Revealing that the key to successful economic development in late industrializers rests in the state's capacity to discipline capitalists, this study sheds light on why certain countries (South Korea and Taiwan) have the capacity to discipline capitalists, while others (Mexico and Argentina) find themselves at the receiving end of industrialists' political and economic power. Closer examination of middle classes, especially rural middle classes, reveals the extent to which they achieve sufficient political sway in politics and society, and thus are able to impose such discipline.
Lightning may never strike twice in the same place, but the same cannot be said of sovereign default. Throughout history, governments have demonstrated that “serial default” is the rule, not the exception. Argentina has famously defaulted on ﬁve occasions since its birth in the 1820’s. However, as shown in Table 1, Argentina’s record is surpassed by many countries in the New World (Brazil, Mexico, Uruguay, Venezuela, and Ecuador) and by almost as many in the Old World (France, Germany, Portugal, Spain, and Turkey). At the same time, a
smaller and dwindling number of developing countries such as India, Korea, Malaysia, Mauritius, Singapore, and Thailand have yet to default, despite being tested by severe turmoil, including the Asian crisis of the late 1990’s. What can explain such striking differences in default performance? State-of-the-art theoretical models of debt crises stress the importance of multiple equilibria where random investor panics can become self-fulﬁlling. The implication is that economists may never be able to precisely explain sovereign defaults, much less
predict them. Nevertheless, the fact that sovereign defaults tend to recur like clockwork in some countries, while being absent in others, suggests that there must be a signiﬁcant explainable component as well.
America is up to its neck in nation building - but the public debate, focused on getting the troops home, devotes little attention to why we are building a new Iraqi nation, what success would look like, or what principles should guide us. What We Owe Iraq sets out to shift the terms of the debate, acknowledging that we are nation building to protect ourselves while demanding that we put the interests of the people being governed - whether in Iraq, Afghanistan, Kosovo, or elsewhere - ahead of our own when we exercise power over them.
Noah Feldman argues that to prevent nation building from turning into a paternalistic, colonialist charade, we urgently need a new, humbler approach. Nation builders should focus on providing security, without arrogantly claiming any special expertise in how successful nation-states should be made. Drawing on his personal experiences in Iraq as a constitutional adviser, Feldman offers enduring insights into the power dynamics between the American occupiers and the Iraqis, and tackles issues such as Iraqi elections, the prospect of successful democratization, and the way home.
Elections do not end the occupier's responsibility. Unless asked to leave, we must resist the temptation of a military pullout before a legitimately elected government can maintain order and govern effectively. But elections that create a legitimate democracy are also the only way a nation builder can put itself out of business and - eventually - send its troops home.
Feldman's new afterword brings the Iraq story up-to-date since the book's original publication in 2004, and asks whether the United States has acted ethically in pushing the political process in Iraq while failing to control the security situation; it also revisits the question of when, and how, to withdraw.
Sept. 29 issue—The Swedes reject the euro by the resounding margin of 56 percent to 42 percent.
Politicians and pundits proclaim the European Union has reached a crisis. Well, yes and no. The
Swedish vote was no isolated bout of Nordic crankiness. To the contrary, it was sign of the deep
disillusionment sweeping Europe. Yes, Estonia just voted overwhelmingly to join the Union, and Latvia
probably will do the same this week. But note how, in a recent referenda, a slew of existing members
have either voted down a variety of proposed community reforms or approved them by only slender
margins. In Sweden’s case, a broad coalition of female, working-class, poor and rural voters rose to
defend the welfare state against what they perceived as collusion between neo-liberal business and
government elites in Stockholm and distant and unaccountable technocrats in Brussels.
It's hard to interpret this as anything but a resounding sign of the times. Over the coming year the
leaders of at least five countries have promised to submit the landmark new European constitution, currently in
the final stages of negotiation, to national votes. Even a single no could consign the whole lofty enterprise to
failure. It will be a rough ride, underscoring the EU’s accelerating fragmentation. In Britain last week, Tory euroskeptics
watched gleefully as government officials admitted that adopting the euro is “completely off the radar
screen” until 2007. In Brussels, the president of the European Commission, Romano Prodi, warned that the EU
might split, relegating Sweden (along with fellow Eurozone holdouts Britain, Denmark and some East European
members-in-waiting) to a sort of second tier of financially less-influential countries. Acrimonious splits between
“old” and “new” Europeans over the Iraq war have undermined any semblance of unified foreign and security
policies. And when it comes to common economic policy, budget-busting fiscal “unilateralists”—France, Italy
and Germany—have all but killed the EU stability pact.
This is not the end (or even the beginning of the end) for European integration. But it is the end of the
cherished Euro-federalist dream (and Euro-skeptic nightmare) of a single European state, centralized in Brussels.
To be sure, every member accepts certain core commitments—the single market, the European Parliament and the
supremacy of European law in most economic matters. In a plethora of regulatory areas—from anti-monopoly
policy to cellular-phone design to food-safety standards—EU rules are the rules. Still, the EU has crossed the
Rubicon. Once a relatively small and homogeneous organization, cherishing “ever closer union” above all else, it
has become a large and far more diverse, flexible and pragmatic one. “Multispeed” arrangements, whereby
countries advance toward integration at their own pace, have become the norm. Eurocrats have even invented a
positive term for it: “enhanced cooperation."
Many West Europeans from the old core of the European Community are still ambivalent about the
swathe of 10 eastern and southern European countries about to join their club. Their reservations, albeit to a lesser
degree, are shared by the new entrants. Yet for all the bumps encountered along the way, enlargement is an
admirable achievement. Over the next decade the EU will likely become a zone of enviable peace and democracy
from the Arctic Circle to the border of Iraq. The lesson of the Swedish referendum is that the success of the EU
cannot be measured by polls. Public opinion may swing back and forth, but the thousands of small decisions taken
in common cannot be reversed. The EU remains the most ambitious and the most successful example of peaceful
international cooperation in world history.
Archbishop Sean P. O'Malley, demonstrating the high priority he places on services to the poor, yesterday named a priest who is a national leader in Catholic social services and the former dean of Harvard Divinity School to oversee Catholic Charities of the Archdiocese of Boston.
O'Malley's choice of the Rev. J. Bryan Hehir as president of the largest private social services agency in the state places an outspoken and highly regarded intellectual in the inner circle of the church's hard-pressed local administration. Hehir, who will now be a member of O'Malley's cabinet, has spoken widely about the sexual abuse crisis in the church, and has been critical of the hierarchy, declaring just last week at Boston College that "we've got to treat adults as adults in the church."
He succeeds current Catholic Charities president Joseph Doolin, who had announced plans to retire.
Hehir, 63, who currently serves as president and chief executive of Catholic Charities USA in Alexandria, Va., will assume his new post in January. The Boston agency provides social services to hundreds of thousands of poor people, most of whom are not Catholic and many of whom are immigrants.
"There is rising human need, and there are declining resources to meet those needs, rooted in the fact that we're coming out of a recession, state budgets all across the country have been devastated, and the church across the country has been impacted by the [abuse] crisis," Hehir said in a telephone interview. "We're working on housing, nutrition, helping people with employment searches, but in Boston we're doing that under an overarching reality, which is the need for a pastoral rebuilding of trust within the church, and a public rebuilding of trust within society as a whole."
O'Malley, who as a Franciscan Capuchin friar has expressed a pastoral preference for the poor, declared privately shortly after his installation July 30 that he wanted a priest to take over the agency upon the retirement of Doolin, the social worker who has headed the agency since 1989. O'Malley consulted with the agency's board of trustees, but made the choice himself.
"Archbishop O'Malley, as the bishop of Boston, has a great concern for the poor and needy of Boston, and his own charisma as a Franciscan gives him a deeper love for the poor and underprivileged," said O'Malley's spokesman, the Rev. Christopher J. Coyne. "The appointment of Father Hehir to this position is going to strengthen the church's mission to the neediest among us."
Many church observers were surprised that such a prominent figure would move from the national organization to a local one. But it was hailed in Boston.
"In the world that Bryan Hehir lives in, he's a giant," said Neal F. Finnegan, chairman of the Catholic Charities board of trustees. "This certainly makes a statement about the importance of Catholic Charities in the array of things this archbishop is trying to strengthen."
Peter Meade, the board's vice chairman, called the appointment "an incredible signal to the priests of the diocese that the archbishop wants to hear from everyone, and a signal to us of how important he believes Catholic Charities is to Boston."
Voice of the Faithful, a lay organization that has been contributing money to Catholic Charities because the Archdiocese of Boston has refused to accept the group's contributions, also welcomed the move.
"This is . . . an extraordinary coup for the Archdiocese of Boston," said James E. Post, the president of the Voice of the Faithful. "Father Hehir is a scholar, a passionate advocate for social justice, and a gifted leader who well understands the impact of this crisis on Catholics and Catholic institutions."
Hehir will face numerous challenges at Catholic Charities, a 100-year-old agency that served 200,000 people last year and had a budget of approximately $40 million, most of which came from the state government and private fund-raising. Doolin is credited with building up the board of the organization, which includes numerous prominent business leaders, and with spearheading an ongoing but painful reorganization in which the agency expects to consolidate about 75 facilities around Greater Boston to fewer than 10.
Hehir is not a well-known public figure, but in the worlds of academia and in church circles, he is highly regarded for his intellect and communication skills. He is one of the leading Catholic experts on the theory of just war.
Educated at St. John's Seminary in Boston and ordained in 1966, Hehir worked from 1973 to 1992 on the staff of the National Conference of Catholic Bishops, where he was regarded as the architect of the bishops' influential 1982 pastoral letter on nuclear weapons, which called for reducing the nation's nuclear arsenal. In 1984 he won a so-called genius grant from the MacArthur Foundation, and he has won more than 25 honorary degrees from various universities.
While at the bishops' conference, Hehir taught at Georgetown, and then he moved back to Boston, where from 1993 to 2001 he was a professor of the practice of religion and society at Harvard Divinity School. From 1998 to 2001, he served as the first Catholic priest to lead Harvard Divinity School, but he refused to take the title of dean or to live in the dean's mansion to demonstrate that his first duty was to the church.
Cardinal Bernard F. Law, then archbishop of Boston, made it clear he was unhappy with Hehir being stationed at Harvard, a historically Unitarian school with a reputation for progressive theology. In 2001 Hehir left to head the national Catholic Charities agency, which does not provide direct services but rather serves as an umbrella organization advocating in Washington for the interests of Catholic Charities agencies around the country.
Over the course of the church crisis, Hehir has been much in demand as a public speaker, and has addressed the crisis at multiple venues, including Regis College and Boston College. He has also spoken on the subject to the Boston Priests Forum.
At BC last week, he declared that the church is still in crisis, saying, "We've had the nuclear explosion, the blast is over, but the radiation is still in the air," and warning that "if we lose the people who have become disillusioned by this, the next two or three generations of their families are gone, too. . . . That will be devastating."
Hehir said yesterday that even as the archbishop's secretary for social services, he expects to continue to speak his mind.
"You need to know when you're working in a given framework, that you're not a freelancer. But I've always found people give you the scope to speak as honestly as you can to problems, and that you should try and be as direct and clear as you can," he said.
Five years ago, Haven Acres—a largely African American neighborhood of Tupelo, Miss.—showed familiar signs of urban decay: gangs, drugs, trash, dilapidated housing, for-sale signs, distrust and hopelessness. Haven Acres was so dangerous that armed cops were afraid to enter the neighborhood unless they had backup.
But last month I walked at dusk through a miraculously transformed Haven Acres. Crime rates have fallen by 86%, and the drug dealers and for-sale signs are gone. Larry Otis, the white Republican mayor of Tupelo, understandably brags about this grass-roots accomplishment as the proudest success of the city during his tenure.
At the heart of this change is the community center that houses a booming Boys and Girls Club, created to give the kids of Haven Acres a positive alternative to gang life.
Ron Green, who grew up in Haven Acres and now runs the Boys and Girls Clubs of northern Mississippi, says the mentors at the Haven Acres club served 260 kids each day this summer, saving them from drugs, crime and maybe even death as they learned self-esteem and civic virtue.
Youths whom he would not have trusted with the keys to his office six months ago now stay there late to clean up, proud of the community they are creating.
And then Green's face falls. More than half of the mentors at Haven Acres were supported by the AmeriCorps program, which offers young people a modest living allowance and a promise of help toward college expenses in return for a year of full-time community service.
Cutbacks in AmeriCorps have forced him to fire all those mentors and slash his services to Haven Acres children.
Haven Acres is not alone. Federal politicking has forced AmeriCorps to renege on its commitments to community service programs across the country. In the three-state Mississippi Delta, the nation's poorest region, AmeriCorps' support for programs has been chopped by 90%. And thousands of other programs from coast to coast have been similarly cut.
Like Green, the harried leaders of those programs have been forced to eliminate positions for volunteers—nationally, 20,000 such AmeriCorps slots have been cut, nearly half the total planned for this year.
During the closing decades of the 20th century, as I wrote three years ago in "Bowling Alone," Americans became steadily less connected with one another and with collective life. We voted less, joined less, gave less, trusted less, invested less time in public affairs and disengaged from friends and neighbors and even from our own families. Our "we" steadily shriveled.
In this context, the attacks of 9/11 represented not just a national tragedy but also an extraordinary opportunity for civic renewal. After these decades of disengagement from our communities, Americans surprised themselves in their post-9/11 solidarity.
Many people recognized that this was a "teachable moment." If we caught that moment to build the foundation for a new culture of service and civic engagement, we could create a new "greatest generation." President Bush articulated this national yearning in his 2002 State of the Union address.
The president proposed a substantial expansion of the federal government's support for national and community service through AmeriCorps.
The program was already a proven success at helping young people from all walks of life—not just the wealthy who can afford full-time volunteering—invest a year of their lives in community service. Now it would be expanded to 75,000 posts a year.
Bush's call to action caught the imagination of the nation's youth. Applications to AmeriCorps jumped, and organizations in thousands of communities worked to absorb and direct these new energies. But now Washington is betraying the hopes of these idealistic youngsters.
Despite support for AmeriCorps from 44 governors, 79 senators, 250 corporate leaders and the vast majority of the American public, right-wing ideologues in the House have blocked the funding needed to keep the program even close to the growth path that the president laid out nearly two years ago. The House and Senate appropriation committees recently proposed allocating $340 million to $345 million to AmeriCorps for next year, but this initiative does nothing to forestall the draconian cuts facing its programs this year.
The president has so far remained above the fray, seemingly reluctant to commit himself to defending his own promise. Discussing his call to service two days after the 2002 State of the Union address, Bush told volunteers in Daytona Beach: "I'm one of these accountability guys. I understand sometimes in political process all you hear are words. I like to back them up with action. It's one thing to lay it out; it's another thing to follow up. I'm a follow-up guy."
Mr. President, now's the time for you personally to follow up.
The nation's young people responded enthusiastically to your leadership two years ago, and now's the time to make good on your commitments to them. Now's the time for you to persuade the House to act.
This is indeed a "teachable moment," and American youth—in Haven Acres and across the country—are listening. What civics lesson will you teach?
One of the most important developments over the past three decades has been the spread of liberal economic ideas and policies throughout the world. These policies have affected the lives of millions of people, yet our most sophisticated political economy models do not both temporally and spatially. We hypothesize that this clustering might be due to processes of policy diffusion. We think of diffusion as adequately capture influences on these policy choices. Evidence suggests that the adoption of liberal economic practices is highly clustered resulting from one of two broad sets of forces: one in which mounting adoptions of a policy alter the benefits of adopting for others and another in which adoptions provide policy relevant information about the benefits of adopting. We develop arguments within these broad classes of mechanisms, construct appropriate measures of the relevant concepts, and test their effects on liberalization and restriction of the current account, the capital account, and the exchange rate regime. Our findings suggest that domestic models of foreign economic policy making are insufficient. The evidence shows that policy transitions are influenced by international economic competition as well as the policies of a country's sociocultural peers. We interpret the latter influence as a form of channeled learning reflecting governments' search for appropriate models for economic policy.
The Israeli security cabinet's decision to “remove” Palestinian Authority President Yasser Arafat is ominous. Though the stated justification for the decision is the assertion that Arafat is an obstacle to peace, it actually seems to be designed to ensure the failure of the peace process envisaged by the road map.
This is not a time for passivity, subtlety, or ambiguity in Washington's response. Vehement US opposition to such a project is essential to averting reckless actions that are likely, at the very least, to set back the Israeli-Palestinian peace process for a long time to come.
There is no Palestinian leader who would be able to negotiate a peace agreement in the wake of Arafat's expulsion. Worse yet, if the expulsion causes the death of Arafat and/or the deaths of Palestinians who gather to protect their leader, the likely result is a further escalation of violence, with disastrous consequences for both communities.
Washington, unfortunately, prepared the ground for this dangerous turn of events by framing the appointment of Prime Minister Mahmoud Abbas (Abu Mazen) as another case of "regime change" in the Middle East—as the replacement of Arafat with Abu Mazen—and by shunning and seeking to isolate Arafat and pressuring European officials to break all contacts with him.
This approach has compromised Abu Mazen's legitimacy in the eyes of the Palestinian population and seriously undermined his
position. He came to be seen by many as a tool and accomplice in US efforts to reorder the Middle East and Israeli efforts to
perpetuate the occupation. It also encouraged a power struggle between Abu Mazen and Arafat, who had an incentive to block
some of Abu Mazen's initiatives in order to maintain his personal control.
Defining Abu Mazen, and now his designated successor, Ahmed Qurei (Abu Ala), as replacements and rivals of Arafat, flies in the face of an important reality: Both men are long-term, close associates of Arafat and derive whatever domestic legitimacy they have and can potentially enhance from this association.
Furthermore, the political strategy pursued by these two men—and, indeed, by all of the Palestinian leaders who have been committed to negotiating a historic compromise with Israel, in the form of a two-state solution—is ultimately the strategy of Arafat.
Where Arafat's leadership has gone awry is in his tactics: his continuing embrace of the bankrupt idea that violence can be used as a bargaining tool; his unwillingness to share control and credit.
The appeal of Abu Mazen and Abu Ala is that they are ready to advocate an end to violence and to engage in realistic negotiations in pursuit of the goal that Arafat has enunciated and persuaded the majority of the Palestinian population to accept: an independent Palestinian state in the West Bank and Gaza, with its capital in Jerusalem, in peaceful co-existence with the State of Israel.
The irony of the situation is that, by the time of Abu Mazen's appointment as prime minister, there was growing dissatisfaction with Arafat's leadership—including, significantly, his inability to end the violence and advance the negotiations—within the Palestinian political elite and general population. The idea of appointing a prime minister was generated within the Palestinian community itself and represented a significant accomplishment under trying circumstances.
US pressure no doubt contributed to Arafat's decision to accept his Legislative Council's recommendation. But by defining the action as a US-sponsored regime change, we were in effect saying to the Palestinian leadership: ”We will force you to appoint a new prime minister, even if you have independently decided to do so.”
As a result, not only was the legitimacy of the new prime minister undermined, but Palestinians felt further humiliated because their elected president, the father of their nation, and the symbol of their collective identity was being denied the respect and dignity due to his status.
Not surprisingly, Arafat's popularity has increased—and will increase even further if he is forcibly removed.
With the designation of Abu Ala as the new prime minister, we have another chance to frame this political development constructively, in a way consistent with the intentions of the Palestinian reformers and the dignity of the Palestinian public. Far from removing Arafat or replacing him with the new prime minister, we should endorse a redefinition of the role of the Palestinian president. Arafat, as president, would become the head-of-state, occupying a position that is essentially ceremonial and symbolic (similar to the position of the president of Israel), while the prime minister would be the head-of-government, responsible for conducting the internal and external affairs of the Palestinian Authority, including internal security and peace negotiations.
As head-of-state, Arafat would be treated with the full respect that is due to his office and would be recognized in his historical role as the symbol and father of the Palestinian people and its incipient state.
There is no guarantee that, under such an arrangement, Arafat would readily abandon his life-long habit of maintaining personal control. But his incentive to cooperate with his prime minister would be greatly enhanced. Above all, the prime minister would start out with the domestic legitimacy that he needs to function effectively and would have the opportunity to enhance his legitimacy by pursuing a meaningful peace process and achieving positive changes in the daily lives of his constituency.
Observing the second anniversary of Al Qaeda's assault on the World Trade Center and Pentagon, administration spokesmen sought to highlight progress in the war on terrorism to support President Bush's claim that we're getting safer every day. But if one stands back and asks whether Americans are actually safer from terrorist attacks than we were 12 months ago, a serious answer requires a net assessment. Our safety is a function not only of what our government does, but also of changes in our adversaries' capabilities and motivation.
Assessing that balance, I conclude that the threat of terrorist attacks on America in the year ahead remains at least as high as it was last year. Consider four fronts in this war: the international campaign against Al Qaeda; homeland security; preventing nuclear and biological terrorism; and Iraq.
In the first 12 months after the attack, America organized an extraordinary worldwide campaign against terrorism. Universal sympathy for American victims of 9/11 led governments and citizens around the world to proclaim solidarity under the banner, "We are all Americans." Through the UN, the United States enlisted more than 100 nations in a global effort to share intelligence information, enforce antiterrorist legislation in each local setting, and stop terrorists' flow of funds.
In the past year, this global coalition has frayed. America's standing in the world has fallen further and faster than at any time in the history of polling. When asked recently whom they trust to "do the right thing regarding world affairs," more Pakistanis, Indonesians, and Jordanians chose Osama bin Laden than President Bush.
Why does this matter? The essence of effective counter-terrorism is intelligence and police enforcement at the local level. The mastermind of Al Qaeda's Southeast Asian operations was captured in Thailand as a result of a tip from suspicious neighbors combined with active cooperation between local Thai agents and the CIA. The "hearts and minds" of governments and citizens provide either a sympathetic sea in which terrorists swim and hide, or alternatively, millions of eyes and ears from which terrorists cannot escape. Although the United States caught three of Al Qaeda's top leaders in the past year, bin Laden and his second-in-command are still on the lam and Al Qaeda recruitment is up.
Second, in defending the American homeland, the US government has taken many significant actions, most notably the creation of the Department of Homeland Security. In time, this will yield security dividends. But realism requires recognition that in the first year after such disruptive changes, capabilities are more likely to decline than increase. Former Senator Warren Rudman's recent Council on Foreign Relations report finds a shortfall of $98 billion in priority investments in homeland security over the next five years.
Third, the campaign to prevent a nuclear or biological 9/11 is failing. Despite lots of talk, North Korea is today producing plutonium that could be sold to terrorists for use in a nuclear attack. Russian and Pakistani nuclear weapons and materials remain as vulnerable to theft as they were last year. Orphaned research reactors in a dozen countries around the world, including Libya and Ghana, contain highly enriched uranium sufficient to make a number of nuclear weapons. And while Saddam no longer rules Iraq, he has gone missing, and with him a sophisticated smuggling network and whatever biological weapons Iraq had.
While the administration rightly recognized the threat of a bioterrorist attack with smallpox or other agents, the campaign to protect American citizens flopped. The announced goal of vaccinating 500,000 first responders against smallpox was recently disbanded after vaccinating fewer than 40,000. Long term, Project Bioshield will create new vaccines and therapeutics. Short term, the public health system's capacity to identify and respond to bioterrorism remains dangerously inadequate.
Iraq is the wild card. Analytically, Iraq was tangential to the immediate war on terrorism. The CIA found no links between Saddam and 9/11 and no evidence of Iraqi support for terrorist attacks on American targets since the early 1990s. But President Bush's decision to market war on Iraq as a centerpiece of the war on terrorism has now forged an inextricable link.
While the demonstration of America's military might has surely sobered regimes that wish America harm, the administration's incompetence in postwar Iraq has attracted both terrorists and jihadi wannabes in what now threatens to become a terrorist incubator akin to Afghanistan during Soviet occupation.
For the year ahead, Americans are at least as vulnerable to terrorist attacks as we were in the year past. After the next mega-terrorist attack, Americans will find our government's failure to mount a more effective war on terrorism as inexplicable as they found the failure to prevent 9/11.
In the wake of the latest escalations in religious violence, politicians, the media, and religious leaders try to assure us that religion is not to blame for extremist terror campaigns and the ethnic and communal conflicts that increasingly threaten world peace. Yet events themselves demonstrate that religion can play a highly negative role-aggravating polarization, justifying enmity, even fostering deadly fanaticism. From the Balkans to the Middle East, adherents of all the world's major faiths commit indiscriminate acts of violence on the grounds of protecting their religious identity and serving the cause of God.
In this powerfully written analysis British broadcaster Oliver McTernan argues that unless this mindset changes the world will never eliminate the threat of faith-inspired terror. He explores the complex roots of religious-inspired violence, the historic ambivalence of religious traditions toward violence, and the urgent steps that must be taken next. Religious leaders of all faiths must begin to defend proactively and vigorously the rights of others to believe and to act differently. At stake is not simply the credibility of religion but the welfare of humanity.
U.S. presidents can choose the form of international agreements that they negotiate. Using the constitution?s Article II procedure to gain ratification of a formal treaty is a costly and time–consuming endeavor, so presidents frequently turn to executive agreements that do not require approval by 2/3 of the Senate. Given this alternative, why do presidents ever choose the Article II procedure? This paper argues that treaties serve as a costly signal of intent to comply with the terms of international agreements. The choice between treaties and executive agreements is therefore a strategic executive decision that takes into account the anticipated reactions of other states. A signaling model predicts that high–benefit agreements should take the form of treaties. The predictions of purely domestic models of a positive relationship between the reliability of a government and the probability that an agreement is a treaty should not hold. These propositions are tested on a large dataset of U.S. international agreements between 1980 and 1999.
The process of globalization has been made possible by a series of technological, institutional, and policy changes over the course of the last several decades. As the introduction to this project suggests, governments have often made conscious policy adjustments in the face of innovations perceived as advantageous by competitors, new ideas of policy success, and sometimes as the result of explicit or implicit political pressures from powerful governments or international institutions.
A very important part of this process involves government choices to alter the international legal structure in which economic transactions take place. The most salient accomplishments in the development of an international legal structure to further economic liberalization has clearly been in the trade of goods and services, where the World Trade Organization commands a focal presence. In the monetary and exchange rate area, a growing number of governments have committed themselves through Article VIII of the International Monetary Fund?s Articles of Agreement to keep their current accounts free from restrictions, assuring traders and lenders that hard currencies will be made available to pay for imports and service international debts.
Interestingly, there has been very little multilateral development of the legal rules surrounding international investment, and in particular foreign direct investment (FDI). Nevertheless, such investment has grown substantially over the past several decades. According to the United Nations, total foreign direct investment inflows peaked at about 1,450 billion in 2000, before falling back to $735.1 billion in 2001. The growth in global FDI has far outstripped both world GDP and world trade growth. But direct investments are highly skewed geographically: developed countries account for over 93 per cent of outflows and 68 percent of inflows, and these shares have not changed too drastically over the past decade.
The primary legal innovation in the area of foreign direct investment in the post–world war two period has been the proliferation of bilateral agreements that seek to make explicit the contractual arrangements under which a firm invests in a local jurisdiction. Bilateral investment Treaties (BITs) are defined as an agreement establishing the terms and conditions for private investment by nationals and companies of one country in the jurisdiction of another. They are negotiated between governments precisely to create a legal environment to encourage foreign direct investment, typically in those jurisdictions that find it difficult to credibly commit to treat foreign capital in ways that are perceived by investors as transparent, fair, and predictable. These agreements are a way to tie the hands of the host country by agreeing to a wide range of pro–investor terms. By surrendering part of its legal sovereignty – notably the right to use its own courts to adjudicate any disagreements that may arise from a contract to invest – developing countries hope to convince foreign firms that their investments will be safe and sound.
As such, BITs should be understood as a part of the broader neo–liberal project to encourage the free flow of goods, services, capital, and ideas across national borders. They typically include provisions requiring investing nationals of the BIT partner to be treated as well as national firms or as well as the most favored foreign firms (MFN treatment); establish limits on expropriations of investments and require compensation when it occurs; and guarantee investors? right to transfer funds into and out of the country using a market rate of exchange. Sometimes these agreements also explicitly prohibit "performance requirements" on the part of foreign investors, though such clauses are more typically found in US rather than European agreements. Thus, we view these agreements as consistent with the market–oriented trend the editors of this volume have identified.
This article seeks to explain why BITs have proliferated over time. The popularity of BITs is puzzling when contrasted with the collective resistance developing countries have shown toward pro–investment principles under customary international law. Our central contention is that bilateral investment treaties intensify the inter–state competition for foreign investment. Because signing a BIT gives a state an advantage in this competition we expect the probability of acceptance of a BIT by a state to increase when rival states sign such a treaty. The model we have in mind is squarely consistent with the competitive models laid out in the introductory chapter to this project.
The article is organized as follows. The first section describes the BITs terrain in some detail: the history, rationale, and spread of these bilateral arrangements over time. The second section presents a model of competition for investment that could lead to the pattern of treaty diffusion we observe. In this model, one country exogenously "breaks ranks" and agrees to investors terms in order to enjoy the benefits of investment inflows. While competitors may not have preferred to do so, BITs effectively create a negative externality by presenting the prospect of diverting capital to hosts who agree to BITs. One obvious way to mitigate this outcome is to enter into a BIT as well. We entertain the possibility of more sociological explanations which may be plausible in explaining some investment treaties witnessed in more recent years.
The third section reviews the evidence of competitive diffusion. Competitive pressures for BIT proliferation are consistent with the data, but even some of the non–diffusion influences on the pattern of BITs suggest the broader reputational story we develop is apt. While socialization influences appears to be present in recent years, the most important explanations for the growing web of bilateral arrangements are those that postulate rational responses to the globalization of capital.
After months of resistance, Iran has agreed to accept stricter international inspections and temporarily suspend its production of enriched uranium. That is progress, but not enough to stop an Iranian nuclear bomb.
Last summer, while Americans were searching fruitlessly for evidence of a nuclear weapons program in Iraq, international inspectors found disturbing evidence next door in Iran. According to the International Atomic Energy Agency, Iran began enriching uranium at a pilot centrifuge plant last August and is also constructing larger underground enrichment facilities. Within a year, the plant could make enough highly enriched uranium for one bomb a year and the larger facilities could make 15 to 20 times as much.
Iran said that its program were for peaceful generation of nuclear energy; but inspectors found traces of weapons-grade, highly enriched uranium. The IAEA set an October 31 deadline for full compliance. And now, under pressure from Europe, Iran has called a temporary halt to enrichment. But it would be a mistake to stop at this point.
Iran correctly claims that, as a party to the non-proliferation treaty, it has the right to enrich uranium for peaceful purposes. In a sense, the NPT was born with a loophole. Even if a country allows inspections, it can legally accumulate enriched uranium (or reprocessed plutonium) under the guise of a peaceful energy program and then suddenly declare that circumstances have changed, and withdraw from the treaty. It could then produce nuclear weapons at short notice. If Iran were to do this, it would add to the dangers in an unstable region and would be likely to begin unraveling the non-proliferation regime worldwide.
For these good reasons, President George W. Bush has declared an Iranian nuclear weapon unacceptable. Our unilateral options, however, are limited. Not only is our military plate full in trying to stabilize and reconstruct Iraq but it would also be difficult to recruit allies. Fortunately, there is a precedent from something we began in the mid-1970s.
India had recently exploded a nuclear device, France was selling a reprocessing plant to Pakistan and Germany began to sell enrichment technology to Brazil. Many parties to the NPT planned to import or develop enrichment and reprocessing facilities. We feared that the non-proliferation regime was unraveling. The Jimmy Carter administration successfully persuaded France and Germany to curtail their exports, and countries as diverse as the Soviet Union and Japan joined us to form a Nuclear Suppliers Group. In 1977, we signed an agreement to restrict the export of enrichment and reprocessing facilities. We were able to plug part of the loophole without amending the treaty.
Mr. Bush should build on recent progress by approaching Europe, Russia and others and persuading them to offer Iran a deal that would fully plug this loophole. Russia, which is helping Iran to construct a nuclear energy reactor at Bushehr, would offer it a guarantee of low-enriched uranium fuel and reprocessing of the reactor's spent fuel in Russia. The deal would be given teeth by a United Nations Security Council resolution, endorsed by the US. The resolution would include a stick declaring that further proliferation of nuclear weapons would be a threat to peace under the Charter and that any country moving in such a direction would be subject to sanctions. The resolution would also include a carrot—guaranteeing Iran access to the non-dangerous aspects of nuclear energy technology. The deal could be sweetened by offers to relax existing sanctions and a security guarantee if Iran remains non-nuclear. At best, such a proposal would head off a looming danger in the Middle East. At worst, if Iran rejected the deal, it would have served notice of its real intentions.
European foreign ministers have produced a useful first step. Russia has refused our requests to cancel the Bushehr reactor but has indicated it would be willing to provide such fuel services. Given Iran's suspicion of the US, subtle American diplomacy would be needed to persuade Europe and Russia to launch the proposal, and we would then announce our support. There have been few recent issues on which the US, Russia, Europe and the UN are in close agreement. Such a proposal offers a rare opportunity to co-operate on an issue of vital concern.