but its narrating some of the most important
meaning has become less clear. The term encounters of the American Civil War:
was once reserved for those who turned the noise of the shelling of Fort Sumter;
away from physical danger. But the more the confusion caused by the prolifera-
that societies come to appreciate the fact tion of different uniforms and badges at
of human frailty, the less cowardice the First Battle of Bull Run; the stench
appears as a moral failing and the less of death at Gettysburg, which lingered
censorious people become of behavior from July to October; the hunger caused
that not long ago would have led, in a by the siege of Vicksburg; and the claus-
military context, to a court-martial and trophobic conditions faced by the crew
even execution. At the same time, societies of a crude Confederate submarine. A
have become less tolerant of a different leitmotif of the book is the way the
kind of cowardice: silence in the face of aristocrats of the antebellum South
egregious wrongdoing. In this elegant took pride in their refined tastes and
and thoughtful discussion that draws on how that particular sense of superiority
literature and films as well as military was undermined by the sheer brutality
case law, Walsh thoroughly explores how of the war’s violence.
the concept of cowardice has evolved as
a result of changes in the way societies
understand morality, human nature, and The Perfect Kill: 21 Laws for Assassins
the nature of war. In the end, he argues, by Robert b. Baer. Blue Rider
societies need a firm concept of coward- Press, 2014, 336 pp. $27.95.
ice; without it, they cannot grasp what it
means to act courageously. Assassination may well be an efficient
use of force, but leaders are often wary
of it for both moral and strategic rea-
sons. But as many countries have been
drawn into murky struggles against
violent extremists, leaders have become

Januar y/Februar y 2015 185

Recent Books

more sanguine about “targeted killings,” consider it the best book ever written
especially if they are carried out from a on the subject. Stoker’s biography
distance, using drones. Baer, a former focuses mostly on Clausewitz’s military
cia operative, tells the story of his record, devoting just one chapter to the
search for Imad Mughniyeh, a skilled last 16 years of the Prussian’s life, during
Hezbollah member with a long and which time he wrote On War. This is a
deadly record of orchestrating bomb- well-written and valuable addition to
ings, kidnappings, and assassinations. the Clausewitz library, but it also serves
Mughniyeh—whom Baer chooses to as a useful history of the Napoleonic
refer to by the nom de guerre Hajj Wars, as Stoker draws on Clausewitz’s
Radwan—was himself eventually killed sharp observations to illuminate some
in 2008, although not by the cia. of the most important military engage-
(Hezbollah’s leaders, and many others, ments of that period.
contend that Israeli assassins did him
in.) Baer explains that assassination
requires dedication, self-discipline, and The End of Intelligence: Espionage and
a degree of intimacy with one’s target— State Power in the Information Age
all reasons why he thinks the United By David Tucker. Stanford
States is unlikely to ever do it very well. University Press, 2014, 256 pp. $90.00
This makes for a lively and challenging (paper, $25.95).
read, although the focus on Lebanon,
where political murders are almost Conventional wisdom holds that new
routine, does not allow Baer much room information technologies have had a
to explore the impact of assassination transformational effect on security and
on places where it is rare. intelligence; this book casts doubt on
that assumption. Tucker explores how
new technologies have affected the
Clausewitz: His Life and Work state’s role as a collector and manipula-
by Donald Stoker. Oxford tor of information, examining how they
University Press, 2014, 376 pp. $27.95. have changed the nature of espionage
and the quality of intelligence assess-
Carl von Clausewitz was an outstanding ments. Tucker develops his argument
young cadet in the Prussian army who methodically, looking at the role of
never reached the high rank that he information in counterintelligence and
thought he deserved. In 1818, he was covert action, regular and irregular
named director of the Prussian War warfare. He concludes that the informa-
College, an appointment he had not tion age has been less transformational
sought but that nonetheless gave him than supposed. Contrary to claims that
the time to work on his masterpiece, On new technologies have generally favored
War. Clausewitz died of cholera in 1831, insurgents and revolutionaries, Tucker
having instructed his wife to organize argues that they have likely benefited
the text and prepare it for publication. states even more. Although the book
The book ultimately became a classic, is not always convincing, it presents a
and many experts in military affairs serious and challenging analysis.

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Outpost: Life on the Frontlines of American

The United States Diplomacy
by Christopher R. Hill. Simon &
Walter Russell Mead Schuster, 2014, 448 pp. $30.00.

Hill, an eminent U.S. diplomat, focuses

on three episodes in this memoir: his
Worthy Fights: A Memoir of Leadership in work with the U.S. envoy Richard
War and Peace Holbrooke during the Balkan crises in
by Leon Panet ta with Jim the Clinton administration, his attempt
Newton . Penguin Press, 2014, to reach a nuclear agreement with North
512 pp. $36.00. Korea during President George W.
Bush’s second term, and his tenure as

P
anetta came to Washington U.S. ambassador to Iraq under President
during the Nixon administration Barack Obama. Hill, a masterful prose
as an idealistic young Republican. stylist who carries on a long tradition of
He later switched parties, rose through literary excellence among U.S. diplomats,
the Democratic ranks in Congress, and is generous to all the presidents and
served as President Bill Clinton’s secretaries of state he served. He reserves
director of the Office of Management his ire for the neoconservatives he
and Budget and chief of staff and as believes attempted to sabotage the North
President Barack Obama’s director of Korean negotiations and for U.S. sena-
the cia and secretary of defense. This tors whose posturing and obstructionism
is a distinguished trajectory by any further complicated the already difficult
standard, and Panetta’s candid memoir jobs of U.S. diplomats. The sections on
offers a useful window into recent Hill’s time in Iraq are deeply troubling:
U.S. history. A few references to policy the overgrown U.S. embassy in Baghdad
disagreements with Obama dominated was chaotic and dysfunctional, and
the discussion of the book when it first Washington never seems to have truly
appeared last year; the controversy faced the sectarian and political problems
seems overblown, as the book’s assess- that have now resulted in renewed tumult
ment of Obama is on the whole rather and war in that unhappy country.
positive. Panetta’s most valuable insights
involve federal budgets; few understand
the subject as well. His account of how America’s Pastor: Billy Graham and the
the Clinton administration was able to Shaping of a Nation
balance its final budgets shows how the by Grant Wacker. Belknap Press,
U.S. political process can lead to good 2014, 448 pp. $27.95.
outcomes; his account of the sequester
during the Obama administration Billy Graham was the most significant
shows how it can lead to terrible ones. religious presence in American life
from the late 1940s until well into the
current era. Graham brought the revival
movement and evangelical Protestantism

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Recent Books

into the modern world. His repudiation hower’s virtue or genius, and this book is
of segregation and his retreat from unlikely to stand as a serious contribution
fundamentalism and moves toward a to the literature on the 34th president.
more complex view of the relationship Nevertheless, it is an entertaining read,
between the Bible and contemporary spiced with malicious sideswipes at
thought helped reshape the American Eisenhower’s left-wing intellectual critics,
cultural landscape. Wacker’s engaging, and the book will serve well as an intro-
comprehensive, and sympathetic (al- duction to this important historical figure.
though not uncritical) study of Graham’s
multifaceted career is an admirable
introduction both to Graham and to the Western Europe
evangelical movement he worked so hard
to build. A product of fundamentalist Andrew Moravcsik
Christianity during the Jim Crow era in
the rural South, Graham transformed
himself into someone who could reach
a much wider audience: in 2005, at the Eichmann Before Jerusalem: The
last of his open-air religious “crusades,” Unexamined Life of a Mass Murderer
in New York City, the majority of the by Bet tina Stangneth.
more than 100,000 attendees were translated by ruth martin .
people of color. Graham, now 97, no Knopf, 2014, 608 pp. $35.00.
longer hits the revival trail, and the

I
religious synthesis he helped popularize n 1961, the political philosopher
does not seem to be reaching younger Hannah Arendt visited Israel to
Christians. Nevertheless, the individu- report on the trial of Adolf Eich-
alistic religious tradition that shaped mann, one of the main Nazi organizers
Graham’s worldview remains a potent of the Holocaust. In the resulting book,
force in American culture. Eichmann in Jerusalem, Arendt coined
the phrase “the banality of evil” to
convey her central thesis: unspeakable
Eisenhower: A Life crimes are carried out not by ideologi-
by Paul Johnson. Viking, 2014, cal fanatics but by ordinary, law-abiding
144 pp. $25.95. officials, ignorant of the bigger picture
and merely following normal bureaucratic
Johnson likes Ike, and he thinks you routines. Yet this new book convincingly
should, too. This short and breezy volume shows that Eichmann was no banal bureau-
makes the case that President Dwight crat. He was a manipulative and unre-
Eisenhower was a military leader of pentant Nazi who cunningly deceived
genius, a successful university president, Arendt and many others at his trial by
an exemplary husband, and a great chief assuming the guise of a timid official.
executive of the United States. At times, Stangneth’s research reveals that during
Johnson seems so intent on his hagio- the 15 years Eichmann spent hiding out
graphic mission that he gives short shrift in Argentina after World War II, he met
to anything that casts doubt on Eisen- with fellow Nazi fugitives, toiled away

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on a self-aggrandizing autobiography, British support for global organizations

and professed “no regrets” about the such as the International Criminal Court.
Holocaust—except that it hadn’t been In contrast to Arnold, Cronin sees
thorough enough. Ultimately, the book the Anglo-American relationship as
reminds readers that in politics, even a especially meaningful and valuable. He
banal person’s beliefs can be truly evil— contends that British Prime Minister
and that in scholarship, even the cleverest
Margaret Thatcher and U.S. President
conceits ultimately give way to banal Ronald Reagan established the most
historical research. important global norm of the post–
Cold War world: namely, that all states
must converge on a form of democratic
America and Britain: Was There Ever a governance that fosters free trade abroad
Special Relationship? and pro-market policies at home. Cronin
by Guy Arnold. Hurst, 2014, 240 pp. makes a number of important points,
$35.00. but his sympathy for the idea of a
dominant Anglo-American neoliberal
Global Rules: America, Britain, and a wave sometimes blinds him to the irony,
Disordered World ambiguity, and pluralism of contempo-
by James E. Cronin. Yale University rary global history: for a good example,
Press, 2014, 416 pp. $45.00. one need look no further than China,
where the Communist Party has become
Arnold’s book is neither the first nor one of the world’s most successful
the most profound to debunk the idea practitioners of capitalism.
of an Anglo-American “special relation-
ship.” But this history of efforts by
postwar British leaders to offset their Endgame for ETA: Elusive Peace in the
country’s decline by cozying up to the Basque Country
United States is quite readable, policy by Teresa Whitfield. Oxford
relevant, and, beneath its bland surface, University Press, 2014, 402 pp. $35.00.
provocative. Arnold argues that the
contemporary Anglo-American rela- Europeans have become accustomed
tionship is a bit of a sham: it demands to reports of anti-immigrant protests,
British loyalty and subservience with- threats from international terrorists,
out securing any consistent American and regional separatism. Stories of
quid pro quo. The United Kingdom compromise and integration receive less
would be better served, he contends, attention from the news media. But in
by charting a more independent path: recent years, a quiet success has taken
establishing closer links to European place in Spain’s historically restive Basque
countries, engaging more with China, Country. This book describes the peace
reaching a détente with Russia, with- process that recently resulted in a defini-
drawing from nato, reducing British tive end to what Whitfield correctly terms
involvement in military interventions “the last organized armed insurgency in
around the world, removing U.S. bases Western Europe.” Her account traces
from British territory, and increasing the decades-long negotiations between

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Basque separatists and Madrid, a process little and instead argue that the success
that began during the regime of Gen- of the Franco-German duo should be
eral Francisco Franco. Both sides were seen as the result of creative leadership
frequently intransigent and beset by by statesmen such as France’s Charles
infighting. And by the time Madrid had de Gaulle and François Mitterrand and
become more flexible on the question of Germany’s Konrad Adenauer and Helmut
Basque autonomy, around ten years ago, Kohl. They created a unique symbolic
violent splinter groups within the Basque relationship, committed to the idea of
separatist movement were launching a overcoming past conflicts and establish-
last-ditch terrorist campaign, which ing bilateral projects and consultative
extended the conflict for nearly a decade. institutions. Franco-German reconcilia-
The precise position of the Basque tion became a self-fulfilling prophecy, as
Country within Spain remains unclear, publics, politicians, and officials began
but the two sides will likely be able to to expect and promote further coopera-
settle the remaining issues peacefully. tion over time.

Shaping Europe: France, Germany, and Western Hemisphere

Embedded Bilateralism From the Elysée
Treaty to Twenty-First Century Politics Richard Feinberg
by Ulrich Krotz and Joachim
Schild. Oxford University Press,
2013, 320 pp. $99.00.
Constructing Democratic Governance in
At the core of contemporary Europe Latin America. 4th ed.
lies the bilateral relationship between edited by Jorge I. Domínguez
France and Germany. These two and Michael Shifter.
countries have been at the center of Johns Hopkins University Press, 2013,
almost every European policy initia- 408 pp. $29.95.
tive during the past half century, in
just about every area: trade, the euro The Resilience of the Latin American Right
system, defense, regulation, immigra- edited by Juan Pablo Luna and
tion, eu enlargement, and so on. What Cristóbal Rovira Kaltwasser.
accounts for the success of this joint Johns Hopkins University Press, 2014,
leadership role, and is it likely to con- 392 pp. $34.95.
tinue into the future? One way to answer

T
those questions is to note that for all wo recent books offer a chance
their cultural and social differences, the to take stock of the political and
two countries are formally quite similar: ideological state of play in Latin
both are democracies that have resolved America. Domínguez and Shifter’s volume
their main internal ideological conflicts, is full of sharp insights—and some good
and both face similar opportunities and news. In their summary chapters, the
external threats. But Krotz and Schild editors applaud Latin American countries’
believe that such parallels explain very deepening commitment to democratic

190 f o r e i g n a f fa i r s
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institutions; freer, fairer, and more open exercises power by mobilizing techno-
elections; better governance; innovations crats to shape the policymaking process,
in policymaking; and efforts to increase using the mass media to frame the public
the prominence of women in leadership agenda, and directly lobbying elected
roles. Of course, many problems remain. officials. To combat the left’s advantages
The commodities boom of the past decade at the ballot box, the right avoids directly
has strengthened all of the region’s rulers, addressing issues of redistribution and
including those with authoritarian traits. wealth and focuses on hot-button ques-
In some countries, narcotics trafficking tions of morality and religion, law and
has fueled gang violence that has over- order, and government corruption. In
whelmed law enforcement. As commod- general, the mostly American and British
ity markets cool off, perhaps the most contributors seem not particularly
important question across the region is sympathetic to their subjects—which is
whether democratic governments will unsurprising, since few political scientists
be able to meet the rising expectations educated in the United States or the
of their countries’ emerging middle United Kingdom identify with rightist
classes. These issues and many others ideologies in Latin America. Never-
are covered in solid, well-informed theless, by filling a gap in the scholarly
chapters on Argentina, Bolivia, Brazil, literature, The Resilience of the Latin
Chile, Colombia, Mexico, Peru, and American Right provides a valuable,
Venezuela. Other chapters explore wide-ranging survey of the region’s
constitutional reforms, the mass media, understudied right-wing parties,
security challenges, and the natural personalities, and programs.
resource boom. The writing is sophisti-
cated enough to interest specialists but
accessible enough for lay audiences. The Washington Dissensus: A Privileged
The wave of democratic reform and Observer’s Perspective on US-Brazil
progress in Latin America has posed a Relations
challenge to right-wing groups and by Rubens Barbosa. Vanderbilt
parties across the region, which can no University Press, 2014, 272 pp. $69.95.
longer rely on military coups to protect
their interests, as they did in the past. His Own Man
And yet conservative politics are still by Edgard Telles Ribeiro.
a major force in the region. Luna and translated by Kim M. Hastings.
Kaltwasser’s volume addresses this Other Press, 2014, 352 pp. $17.95.
puzzle: When opinion polls find that
the typical Latin American voter tends Barbosa, who served as Brazil’s ambassa-
toward the left and shares leftists’ prefer- dor to Washington from 1999 to 2004,
ences for income redistribution and assesses U.S. diplomacy with a conde-
state intervention in the economy, what scension born of wounded pride—a
explains the resilience of the right and common feeling among his peers in
its less popular pro-market stances? Latin American diplomatic corps. But
Taken together, the contributions to the distinguished diplomat’s hard-hitting
this book suggest an answer: the right memoir focuses its main attacks on his

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own country’s leadership, firing point- dictatorship that ruled Brazil from 1964
blank shots at then President Luiz Inácio until 1985—and of the scars carried by
Lula da Silva and his foreign minister, people throughout Latin America whose
Celso Amorim. Barbosa contends that lives were forever altered by the torture
the Lula administration’s anti-American and murders carried out during the
posture harmed Brazilian national inter- Cold War by Washington’s authoritarian
ests by foolishly wasting many opportu- allies in the region. As His Own Man
nities to make real progress on promising makes clear, that legacy helps explain
U.S.-Brazilian agreements and by under- the attitudes and behaviors of today’s
mining Brazilian efforts to win a perma- elites in Brazil—members of the genera-
nent seat on the un Security Council. tion that suffered under military rule—
In devastating detail, Barbosa portrays and their lingering distrust of U.S. power.
Brazil’s diplomats as confused about their
fundamental purpose and undecided as
to just what their country wants out of At Night We Walk in Circles
its relations with the United States—a by Daniel Alarcón. Riverhead
lack of self-knowledge that only exacer- Books, 2013, 384 pp. $27.95 (paper,
bates the mistrust between Brasília $16.00).
and Washington. Barbosa’s provocative
broadside will likely accelerate the Novels about the immigrant experience
ongoing debate in Brazil over how best abound, but Alarcón offers an unusual
to exploit its position as an emerging spin on the genre: a tale about those left
regional power. behind, in this case in an unidentified
The troubled U.S.-Brazilian relation- South American country that closely
ship also provides the backdrop for the resembles the author’s native Peru. The
novel His Own Man. The book’s climactic protagonist, an aspiring actor, never
scene involves a confrontation between fully recovers from his older brother’s
the novel’s narrator, a Brazilian diplomat emigration to California, which he
stationed in Los Angeles, and a former interprets not as an act of adventurous
chief of the cia station in Brasília, now entrepreneurship but rather as a cruel
retired in La Jolla, California, whose abandonment. Alarcón captures the
garage is stacked with documents detail- milieu in Peru at the turn of the millen-
ing Washington’s covert attempts to nium, when the country was still reeling
foment anticommunist military coups in the aftermath of a virulent civil war:
in Latin America in the 1970s. “Maybe disoriented lower-middle classes, frus-
that’s why we stand alone today . . . trated artists, overcrowded prisons, a
isolated as hell,” the old spook muses, ubiquitous drug trade, and a new culture
“unable to deal with a world that for of commercialism. He artfully captures
the most part despises us.” The historical the dismal melancholy of Lima and the
memories of Americans are famously loneliness of the Andean highlands,
short, and Ribeiro, a veteran Brazilian the numbing winds blowing through
diplomat, clearly wants to remind desolate villages emptied of young people,
readers in the United States of the who have left to seek better opportunities
cost of U.S. support for the military elsewhere. A suspenseful page-turner,

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 Recent Books

At Night We Walk in Circles also features an emergence of a person—or perhaps a

anxious love triangle, in which the central phenomenon—as outsized as Stalin.
female figure, Ixta, is at once irresistible,
heartless, careless, and confused: a meta-
phoric stand-in, perhaps, for Peru itself. Siberia: A History of the People
by Janet M. Hartley. Yale
University Press, 2014, 312 pp. $38.00.
Eastern Europe and Former
Soviet Republics Siberia accounts for more than three-
quarters of modern Russia’s territory
and spans eight of the country’s 11 time
Robert Legvold zones but is home to just 30 million
people. Images of Arctic winters, the
Soviet gulag, and infinite wilderness
Stalin. Vol. 1, Paradoxes of Power, 1878–1928 tend to shape popular conceptions of
by Stephen Kotkin. Penguin Siberia. But in reality, the region is
Press, 2014, 976 pp. $40.00. vastly more rich and varied, and its
history, as related in this sweeping but

K
otkin’s biography of Joseph Stalin compact account, features a wild diver-
is already monumental—and this sity of settings, events, and inhabitants.
is just the first entry in a planned Hartley’s book is a work of social, not
trilogy. Stalin emerges here as a more political, history, and her primary focus
vivid and complete figure than he does is people: Cossacks, peasants in flight,
in countless other biographies. And the indigenous groups pushed aside, politi-
history surrounding the Soviet leader, as cal exiles, convicts, hunters, trappers, and
Kotkin reconstructs it, has a texture and oil men. Her stories unfold in villages
arresting detail lacking in prior studies. and towns, in the military garrisons
The period Kotkin covers spans from that secured this vast space, and in the
Stalin’s birth in 1878 to the eve of Soviet prison camps where so many perished.
collectivization and Stalin’s consolidation Hartley cares most about the dramatic
of power, in 1928. Kotkin manages to juxtapositions that characterize Siberia:
capture how a figure as larger than life, free and unfree people, settlers and
influential, and twisted as Stalin came natives, indigenous beliefs and imported
to be by expanding the book’s boundaries religions. In her book, Siberia emerges
beyond Russia and the Soviet Union as an intricate, colorful mosaic, not a
during Stalin’s time to include other barren black-and-white photo.
parts of the world and other historical
eras. In so doing, Kotkin reveals how
Stalin’s sense of geopolitical strategy Putin’s Kleptocracy: Who Owns Russia?
and ability to seize opportunities shaped by Karen Dawisha. Simon &
him, defined Russian and Soviet society, Schuster, 2014, 464 pp. $30.00.
and determined international outcomes.
Kotkin also shows how prior epochs and “The story of this book,” Dawisha
historical figures paved the way for the announces at its outset, is the “hope for

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Recent Books

political revanche,” by which she evidently to illustrate how the outlooks each party
means the Putin regime’s retaliation for falsely attributed to the other permitted
Russia’s humiliation and weakness after a general easing of tensions and made
the collapse of the Soviet Union. The possible some specific agreements, such
bulk of the book concerns money—dirty as the 1972 Anti-Ballistic Missile Treaty.
money, in massive quantities—and the Grynaviski convincingly argues that the
marvelously circuitous ways it has been Nixon administration miscalculated the
amassed by Russian President Vladimir likely Soviet reaction to U.S. proposals
Putin, those around him, and the billion- and thus trapped itself into an agree-
aires at one remove who kowtow to ment it had not originally intended to
Putin’s regime. Dawisha’s book stands achieve. Less persuasive is the book’s
as the most detailed indictment of the larger argument about the overall posi-
venality that she argues has marked every tive effects such misperceptions had
step of Putin’s career. But the “political on the Cold War. Grynaviski concludes
revanche” portion of her argument is with a fair and lucid exploration of
less persuasive. She makes the case that some explanations for détente’s ultimate
from the very start, Putin and his circle failure, all of which he faults for relying
planned to take Russia down an authori- too much on a single factor. He is right:
tarian path. But she is a bit fuzzy on but then again, the same complaint
just how much control Putin exerts over could be made about his own approach.
Russia’s kleptocracy and on how impor-
tant he was to its emergence: indeed,
her own evidence suggests that it was in Moscow in Movement: Power and
place well before Putin became president. Opposition in Putin’s Russia
His contribution has been to increase by Samuel A. Greene. Stanford
the kleptocracy’s size. University Press, 2014, 296 pp. $90.00
(paper, $25.95).

Constructive Illusions: Misperceiving the The image of Russian civil society as

Origins of International Cooperation passive and cowed by the Kremlin misses
by Eric G rynaviski. Cornell the mark, Greene argues in this subtle
University Press, 2014, 224 pp. $39.95. and well-substantiated study. Greene
spent 13 years in Russia observing,
Grynaviski challenges conventional thinking about, and talking about the
wisdom by arguing that international relationship between the Russian state
cooperation is often the product of and Russian citizens. That experience
misunderstandings rather than shared forms the empirical foundation for his
views. Indeed, if governments knew just insightful analysis of Russia’s peculiar
how distinct others’ perceptions were form of authoritarianism. He grounds
from their own, they would make far his discussion in an extremely efficient
fewer deals. This is an intriguing argu- and succinct review of the evolving
ment, as counterintuitive arguments concept of civil society, beginning with
often are. Grynaviski uses the period of the ideas of Locke and Rousseau and
U.S.-Soviet détente in the early 1970s working his way to the theories that

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 Recent Books

dominate contemporary social science.

Out of this exercise, he produces his Middle East
own working definition of the term “civil
society”: “the nonviolent means by which John Waterbury
individuals collectively seek sovereignty
vis-à-vis the state.” By his reckoning, the
“sporadic, low-level protests” that occur Understanding the Political Economy of the
in Russia and “the antagonistic state Arab Uprisings
responses they generate” suggest that the edited by Ishac Diwan. World
Russian political scene is less monolithic Scientific, 2014, 308 pp. $56.00.
than it often seems.
Democratization and Authoritarianism in
Presidential Decrees in Russia: A the Arab World
Comparative Perspective edited by Larry Diamond and
by Thomas F. Remington. Marc F. Plat tner. Johns Hopkins
Cambridge University Press, 2014, University Press, 2014, 424 pp. $34.95.
188 pp. $85.00.
Taking to the Streets: The Transformation
At first blush, there would seem to be a of Arab Activism
wide gap between a “presidential decree” edited by Lina Khatib and
in the Russian context and an “executive Ellen Lust . Johns Hopkins University
order” issued by a U.S. president. Rem- Press, 2014, 368 pp. $59.95 (paper, $29.95).
ington, however, makes precisely that
comparison, and he also considers how The Arab Uprisings Explained: New
today’s Russian decrees compare to those Contentious Politics in the Middle East
issued by the tsars and Soviet rulers. edited by Marc Lynch. Columbia
Even in repressive systems, governing University Press, 2014, 352 pp. $90.00
is a complex business, and lining up the (paper, $30.00).
necessary bureaucratic and legislative

T
pieces involves complicated strategic he uprisings of 2011 were
calculations. Remington, a seasoned and unprecedented in recent Arab
exceedingly careful scholar, concludes that history, as civilians took to the
Russian President Vladimir Putin has to streets in massive numbers not to
carefully weigh the costs and benefits of protest rising prices or condemn
issuing presidential decrees on matters as foreign governments but rather to
fundamental as institutional reform and as demand the downfall of their own
narrow (albeit emotional) as changing the leaders. Arab countries have long
national anthem. In this way, his situation ranked among the least free in the
is not dissimilar to the one U.S. President world, and the uprisings suggested
Barack Obama faces when considering that perhaps the region was about to
whether to work with Congress or govern come in from the autocratic cold. In
through executive authority alone. four recently edited volumes, experts
try to make sense of the uprisings and
the subsequent regime changes, as well

Januar y/Februar y 2015 195

Recent Books

as the reversals and bloody stalemates which are themselves divided into
that followed. Together, they shed some reformers and hard-liners. If civil
light on the basic question now facing society moderates and regime reformers
the region: Is autocracy back for good, hold sway and can arrive at an under-
or did the protests signal the start of standing, then a transition to democracy
an irreversible march toward greater is possible. But if radicals and hard-liners
democracy that is merely stalled at dominate, their intransigence makes a
the moment? transition virtually impossible.
In considering the origins of the In the past four years, Egypt has
uprisings, these volumes tend not to produced both of those outcomes. In
emphasize structural factors, such as the 2011, elements of the Mubarak regime
region’s high level of youth unemploy- that were open to change (including
ment or its “youth bulge.” One might some in the military) made a series of
assume that, for example, a sevenfold deals with moderate elements of the
increase in the number of unemployed opposition (especially within the Mus-
educated people—which Tunisia experi- lim Brotherhood), leading to modern
enced between 1994 and 2011—would Egypt’s first freely elected government.
be a major contributor to civil unrest. Then, in 2013, when the new president,
But the expert analyses collected by a former Brotherhood leader, revealed
these four books tend to see other kinds his antidemocratic intentions, the military
of issues as more important in explain- turned hard-line, ousted the president,
ing why the uprisings occurred. gunned down his supporters when they
Of these volumes, Diwan’s includes rallied in protest, and established a
the most commentary on the structural new regime that is even more auto-
factors behind the uprisings, and a cratic than Hosni Mubarak’s was.
credible hypothesis emerges from some Meanwhile, the Arab monarchies
of its essays: in recent decades, neolib- proved themselves to be the most resil-
eral reforms enacted by Arab states ient autocracies in the region, facing
combined with corrupt privatization hardly any challenge at all during the
schemes and crony capitalism to under- upheaval. With the exception of Bahrain,
mine the economic base of the middle none of the monarchies experienced
class, driving a portion of the middle street protests like the ones that con-
class to ally with the lower-middle class vulsed Arab republics. In an essay in
and the poor. Some contributors to Diamond and Plattner’s book, Sean
Diwan’s book also make use of “transi- Yom and F. Gregory Gause explain
tology” scholarship that looked into the monarchs’ stability by emphasizing
the democratic transitions in Latin their oil wealth, their backing by broad
America and eastern Europe in the coalitions, and the strong support the
1990s. This research suggests that monarchs enjoy from outside powers,
transitions to democracy involve deals including the United States. Not all
made among four distinct groups. On monarchs enjoy those assets, however;
the one side is civil society, which is nor are such advantages exclusive to
divided into moderates and radicals; on monarchies. In their contribution to the
the other side are autocratic regimes, Diamond and Plattner volume, Jason

196 f o r e i g n a f fa i r s
Brownlee, Tarek Masoud, and Andrew
Reynolds take a different tack, stressing
another important factor: hereditary
succession, which, if carried out suc-
cessfully, demonstrates the loyalty of
the military and the intelligence ser-
vices to the regime.
The example of Kuwait reveals some
of the limits of these analyses. The country Franklin Williams
is a monarchy and also a democracy of Internship
sorts, as Mary Ann Tétreault points out The Council on Foreign Relations is seeking
in an essay in Khatib and Lust’s book. talented individuals for the Franklin Williams
Moderates within Kuwaiti civil society Internship.
have confronted and bargained with The Franklin Williams Internship, named after
reformers in the regime since at least the late Ambassador Franklin H. Williams,
was established for undergraduate and graduate
1939, even though the monarchy’s control students who have a serious interest in
of the country’s oil wealth should relieve international relations.
the regime of any sense of accountability, Ambassador Williams had a long career of
and even though none of the country’s public service, including serving as the
factions—including its civil society American Ambassador to Ghana, as well as the
Chairman of the Board of Trustees of Lincoln
moderates—appear committed to
University, one of the country’s historically
genuine democracy. black colleges. He was also a Director of the
For leaders across the region, the Council on Foreign Relations, where he made
issue of reform has always posed a special efforts to encourage the nomination of
challenge, and perhaps never more so black Americans to membership.
than today. On the one hand, even token The Council will select one individual each
term (fall, spring, and summer) to work in
reform might prove to be a slippery
the Council’s New York City headquarters.
slope that leads inevitably to the undoing The intern will work closely with a Program
of autocracy. On the other hand, perhaps Director or Fellow in either the Studies or
the despots can maintain themselves the Meetings Program and will be involved
indefinitely through what the political with program coordination, substantive
and business writing, research, and budget
scientist Steven Heydemann has else- management. The selected intern will be
where called “recombinant authoritari- required to make a commitment of at least 12
anism”: the ability to adapt, put in place hours per week, and will be paid $10 an hour.
phony reforms, and burnish democratic To apply for this internship, please send a
symbols without actually allowing for résumé and cover letter including the se-
mester, days, and times available to work to
democratic change. Essays in Lynch’s
the Internship Coordinator in the Human
volume and in Diamond and Plattner’s Resources Office at the address listed below.
note that recent opinion polls suggest The Council is an equal opportunity employer.
that in the aftermath of the uprisings, Council on Foreign Relations
Arab publics are now less likely to play Human Resources Office
along with such shams and will insist 58 East 68th Street, New York, NY 10065
tel: 212.434 . 9400 fax: 212.434 . 9893
that any future reforms be genuine. But humanresources@cfr.org http://www.cfr.org
the jury is still out. Although autocracies

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elsewhere have successfully evolved

through reform, none has done so in Asia and Pacific
the Arab world.
The role of religion in the post- Andrew J. Nathan
uprising era also remains unclear. On this
topic, Michael Hoffmann and Amaney
Jamal make an intriguing observation
in their contribution to Lynch’s book: The Hundred-Year Marathon: China’s
compared with their elders, young Arab Secret Strategy to Replace America as the
Muslims are less religiously observant Global Superpower
yet more accepting of political Islam by Michael Pillsbury. Henry
and more sympathetic to the concept of Holt, 2015, 336 pp. $28.00.
sharia. They are also more likely to
protest than to vote. This seems like a Fire on the Water: China, America, and
combustible combination of attitudes the Future of the Pacific
and behaviors. by Robert Haddick. Naval
In thinking about the future of the Institute Press, 2014, 288 pp. $37.95.
region, it’s important to remember that
political transitions are often shaped The South China Sea: The Struggle for
by external powers. The United States Power in Asia
countenanced heavy-handed repression by Bill Hayton. Yale University
in Bahrain in 2011 and seems unwilling Press, 2014, 320 pp. $35.00.
to forcefully confront Egypt’s new regime.

P
And the regional power with the deepest illsbury and Haddick articulate
pockets, and hence the greatest influ- some of the reasons behind
ence, is antidemocratic Saudi Arabia. Washington’s increasing anxiety
In the Arab world, those who pay the about China. After decades of close
piper are not calling the tune of contact with senior Chinese military
democracy. officials, Pillsbury has come to believe
that China aims not to simply defend
its core interests, nor to merely match
the power of the United States, but
rather to achieve global economic,
cultural, and military dominance. He
sees China’s current assertiveness as the
opening phase of a long-term effort to
make the world safe for Chinese-style
thought control, disregard for the
environment, authoritarian rule, and
arms proliferation. Despite the virtual
inevitability that China will ultimately
boast a far larger economy than the
United States, Pillsbury contends that
Washington can maintain preeminence as

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long as it begins to take the competition Sea supports Pillsbury’s and Haddick’s
seriously instead of counting on com- concern that China is pursuing a so-
mon interests to generate cooperation called salami-slicing strategy to gain
from Beijing. Pungently written and dominance of that body of water.
rich in detail, this book deserves to Hayton argues that China’s territorial
enter the mainstream of debate over claims there, which run afoul of inter-
the future of U.S.-Chinese relations. national law, are rooted in a sense of
Haddick seconds Pillsbury’s concerns. entitlement and in strategic interests—
He calls U.S. military strategy in Asia and not, as many observers contend,
“archaic” because it has not fundamen- in a desire to secure undersea oil
tally changed since the early Cold War resources. He believes that for this
period, when the United States faced reason, such claims are unlikely to be
no Asian adversary with long-range resolved by diplomatic bargaining or
weapons systems. Today, China has international courts. Although coop-
developed missiles, fighter-bombers, eration would be a better way out for
and submarines capable of crippling all sides, Hayton concludes that “the
U.S. bases and aircraft carriers up to logic is toward conflict in the South
1,200 miles from Chinese shores, along China Sea.”
with fighter aircraft and surface-to-air
missiles to protect military bases on
Chinese soil. The Pentagon’s answer to Liem Sioe Liong’s Salim Group: The
these developments is called “air-sea Business Pillar of Suharto’s Indonesia
battle,” but Haddick believes the strategy by Richard Borsuk and Nancy
is unworkable. He proposes that Wash- Chng . Institute of Southeast Asian
ington pursue a number of potentially Studies, 2014, 574 pp. $79.35.
risky alternatives, including measures
that would destabilize China internally, This study of Indonesia’s most successful
the acquisition of long-range stealth entrepreneur, who died in 2012 at the
aircraft, and the development of age of 95, is a contribution to both
intermediate-range missiles, which are business history and political history.
currently banned by the Intermediate- The story of the Salim Group’s expansion
Range Nuclear Forces Treaty. into flour, cement, banking, noodles,
Hayton, a journalist based in the and countless other fields illuminates
United Kingdom, is more sanguine in the symbiotic relationship between
some ways. He argues that even with businesspeople and politicians during
China’s military buildup, China’s navy is the reign of Suharto, Indonesia’s presi-
technologically 20 years behind its U.S. dent from 1967 until 1998. The Javanese-
counterpart, that Washington’s solid rela- born Suharto and the Chinese-born
tionships with many Asian countries give Liem Sioe Liong were both tough men
the United States a distinct advantage with smiling exteriors who held mystical
over China, and that the tough talk of beliefs and were fascinated by money.
Chinese military hawks is merely tactical Suharto provided Liem with access
bluffing. But his masterful history of the and protection, and Liem served as a
territorial disputes in the South China discreet source of funds for Suharto’s

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political and personal use. In the 1990s, robbed them of economic autonomy.
Liem struggled to keep his footing as Even after independence, the idea of
the increasingly erratic Suharto launched untouchability as a deep-rooted cul-
rhetorical attacks on the business class, tural and religious custom has pre-
dominated by ethnic Chinese, while vented a full assault on what continues
tolerating rampant corruption by his in many places to constitute a form of
cronies and even his own children. Borsuk hereditary slavery.
and Chng’s sources were not shy about
explaining how business was really done
during Suharto’s time—and, no doubt, Powerful Patriots: Nationalist Protest in
is still done—not only in Indonesia but China’s Foreign Relations
also throughout Asia. by Jessica Chen Weiss. Oxford
University Press, 2014, 360 pp. $99.00.

The Pariah Problem: Caste, Religion, and Are Chinese policymakers driven to
the Social in Modern India take more assertive foreign policy
by Rupa Viswanath. Columbia positions by the pressure of nationalist
University Press, 2014, 416 pp. $60.00. public opinion, or do they merely use
that opinion as a tool to strengthen
The struggle of India’s “untouchables” their hand in negotiations with other
for equality is usually understood as a powers? Weiss presents a nuanced but
challenge to Hindu tenets that hold clear answer in favor of the latter posi-
such people to be inherently tainted. tion. Her study of 92 protest attempts
But this innovative book argues that from 1985 to 2012 finds that authori-
historically, the untouchables (or Dalits) ties restrained or prevented more
were excluded less as a result of reli- demonstrations than they allowed but
gious beliefs than on account of their shows that some flexibility proved
economic role as bonded agricultural useful for diplomatic signaling. For
laborers. Viswanath explains that the example, in 2001, the Chinese govern-
religious aspect of untouchability began ment repressed a nascent anti-American
to take precedence only in the late protest in order to indicate its willing-
nineteenth and early twentieth centu- ness to negotiate a solution to the
ries. Protestant missionaries started crisis generated by a collision between
the process by trying to convert Dalits a Chinese fighter jet and a U.S. spy
to Christianity. The landed castes’ plane. In 2005, on the other hand,
response to this perceived threat was Beijing added muscle to its campaign
to claim that subordinating the Dalits against the proposal to grant Japan a
was a native custom that should be permanent seat on the un Security
protected according to the British Council by allowing anti-Japanese
colonial policy of respect for local protests. Weiss argues that attempting
religious norms. The British chose to to exploit protests in this way also
view the Dalits’ condition as the result poses risks: it can cheapen the desired
of a voluntary contract, ignoring the signaling effect, and it can provide
ways in which the Dalits’ ritual status useful cover for demonstrators who

200 f o r e i g n a f fa i r s
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actually want to criticize the Chinese

government itself. Africa
Nicolas van de Walle
The Cultural Logic of Politics in Mainland
China and Taiwan
by Tianjian Shi. Cambridge
University Press, 2014, 280 pp. $95.00. State-Building and Multilingual Education
in Africa
One of the most vexing questions for by Ericka A. Albaugh. Cambridge
scholars of China is whether Chinese University Press, 2014, 336 pp. $99.00.
political culture inherently supports

G
authoritarian rule. Solid answers to iven how difficult it can be to
that question have eluded political create a sense of nationhood in
scientists for decades. This book by places where people construct
the late China scholar Shi represents their identities from many different
an audacious and creative attempt to sources, one might think that large
solve the puzzle. Through a sophisti- African states would try to educate their
cated statistical analysis of survey data citizens in a single national language in
collected between 1993 and 2008 in order to promote national cohesion. But
mainland China and Taiwan, Shi reaches in fact, four out of five African countries
several surprising—and undoubtedly officially encourage education in mul-
provocative—conclusions. He finds tiple local languages. Albaugh argues
that structural change (such as eco- convincingly that this counterintuitive
nomic development) and institutional development stems from an odd alliance
transformation (democratization, in that formed in the 1990s among elites
the case of Taiwan) have had no impact in African countries, donor states, and
on cultural attitudes toward authority international nongovernmental organi-
in the two societies. Because of the zations that worked on education. The
influence of traditional culture, Chinese democratization of the region in the
people tend to be more trustful of and 1990s forced African governing elites
less confrontational toward authority. to find new tools for maintaining their
More important, the Chinese cultural power. By helping strengthen regional
conception of democracy differs funda- identities, local language instruction
mentally from its Western counterparts. represented a way for central authorities
In the West, democracy is defined in to divide and conquer, since it discour-
procedural terms. But in traditional aged subnational groups from forming
Chinese culture, democracy is viewed opposition blocs. Meanwhile, Western
as “guardianship.” If Shi’s argument is donor states, especially France, believed
correct, the Chinese Communist that official education in vernacular
Party’s rule may endure longer than languages would also make it more
many expect. likely for Africans to learn European
minxin pei languages. Finally, nongovernmental
educational organizations tended to

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prize cultural diversity over the exigen- A Poisonous Thorn in Our Hearts:
cies of nation building and lobbied on Sudan and South Sudan’s Bitter and
behalf of multilingualism. Theoretically Incomplete Divorce
rich, well documented, and sophisticated by James Copnall . Hurst, 2014,
in its argumentation, Albaugh’s book is 272 pp. $30.00.
one of the finest available on the origins
of public policy and the process of state This book’s title is drawn from a
building in Africa. comment that a close ally of Sudanese
President Omar al-Bashir made after
South Sudan gained its independence
Toxic Aid: Economic Collapse and from Sudan in 2011, as he bid good
Recovery in Tanzania riddance to a region that had been
by Sebastian Edwards. Oxford like a “poisonous thorn” in Khartoum’s
University Press, 2014, 320 pp. $55.00. heart. But Copnall shows that the
cultural, political, and economic links
Despite the title of this book, the heroes between the countries remain dense
of Edwards’ entertaining account of and complicated and argues that the
Tanzania’s development in the 1980s and two sides need to forge a productive
1990s are the international donors who relationship if either is to thrive. His
imposed reforms on the country’s socialist own analysis suggests that is unlikely:
government after President Julius the divides are deep, and the leaders in
Nyerere’s policies had ruined the economy. both countries are corrupt and repres-
In the immediate postindependence era, sive. Shortly after they parted ways,
international aid had provided support to the two countries fought bitterly over
those same counterproductive policies— territory as both governments clamped
hence the toxicity referred to in the title. down on domestic dissent. Copnall’s
But by the early 1980s, the majority of many interviews with officials and
donors had withdrawn their support and ordinary people on both sides lend
begun to condition future aid on reforms, the book real authority and a sense of
including the thorough privatization and genuine empathy for the people of the
liberalization of the economy. Edwards two Sudans.
argues that Tanzania’s adoption of this set
of “Washington consensus” policies sped
the country’s economic growth during the What’s Gone Wrong? South Africa on the
last two decades. His book is one of the Brink of Failed Statehood
most thorough and careful examinations by Alex Boraine. New York
of the subject of economic reform in University Press, 2014, 174 pp. $27.00.
Africa, and it benefits from the many
interviews he conducted with key actors Boraine, an influential white antiapart-
in Tanzania. Nonetheless, Edwards heid activist, has written a scathing
devotes too little attention to the many critique of the African National Con-
critics of the aid process in that country, gress, the black-dominated party that
who continue to question the true extent has ruled South Africa for the past
of the reforms’ success. two decades. Boraine’s account of the

202 f o r e i g n a f fa i r s
 Recent Books

party’s corruption breaks no new ground; details the negative impact of colonial-
nor does his argument that the anc’s ism, the problems of state formation
intolerance of criticism results from in ethnically fragmented territories,
the antidemocratic internal culture the the misrule by elites who often favor
party forged during its long struggle for their own ethnic and regional bases,
power. More interesting are the book’s the harmful effects of military interven-
details on the strategies the anc has tions launched by states in the region
used to weaken the independence of the and outside powers, and the ravages
judiciary and emasculate the legislature of environmental degradation. A final
while maintaining party unity. Boraine chapter somewhat optimistically identi-
hopes that strains will eventually appear fies democratization and government
between the anc’s different factions, reform as the necessary prerequisites
but he doubts that any real threats to for peace, economic development, and
the party’s power will soon materialize. state construction. Mengisteab does not
His focus on political maneuvering always adequately distinguish between
means that he spends less time explor- the region’s eight countries, but he has
ing the anc’s disappointing record done a masterful job of explaining a set
on promoting economic growth and of incredibly complicated conflicts in a
alleviating poverty. Still, this heartfelt complex and underexamined part of
critique of South Africa’s status quo the world.∂
deserves to be read.

The Horn of Africa

by Kidane Mengisteab.
Polity Press, 2013, 240 pp. $69.95
(paper, $22.95).

In recent decades, few places have been

as mired in violence as the Horn of
Africa, which is home to more than 200
million people. Mengisteab’s definition
of the region includes eight countries:
Djibouti, Eritrea, Ethiopia, Kenya,
Somalia, South Sudan, Sudan, and
Uganda. His book provides a good
introduction to the structural and
historical causes of the conflicts that
have roiled those places. Mengisteab
Foreign Affairs (ISSN 00157120), January/February 2015, Volume 94, Number 1. Published six times annually (January, March, May,
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Januar y/Februar y 2015 203

Foreign Affairs Focus:
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Covert Action With Jack Devine
Jack Devine, former acting director of the CIA’s operations outside the United
States, speaks with Foreign Affairs. Watch the full video at ForeignAffairs.com.

on the u.s. role in pinochet’s coup: on putin’s playbook:

To the degree that we roiled the waters, if you When I look at Ukraine, Putin, an ex-KGB
will, we contributed to it. But we did not plot officer, is using the playbook of the Cold War.
with the military, and there’s a big distinction. He isn’t going to try and grab the western part;
he’s going to maximize his influence, the way
on the chain of command:
we would have done in Chile. That is buying
When you join the CIA, you have to make political power, getting agents, influencing the
some peace with whether you are comfortable, propaganda piece, and increasing intimidation
psychologically and philosophically, with the from the east. It’s a classic playbook.
use of force and using it clandestinely. Once
you make peace with that, then it becomes an on covert action:
issue of who decides. And I’m unequivocal: The world is highly unstable; our interests are
that’s the president of the United States. very high. We are going to have to work through
And I know no covert action has ever taken diplomacy, sanctions, incentives, and military
place without the president’s explicit approval. assistance, but we are going to have to make sure
we have special friends that we’re supporting
below the radar—more than ever.

Visit foreignaffairs.com/video for the full interview and others in the series—including Max Boot on
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Addressing the critical issues
facing Asia in the 21st century
Annually, The Asia Foundation conducts the most comprehensive and longest-
running public opinion poll in Afghanistan. In 2014, with 9,271 face-to-face
interviews across all 34 provinces, Afghans told us what they think about: elections,
corruption, security, women’s rights, the economy, the Taliban, and peace and
reconciliation. The survey marks the tenth in The Asia Foundation’s series of
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makers and an unmatched barometer of Afghan public opinion over time.

A FG H A N ISTA N I N 2 01 4 :

Survey of the Afghan People

READ IT HERE: asiafoundation.org