FOREIGN

AFFAIRS

JULY/AUGUST 2004
VOLUME 83, NUMBER 4

Comments
A Global Power Shift in the Making James F Hoge,Jr. 2
Global power shifts happen rarely and are even less often peaceful. Washington
must take heed: Asia is rising fast, with its growing economic power translating
into political and military strength. The West must adapt-or be left behind.

Seeing the Forest

Eugene Linden, Thomas Lovejoy, andJ.DanielPhillips 8
Experience has shown that piecemeal efforts to protect tropical forests cannot do
the job. Conservationists must rethink their approach, implementing conservation
on a continental scale, and fast.

Strengthening African Leadership Robert I Rotberg 14

Poor leadership has been the depressing norm in Africa for decades. But as a bold
new initiative by a group of past and present African leaders takes off, good
governance may finally come to the continent.

Essays
Beyond Kyoto John Browne 20
Global warming is real and needs to be addressed now. Rather than bash or mourn
the defunct Kyoto Protocol, we should start taking the small steps to reduce carbon
dioxide emissions today that can make a big difference down the road. The private
sector already understands this, and its efforts will be crucial in improving fossil
fuel efficiency and developing alternative sources of energy. To harness business
potential, however, governments in the developed world must create incentives,
improve scientific research, and forge international partnerships.
 Contents

The Myth Behind China's Miracle GeorgeJ Gilboy 33

Washington need not worry about China's economic boom, much less respond
with protectionism. Although China controls more of the world's exports than
ever before, its high-return high-tech industries are dominated by foreign
companies. And Chinese firms will not displace them any time soon: Beijing's
one-party politics have bred a timid business culture that prevents domestic firms
from developing key technologies and keeps them dependent on the West.

History and the Hyperpower EliotA. Cohen 49

Whether or not the United States today should be called an empire is a semantic
game. The important point is that it resembles previous empires enough to
make the search for lessons of history worthwhile. Overwhelming dominance
has always invited hostility. U.S. leaders thus must learn the arts of imperial
management and diplomacy, exercising power with a bland smile rather than
boastful words.

A Republican Foreign Policy Chuck Hagel 64

The war on terrorism must top the U.S. foreign policy agenda-but it cannot
be waged without also attending to the broader crisis in the developing
world. Recognizing this, a Republican foreign policy should be guided by seven
principles that seek to encourage stability, expand democracy, and strengthen
key alliances. Above all, Washington must recognize that U.S. leadership depends
as much on principle as it does on the exercise of power.

Saving Iraq From Its Oil

Nancy BirdsallandArvindSubramanian 77
Of all the pressing questions facing Iraq today, perhaps the most important
in the long run is what to do with the country's oil. Vast wealth from natural
resources can often be a curse, not a blessing, corrupting a nation's political
and economic institutions and impeding the growth of democracy. There is only
one way for Iraq to resist the oil curse: by handing over the proceeds directly to the
Iraqi people.

Containing Iraq: Sanctions Worked

GeorgeA. Lopez andDavidCortright 90
The failure to find weapons of mass destruction in Iraq has prompted much
handwringing over the problems with prewar intelligence. Too little attention
has been paid, however, to the ffip slide of the picture: that the much-maligned
UN-enforced sanctions regime actually worked. Contrary to what critics have
said, we now know that containment helped destroy Saddam Hussein's war
machine and his capacity to produce weapons.

Building Entrepreneurial Economies Carlj.Schramm 104

The "Washington consensus" approach to development-which urges other
countries to emulate American capitalism-misses one vital ingredient: the
role that entrepreneurs play. Jump-starting growth in the developing world will
require an understanding of the American entrepreneurial system, which involves
four sectors of the economy.

[II] FOREIGN AFFAIRS" Volume83No. 4

 Contents

China's Hidden Democratic Legacy Orville Scbell u6

China is finding it ever more difficult to straddle the divide between its anachronistic
political system and its booming market economy. A reconsideration ofthe country's
political future must come soon. Fortunately, China can find guidance in its own
history: a previous generation of reformers who sought to balance the imperatives
of modernity with the best aspects of Chinese tradition.

Reviews & Responses

Berlin to Baghdad Timothy Naftali 126
Washington wants to hire ex-Baathists to help rebuild Iraq. The CIA's experience
using ex-Nazis to run West Germany's intelligence service should give it pause.

First Principals Walter RussellMead 133

Ron Chemow's new biography examines Alexander Hamilton's role in the founding
of the American republic and his contribution to its conflictual political culture.

The Unsettled West Joshua Kurlantzick 136

Three new books detail Xinjiang's long history of oppression. As they show, Beijing's
rule there has always been harsh-but never so bad as in the last few years.

The Fire Last Time Scott Snyder 1-44

Going Criticaloffersan insiders' view of the deal struck with North Korea in 1994 and
a core lesson for the Bush administration: there's no substitute for negotiation.

Letters to the Editor 149

Kimberly Zisk Marten on Afghanistan; Mark Lawrence Schrad on Russia's
population implosion; and John Mueller on Saddam's evasiveness.

ForeignAffairs Bestsellers 152

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FOREIGN AFFAIRS .July/August 2oo4 [III]

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 Comments

4:::Z=

Many in the West are already

aware of Asia's growing strength,
but this awareness has not yet been
translated into preparedness.
A Global Power Shift in the Making James F Hoge,Jr. 2

Seeing the Forest

Eugene Linden, Thomas Lovejoy, andj DanielPhillips 8
Strengthening African Leadership Robert.I Rotberg 14
 A Global Power Shift
in the Making
Is the United States Ready?

7ames F Hoge, Yr

The transfer of power from West to East
is gathering pace and soon will dramati-
cally change the context for dealing
with international challenges-as well as
the challenges themselves. Many in the
West are already aware of Asia's growing
strength. This awareness, however, has
not yet been translated into preparedness.
And therein lies a danger: that Western
countries will repeat their past mistakes.
Major shifts of power between states,
not to mention regions, occur infrequently
and are rarely peaceful. In the early twen-
tieth century, the imperial order and the
aspiring states of Germany and Japan
failed to adjust to each other. The conflict
that resulted devastated large parts of
the globe. Today, the transformation of the
international system will be even bigger and
will require the assimilation of markedly
different political and cultural traditions.
This time, the populous states of Asia
are the aspirants seeking to play a greater
role. Like Japan and Germany back then,
these rising powers are nationalistic, seek
redress of past grievances, and want to
claim their place in the sun. Asia's grow-
ing economic power is translating into
greater political and military power, thus
increasing the potential damage of conflicts.
Within the region, the flash points for
hostilities-Taiwan, the Korean Penin-
sula, and divided Kashmir-have defied
peaceful resolution. Any of them could
explode into large-scale warfare that would
make the current Middle East confron-
tations seem like police operations. In
short, the stakes in Asia are huge and
will challenge the West's adaptability.
Today, China is the most obvious
power on the rise. But it is not alone:
India and other Asian states now boast
growth rates that could outstrip those
of major Western countries for decades
to come. China's economy is growing at
more than nine percent annually, India's
at eight percent, and the Southeast Asian
"tigers" have recovered from the 1997

JAMES F. HOGE, JR. is Editor of ForeignAffairs. This article is adapted from

a lecture given in April at Johns Hopkins University's Paul H. Nitze School of
Advanced International Studies in Washington, D.C.
 A GlobalPowerShift in the Making
financial crisis and resumed their march
forward. Chinas economy is expected to be
double the size of Germany's by zolo and
to overtake Japan's, currently the world's
second largest, by 2020. If India sustains
a six percent growth rate for 50 years, as
some financial analysts think possible, it
will equal or overtake China in that time.
Nevertheless, Chinas own extraordinary
economic rise is likely to continue for
several decades-if, that is, it can manage
the tremendous disruptions caused by
rapid growth, such as internal migration
from rural to urban areas, high levels of
unemployment, massive bank debt, and
pervasive corruption. At the moment,
China is facing a crucial test in its transition
to a market economy. It is experiencing
increased inflation, real-estate bubbles, and
growing shortages of key resources such
as oil, water, electricity, and steel. Beijing
is tightening the money supply and big-
bank lending, while continuing efforts to
clean up the fragile banking sector. It is
also considering raising the value of its
dollar-pegged currency, to lower the cost
of imports. If such attempts to cool China's
economy-which is much larger and more
decentralized than it was ten years ago,
when it last overheated-do not work,
it could crash.
Even if temporary, such a massive bust
would have dire consequences. China is
now such a large player in the global econ-
omy that its health is inextricably linked
to that of the system at large. China has
become the engine driving the recovery of
other Asian economies from the setbacks
of the 199os. Japan, for example, has be-
come the largest beneficiary of China's
economic growth, and its leading economic
indicators, including consumer spending,
have improved as a result. The latest official For example, China and Japan have never
FOREIGN AFFAIRS -July/August 2oo4
figures indicate that Japan's real GDP rose
at the annual rate of 6.4 percent in the
last quarter of 2oo3, the highest growth
of any quarter since 199o. Thanks to China,
Japan may finally be emerging from a
decade of economic malaise. But that
trend might not continue if China crashes.
India also looms large on the radar
screen. Despite the halting progress of
its economic reforms, India has embarked
on a sharp upward trajectory, propelled by
its thriving software and business-service
industries, which support corporations in
the United States and other advanced
economies. Regulation remains inefficient,
but a quarter-century of partial reforms
has allowed a dynamic private sector to
emerge. Economic success is also starting
to change basic attitudes: after 5o years,
many Indians are finally discarding their
colonial-era sense of victimization.
Other Southeast Asian states are steadily
integrating their economies into a large
web through trade and investment treaties.
Unlike in the past, however, China-not
Japan or the United States--is at the hub.
The members of the Association of
Southeast Asian Nations (ASEAN), finally,
are seriously considering a monetary union.
The result could be an enormous trade bloc,
which would account for much of Asia's--
and the world's-economic growth.
THE STRAINS OF SUCCESS
Asia's rise is just beginning, and if the big
regional powers can remain stable while
improving their policies, rapid growth could
continue for decades. Robust success,
however, is inevitably accompanied by
various stresses.
The first and foremost of these will be
relations among the region's major players.
 James F Hoge,Jr.
been powerful at the same time: for cen-
turies, China was strong while Japan was
impoverished, whereas for most of the last
2oo years, Japan has been powerful and
China weak. Having both powerful in
the same era will be an unprecedented
challenge. Meanwhile, India and China
have not resolved their 42-year-old border
dispute and still distrust each other. Can
these three powers now coexist, or will
they butt heads over control of the region,
access to energy sources, security of sea
lanes, and sovereignty over islands in the
South China Sea?
Each of the Asian aspirants is in-
volved in explosive territorial conflicts,
and each has varying internal stresses:
dislocated populations, rigid political
systems, ethnic strife, fragile financial
institutions, and extensive corruption.
As in the past, domestic crises could
provoke international confrontations.
Taiwan is the most dangerous example
of this risk. It has now been more than
30 years since the United States coupled
recognition of one China with a call for a
peaceful resolution of the Taiwan question.
Although economic and social ties between
the island and the mainland have since
grown, political relations have soured. Tai-
wan, under its current president, seems to
be creeping toward outright independence,
whereas mainland China continues to seek
its isolation and to threaten it by positioning
some 5oo missiles across the Taiwan Strait.
The United States, acting on its commit-
ment to Taiwan's security, has provided the
island with ever more sophisticated military
equipment. Despite U.S. warnings to both
sides, if Taiwan oversteps the line between
provisional autonomy and independence
or if China grows impatient, the region
could explode.
FOREIGN AFFAIRS
Kashmir remains divided between
nuclear-armed India and Pakistan. Since
1989, the conflict there has taken 40,000
lives, many in clashes along the Line of
Control that separates the two belligerents.
India and Pakistan have recently softened
their hawkish rhetoric toward each other,
but neither side appears ready for a mu-
tually acceptable settlement. Economic
or political instabilities within Pakistan
could easily ignite the conflict once more.
North Korea is another potential flash
point. Several recent rounds of six-party
talks held under Chinese auspices have
so far failed to persuade Kim Jong I1to
scrap his nuclear weapons program in
exchange for security guarantees and
aid to North Korea's decrepit economy.
Instead, the talks have brought recrimi-
nations: toward the United States, for
offering too little; toward North Korea,
for remaining intransigent; and toward
China, for applying insufficient pressure
on its dependent neighbor. Now recently
disclosed evidence suggests that North
Korea's nuclear efforts are even more
advanced than was previously believed.
As Vice President Dick Cheney warned
China's leaders during an April trip, time
may be running out for a negotiated
resolution to the crisis.
SHIFTING PRIORITIES
For more than half a century, the United
States has provided stability in the Pacific
through its military presence there, its
alliances with Japan and South Korea,
and its commitment to fostering economic
progress. Indeed, in its early days, the
Bush administration stressed its intention
to strengthen those traditional ties and to
treat China more as a strategic competitor
than as a prospective partner. Recent
Volume83No.4
 A GlobalPower Shift in the Making
events, however-including the attacks
of September u, 2ool--have changed the
emphasis of U.S. policy. Today, far less is
expected of South Korea than in the past,
thanks in part to Seoul's new leaders, who
represent a younger generation of Koreans
enamored of China, disaffected with the
United States, and unafraid of the North.
Japan, meanwhile, faced with a rising
China, a nuclear-armed North Korea, and
increasing tension over Taiwan, is feeling
insecure. It has thus signed on to develop
a missile defense system with U.S. aid and
is considering easing constitutional limits
on the development and deployment of its
military forces.
Such moves have been unsettling to
Japan's neighbors, which would become
even more uncomfortable if Japan lost
faith in its U.S. security guarantee and
opted to build its own nuclear deterrent
instead. Even worse, from the American
perspective, would be if China and Japan
were to seek a strategic alliance between
themselves rather than parallel relations
with the United States. To forestall this,
Washington must avoid, in all its maneu-
verings with China and the two Koreas,
sowing any doubt in Japan about its
commitment to the region.
Yet Japan, given its ongoing economic
and demographic problems, cannot be
the center of any new power arrangement
in Asia. Instead, that role will be played
by China and, eventually, India. Relations
with these two growing giants are thus
essential to the future, and engagement
must be the order of the day, even though
some Bush officials remain convinced
that the United States and China will
ultimately end up rivals. For them, the
strategic reality is one of incompatible
vital interests.
FOREIGN AFFAIRS .July/August2oo4
Militarily, the United States is hedging
its bets with the most extensive realignment
of U.S. power in halfa century. Part of
this realignment is the opening of a second
front in Asia. No longer is the United
States poised with several large, toehold
bases on the Pacific rim of the Asian
continent; today, it has made significant
moves into the heart of Asia itself, building
a network of smaller, jumping-off bases
in Central Asia. The ostensible rationale
for these bases is the war on terrorism.
But Chinese analysts suspect that the
unannounced intention behind these new
U.S. positions, particularly when coupled
with Washington's newly intensified
military cooperation with India, is the
soft containment of China.
For its part, China is modernizing its
military forces, both to improve its ability
to win a conflict over Taiwan and to deter
U.S. aggression. Chinese military doctrine
now focuses on countering U.S. high-tech
capabilities-information networks, stealth
aircraft, cruise missiles, and precision-
guided bombs.
Suspicious Americans have interpreted
larger Chinese military budgets as signs
of Beijing's intention to roll back America's
presence in East Asia. Washington is thus
eager to use India, which appears set to
grow in economic and military strength,
as a counterbalance to China as well as a
strong proponent of democracy in its
own right. To step into these roles, India
needs to quicken the pace of its economic
reforms and avoid the Hindu nationalism
espoused by the Bharatiya Janata Party
(BJP), which suffered a surprising defeat in
recent parliamentary elections. Officials
of the victorious Congress Party pledged
to continue economic reforms while also
addressing the needs of the rural poor
 James F Hoge,Jr.
who voted them back into office. Bullish
in victory, Congress spokespersons said
that they would push to increase India's
annual growth rate to ten percent from
its current eight percent.
Unless Congress follows its secular
tradition in governing, it will undercut any
utility India might have for the U.S. cam-
paign to counter the influence of radical
Islamists. To date, the aberrant religious
ideology that opposes all secular govern-
ment has developed only moderate traction
among the large Muslim populations of
India and the surrounding states of Central
and Southeast Asia. For example, funda-
mentalist Islamic political parties fared
poorly in winter and spring parliamentary
elections in Malaysia and Indonesia. In
other ways, however, radical Islamists
are becoming a serious threat to the region.
Weak governments and pervasive corrup-
tion there provide fertile ground for back-
shop operations: training, recruitment, and
equipping of terrorists. Evidence points to
a loose network of disparate Southeast
Asian terrorist groups that help each other
with funds and operations.
Recent public-opinion polls show that
sympathy is growing for the anti-American
posturing of the radical Islamists, in large differences by imposing duties. In other
part due to U.S. activities in Iraq and U.S. ways, however, Washington has yet to
support of the Sharon government in
Israel. The full impact of outrage over
the mistreatment of Iraqi prisoners is
still to be determined. But deep anger
is already in place among Muslim com-
munities worldwide over the perceived
slighting of Palestinian interests by the
Bush administration. A settlement of the
Israeli-Palestinian conflict would not end
terrorism, and Muslims themselves must
lead the ideological battle within Islam.
Yet the United States could strengthen the
[6] FOREIGN AFFAIRS" Volume83No. 4
hand of moderates in the Muslim world
with a combination of policy changes and
effective public diplomacy. The United
States must do more than set up radio and
television stations to broadcast alternative
views of U.S. intentions in the Middle
East. It must replenish its diminished
public diplomacy resources to recruit
more language experts, reopen foreign
libraries and cultural centers, and sponsor
exchange programs. Given the large
number of traditionally tolerant Muslims
in Asia, the United States must vigorously
assist the creation of attractive alternatives
to radical Islamism.
NEEDED CHANGES
To accommodate the great power shift
now rapidly occurring in Asia, the United
States needs vigorous preparation by its
executive branch and Congress. The Bush
administration's embrace of engagement
with China is an improvement over its
initial posture, and the change has been
reflected in Washington's efforts to work
with Beijing in the battle against terror-
ism and negotiations with North Korea.
The change has also been reflected in the
reluctance to settle trade and currency
shift its approach. On the ground, the
United States appears undermanned.
Despite a huge increase in the workload,
the work force at the U.S. embassy in China
numbers approximately i,ooo, which is
half the employees envisioned for the new
embassy in Iraq. Training in Asian lan-
guages for U.S. government officials has
been increased only marginally. As for the
next generation, only several thousand
American students are now studying in
China, compared to the more than
 A GlobalPowerShift in the Making
50,000 Chinese who are now studying The credibility and effectiveness of
in U.S. schools. international bodies depends on such
Going forward, the United States must changes; only then will they be able to
provide the leadership to forge regional contribute significantly to peace among
security arrangements, along the lines of the nations. Although hardly foolproof,
pending U.S.-Singapore accord to expand restructuring institutions to reflect the
cooperation in the fight against terrorism distribution of power holds out more
and the proliferation of weapons of mass hope than letting them fade into irrele-
destruction. It must also champion open vance and returning to unrestrained and
economies or risk being left out of future unpredictable balance-of-power politics
trade arrangements. The United States and free-for-all economic competition.0
must also avoid creating a self-fiilfilling
prophecy of strategic rivalry with China.
Such a rivalry may in fact come to pass,
and the United States should be prepared
for such a turn of events. But it is not
inevitable; cooperation could still produce
historic advancements.
At the international level, Asia's rising
powers must be given more representation
in key institutions, starting with the UN
Security Council. This important body
should reflect the emerging configuration
of global power, not just the victors of
World War II. The same can be said
of other key international bodies. A recent
Brookings Institution study observed,
"There is a fundamental asymmetry
between today's global reality and the
existing mechanisms of global governance,
with the G-7/8-an exclusive club of
industrialized countries that primarily
represents Western culture-the prime
expression of this anachronism."
Canadian Prime Minister Paul Martin
has embraced the idea of elevating to
heads-of-state level the meetings of the
G-2o group, which is composed of io in-
dustrialized countries and io emerging
market economies. This could incorporate
into global economic governance those
countries with large populations and
growing economies.

FOREIGN AFFAIRS .July /Mugust 2oo 4

 Seeing the Forest
Conservation on a Continental Scale

Eugene Linden, Thomas Lovejoy, and . Daniel Phillips

The Ndoki rainforest is nestled in the
northeastern corner of the Democratic
Republic of the Congo, bordered on
three sides by vast swamps. The Ndoki
was long so inaccessible that its animals
were naive of humans. In recent years,
though, it has come under threat from
logging, political upheaval, and civil war
in the Congo Basin. Fortunately, the for-
est has also received protection, since the
area, covering 4,000 square kilometers, was
designated the Nuabale-Ndoki National
Park in 1993. Given the tumultuous politics
and endemic corruption of the region,
the protection of the Ndoki would seem
a conservation triumph.
There's just one problem: the forest
appears to be drying out. Rainfall records
are spotty, but other worrisome develop-
ments-changes in flora and the more
frequent appearance of harmattan dust-
point to a serious decline in moisture levels.
And with logging consortia continuing
to cut other unprotected forests through-
out the Congo Basin, reducing the system's
capacity to store and recycle moisture,
regional rainfall may drop and stay below
the threshold needed to sustain a wet
tropical forest.
The message from the Ndoki experience
is that protecting only parts of an ecosys-
tem is not sufficient. Conservationists
must find ways to preserve the vitality
of the systems that protect a forest, not
just the forest itself, lest factors such as
regional climate change trump even the
most effective legal protection. Moreover,
the pace of deforestation is such that con-
servationists will have to implement large-
scale measures without perfect knowledge
of what it is they are trying to save. What
is needed, then, is a plan that is compre-
hensive enough to provide wall-to-wall
coverage of an entire rainforest system,
simple enough to bypass the usual rounds
of endless study and negotiation, and

EUGENE LI NDEN writes widely on global environmental issues and is the author
of The Futurein Plain Sight. THOMAS LOVEJOY, a tropical biologist, is President
of the H. John Heinz III Center for Science, Economics, and the Environment.
J. DANI EL PHILLIPS is a former U.S. Ambassador to the Democratic Republic
of the Congo, where he worked on tropical forest conservation projects, including
the creation of the Nuabale-Ndoki National Park. Linden first presented this idea
at a June 2002 conference hosted by Brazil's president.
 CORBIS

Thefuture oftheforests?Harvestedlogs in Gabon, 2002

attractive enough to draw in new kinds of efforts has become clear. A lack of follow-
donors to areas currently starved of funds. through has plagued almost all conservation
efforts in recent years. The so-called Earth
DISECONOMIES OF SCALE Summit, the UN Conference on Environ-
Since the early 199os, the problem of scale ment and Development held in Rio de
in conservation has risen into bold relief. Janeiro in 1992, brought together heads
Presently, only about five percent of the of state to address global environmental
world's tropical forests have effective problems; by the time the fleet of presiden-
protection. And in recent years, the tial jets left the runway, the commitments
annual rate of wet tropical forest loss made at the conference had already been
and degradation has actually accelerated. forgotten. Of the $1.2 billion that the G-7
Meanwhile, new discoveries have under- group of advanced industrialized nations
scored the interdependency of the earth's promised for the preservation of the
ecosystems. Deforestation in Sumatra and Amazon in the PPG-7 Agreement (the Pilot
Kalimantan, in Indonesia, has contributed Programme for the Protection of Tropical
to regional drought and wildfires; in Brazil's Forests of Brazil), only $350 million has
Mato Grasso, the rainy season has dimin- been committed and only $120 million
ished, some believe as a result of the retreat disbursed in the intervening ten years.
of the Amazon. As James Gustave Speth argues in Red
The international response to acceler- Sky at Morning, the only international
ating deforestation, however, has been agreement ratified during the past 30 years
anemic, even as the disparity between the that has had any major positive effect is
scale of the problem and the scale of the the Montreal Protocol on Substances that

FOREIGN AFFAIRS July/August2004

 Eugene Linden, Thomas Lovejoy, andj DanielPhillips
Deplete the Ozone. As a result, yesterday's
nightmare scenarios are becoming today's
reality. In Indonesia, according to a recent
study led by Lisa Curran of the Yale School
of Forestry and Environmental Studies,
6o percent of protected areas have been
logged in the past 15 years. Sumatra might
have no undisturbed forest by 2oo5, and
Borneo by zoo8-with dire consequences
for the orangutan, the pygmy elephant,
and countless other species.
Conservationists have long recognized
the problem of scale. Indeed, the big con-
servation groups have focused on working
on larger scales through such programs
as the Wildlife Conservation Society's "Liv-
ing Landscapes" and the World Wildlife
Fund's ecoregional planning. George
Woodwell, of the Woods Hole Research
Center, has called for action to protect the
"functional integrity of landscapes," empha-
sizing the obvious but often ignored fact
that human economic activity benefits from
self-sustaining ecosystems that provide
services indefinitely. Human systems must
be embedded in a natural matrix, the argu-
ment goes, because embedding natural
systems in a human matrix benefits neither
humans nor nature.
In recent years, a number of ambitious
initiatives have aimed to protect larger
stretches of forest to preserve biologically
functional units. The Ecological Corridor
Project, for instance, links i,ooo reserves
between Bahia and Parani in Brazil's At-
lantic Forest. The Cordillera del Condor
Peace Park in Ecuador and Peru shows
that even nations with long histories of
conflict can forge joint conservation efforts.
An even more ambitious undertaking is
underway in the Amazon Region Protected
Area. That program, once added to existing
reserves, will protect roughly 40 percent
[1o] FOREIGN AFFAIRS- Volumeo83No. 4
of the Brazilian Amazon, at least on paper.
In Africa, the Congo Basin Initiative has
been officially endorsed by the region's
seven governments, and Washington has
committed its prestige and $36 million to
bring the initiative to life; if the plan is
realized, 23 percent of the Congo Basin
forest will have some form of protection.
Such initiatives represent unprecedented
steps toward protecting moist tropical
forests at the system level. They also
provide evidence that governments and
nongovernmental organizations (NGOS)
can jointly launch ambitious conservation
efforts absent strong international agree-
ments. But the question remains whether
these efforts will provide sufficient pro-
tection to safeguard the integrity of forest
systems, especially the two most crucial
ones, the Amazon and the Congo Basin.
At present, no one knows for certain
how much of a giant system must remain
intact in order to avert a self-reinforcing
drying cycle. Much depends on how and
where the forest is cut, and on what hap-
pens to the land afterwards. Absent any
certainty about the tipping point for the
world's great forest systems, prudence
demands preserving as much of the sys-
tem as possible. And this means that en-
vironmentalists must look beyond parks
and indigenous zones, beyond biosphere
reserves and wildlife refuges, to find ways
to preserve forest covers in areas with
lower biodiversity, less ecological interest,
and large proportions of land held pri-
vately or being converted to other uses.
There is, at present, widespread recogni-
tion of the urgency of landscape-scale
initiatives. There remains, however, the
need for a plan that would extend to
areas not yet a priority for conservation
organizations, that could be rolled out
 Seeing the Forest
rapidly, and that would excite both
donors and host countries.
A SIMPLE PLAN
The most ambitious prior effort to address
tropical deforestation-the Tropical
Forest Action Plan (TFAP), sponsored
by the World Bank and the UN Food
and Agriculture Organization-became
mired in bureaucratic haggling and
actually intensified deforestation in
Cameroon and some other tropical
nations. Participants in the Kyoto Pro-
tocol, meanwhile, still cannot decide
whether to include a particular "carbon
sink" provision that would allow indus-
tries to offset their greenhouse gas
emissions by paying forest owners to
keep trees standing. In the case of
Kyoto, official action has been mired
in decades of dithering, and there is no
possibility of "avoided deforestation"'
having much impact as a result of the
treaty for at least another ten years.
The lesson of TFAP and Kyoto is that
the more players there are and the more
there is to negotiate, the more likely it is
that negotiation will go on endlessly. Noble
intentions quickly give way to a game in
which each player seeks to gain access to
resources while preserving his own compet-
itive position. A more effective approach
to continental-scale rainforest conserva-
tion would be to implement a simple,
market-like plan that would minimize the
possibility for negotiation while funneling
resources into every part of a forest system.
Consider a system much like the
Congo Basin rainforest: a continental-scale
tropical forest of roughly 8oo,ooo square
miles that stretches over seven countries.
This rainforest has been shrinking steadily
in the face of timber operations, agricul-
FOREIGN AFFAIRS .July/August2004
tural conversion, urbanization, illegal
cutting, land invasions, and out-of-control
burning seasons. Various countries have
established parks and reserves, enacted
logging codes, and taken other steps to
control deforestation. But corruption, a
lack of resources, and other external factors
have overwhelmed these efforts.
Judging from failed past efforts, a suc-
cessful conservation plan should include
several basic provisions. First, it should
involve every country that is home to a
portion of the forest; the forest is an in-
terdependent system, so no nation can
"go it alone." Second, it should attract
outside funding; nations that are home
to large tropical rainforests are generally
poor, so it is unrealistic to expect them to
fund a plan on their own. Third, it should
be grand enough to draw a new cohort of
donors at a time when past failures and the
sheer number of competing projects and
international tensions have produced donor
fatigue. Fourth, it should be simple and
transparent, both to reduce the possibility
for misunderstanding in host countries
and to minimize the potential for endless
negotiation and bureaucratic inertia. Finally,
given the accelerating pace of deforestation,
it should be deployed rapidly.
A market-like conservation plan would
divide the 8oo,ooo square miles of forest
into loo contiguous blocks. The blocks
would cross national boundaries and ethnic
divides. Although many conservation
biologists would have a visceral reaction
against arbitrary boundaries that ignore
biogeographic realities, that is precisely
the point: the grid's uniformity would
eliminate the need for studies and negotia-
tions that could bog down the project,
allowing it to be easily understood by both
donors and host countries.
Ill]
 The plan would match a bidder with
every one of the ioo blocks on the grid.
The notion of bidders might raise hackles
in an area where politicians and residents
An Agenda for the Twenty-First Century have vivid memories of past exploitation
Pastora San Juan Cafferty
by rich nations, but in this case, a success-
and David W. Engstrom, editors
0-7658-0905-2 (paper) 2002 363 pp.
ful bidder would not win the right to drain
$29.95 / £21.50 resources but accept an obligation to
put resources in. A secretariat, approved
Gree Ameicn by the seven nations and composed of
Struggle and Success trusted locals and respected members
Charles C. Moskos of the international community, would
0-88738-778-0 (paper) 1989 176 pp.
$24.95 / E17.95 oversee the market.
The universe of potential bidders
includes a broad spectrum of NGOS, cor-
Helena Z. Lopata porations, multilateral and bilateral aid
1-56000-100-3 (cloth) 1994 294 pp.
organizations, and other credible entities.
$39.95 / £28.95 The market could be a simple lottery, or
it could be a complex structure that de-
From Being to Feeling Armenian
mands different things of different bidders.
Anny Bakalian The secretariat would certify the bona fides
1-56000-025-2 (cloth) 1992 330 pp. of those bidding for blocks, monitoring
$44.95 / £32.50 performance and acting as a clearinghouse
where approaches could be compared
tnmeltabe Ethnics
and special problems addressed. Success-
Politics and Culture in American Life
ful bidders would have no supervisory
Michael Novak
With an introduction by the author authority over their blocks; they would
1-56000-773-7 (paper) 1995 486 pp. be there as a resource. They would have
$24.95 / £17.95 to win over local people, governments,
and NGOS through offers of assistance and
resources. Clearly, such a market would
attract some bidders with motivations other
National Political Science Review, Volume 9
Georgia A. Persons, editor
than saving the rainforest. A corporation
0-7658-0992-3 (paper) 2003 260 pp. might want to spruce up its environmental
$29.95 / £21.50 image, while others might be attracted by
~transaction the visibility of a continental-scale under-
Publisher of Record inInternational Social Science taking. Again, that is the point: the goal
Rutgers-The State University of New Jersey
is to unlock new resources and channel
35 Berrue Circle, Dept. BKAD04 FA07
trasactio Piscataway, NJ 08854-8042
them to previously ignored areas and
opportunities for conservation. Those bid-
ders lacking in expertise would have to seek
it out or pour new resources into existing
projects; meanwhile, monitoring and peer-

[12]
 Seeing the Forest
group pressure in a high-visibility project
would act as a control against mischief
A bidder that ended up with a block
could pursue any preservation strategy,
so long as the secretariat approved it.
A periodic review of forest cover and
forest viability would be the only meas-
ure of success. Those bidders deemed
successful could beef up enforcement,
spur ecotourism, develop markets for
environmental services, or pursue urban
development projects.
Such an approach could be deployed
rapidly and show immediate results. It
would seed the area with champions
and improve reporting on the state of the
forest. By displaying dozens of different
approaches side by side, it would also offer
a testing ground for conservation and
development ideas. If a group's strategy
started to falter, the group could switch
gears and try something that had proved
effective in another block. Bidders could
cooperate, share expertise, and even sub-
contract conservation functions to other
bidders, possibly through an after-market
in rainforest blocks.
The plan could also solve the problem
of how to conserve "orphan" forest areas-
those that lack the prominence to attract
major donors-by providing a credible
body to certify carbon credits or other eco-
system service credits. A corporation
seeking an offset would pay either the
government or the concession holder a
market price for the tons of carbon that
would be sequestered by keeping the forest
standing. For host governments, these
payments would represent a financial
windfall-far more than they currently
receive for timber fees. A U.S. electric
company, for example, might pledge to
spend $5 million a year over 2o years on
FOREIGN AFFAIRS .July/August2004
an "avoided deforestation" credit in an
orphan block to meet a voluntary com-
mitment to reduce its carbon dioxide
emissions by two million tons a year.
Environmental groups already work-
ing in the forest would surely welcome the
initiative as a source of new funding and
publicity. Meanwhile, the scale and high
profile of the plan would give outside
donors a way to pursue "green branding"
and market differentiation and could pro-
vide them environmental credits that they
could later use to satisfy legal obligations
in their home countries. An oil company
under fire for its environmental practices,
for instance, might want to adopt several
blocks and then subcontract its commit-
ment to NGOS already working in the area.
IN THE BALANCE
Could such an approach really work? It is
cheap, lean at the top, and, so long as host
governments prove receptive, easy to
deploy. Donors would have various incen-
tives to join, ranging from carbon offsets
for corporations to the purely philanthropic.
For host nations, meanwhile, the plan
offers new resources, new relationships
with powerful institutions, development
funds, and international credibility on a
high-profile environmental issue. It re-
quires no studies or surveys, only effective
marketing to host governments and
donors; thus, it promises real resources
and action without the endless haggling
that has torpedoed most past initiatives
as the world's tropical forests have disap-
peared. Most important, there is simply
no other strategy on the table for ensuring
conservation on a large scale. And unless
one is put in place soon, all the small-
scale efforts in areas such as the Congo
Basin may turn out to be for naught.0
[13]
 Strengthening African Leadership
There Is Another Way

Robert I. Rotberg

Africa has long been saddled with poor, dramatically, while job availability,
even malevolent, leadership: predatory health care, education standards, and life
kleptocrats, military-installed autocrats, expectancy have declined. Ordinary
economic illiterates, and puffed-up life has become beleaguered: general
posturers. By far the most egregious security has deteriorated, crime and
examples come from Nigeria, the Dem- corruption have increased, much-needed
ocratic Republic of the Congo, and public funds have flowed into hidden
Zimbabwe-countries that have been run bank accounts, and officially sanctioned
into the ground despite their abundant ethnic discrimination-sometimes result-
natural resources. But these cases are ing in civil war-has become prevalent.
by no means unrepresentative: by some This depressing picture is brought
measures, 90 percent of sub-Saharan into even sharper relief by the few but
African nations have experienced despotic striking examples of effective African
rule in the last three decades. Such leaders leadership in recent decades. These leaders
use power as an end in itself, rather than stand out because of their strength of
for the public good; they are indifferent character, their adherence to the princi-
to the progress of their citizens (although ples of participatory democracy, and their
anxious to receive their adulation); they ability to overcome deep-rooted challenges.
are unswayed by reason and employ The government of Mozambique, for
poisonous social or racial ideologies; and example, brought about economic growth
they are hypocrites, always shifting blame rates of more than ten percent between
for their countries' distress. 1996 and 2003, following the economic
Under the stewardship of these leaders, catastrophe wrought by that country's
infrastructure in many African countries civil war (which ended in 1992). And
has fallen into disrepair, currencies have in Kenya, President Mwai Kibaki has
depreciated, and real prices have inflated strengthened civil society, invested in

ROBERT I. ROTBERG is Director of the Program on Intrastate Conflict at

Harvard University's John F. Kennedy School of Government and President
of the World Peace Foundation.

[14]
 StrengtheningAfrican Leadership
education, and removed barriers to eco- independence, that best explains its
nomic entrepreneurship instated during success. Sir Seretse Khama, Botswana's
the repressive rule of Daniel arap Moi. founding president, came from a family
The best example of good leadership of Bamangwato chiefs well regarded
in Africa is Botswana. Long before for their benevolence and integrity.
diamonds were discovered there, this When Khama founded the Botswana
former desert protectorate, which was Democratic Party in 1961 and led his
neglected by the British under colonialism, country to independence, he was already
demonstrated a knack for participatory dedicated to the principles of delibera-
democracy, integrity, tolerance, entre- tive democracy and market economy
preneurship, and the rule of law. The that would allow his young country to
country has remained democratic in flourish. Modest, unostentatious as a
spirit as well as form continuously since leader, and a genuine believer in popular
its independence in 1966-an unmatched rule, Khama forged a participatory and
record in Africa. It has also defended law-respecting political culture that has
human rights, encouraged civil liber- endured under his successors, Sir Ketu-
ties, and actively promoted its citizens' mile Masire and Festus Mogae.
social and economic development. Although operating in very different
circumstances, Mauritius' first leader,
GOOD APPLES Sir Seewoosagur Ramgoolam, held to
What has enabled Botswana to succeed the same leadership codes as Khama.
where so many other African nations Ramgoolam gave Mauritius a robust
have failed? Some observers point to the democratic beginning, which has been
relative linguistic homogeneity of the sustained by a series of wise successors
country. But Somalia, which remains from different backgrounds and par-
unstable despite a similar uniformity, ties. Both Khama and Ramgoolam
shows that this factor is far from sufficient. could have emulated many of their
Others point to the century-old teachings contemporaries by establishing strong,
of the congregational London Missionary single-man, kleptocratic regimes. But
Society-the peaceful, pragmatic out- they refused to do so.
look that is inextricably bound up in the Effective leadership has proved the
country's political culture. But this ex- decisive factor in South Africa, too:
planation also fails to explain why the without Nelson Mandela's inclusive and
same positive effects have not been wit- visionary leadership, his adherence to the
nessed in other countries with a history rule of law, his insistence on broadening
of Christian teaching, such as in neigh- the delivery of essential services, and his
boring Zambia. Nor are Botswana's emphasis on moving from a command
plentiful diamond reserves responsible: economy toward a market-driven one,
Angola, Gabon, and Nigeria all have South Africa would probably have
abundant natural resources, but none has emerged from apartheid as a far more
seen comparable returns for its people. fractured and autocratic state than it did.
It is Botswana's history of visionary Too few African leaders have followed
leadership, especially in the years following the examples of Mandela, Khama, and

FOREIGN AFFAIRS July/August2oo4 1151


Follow the leader:Botswana'sPresidentFestusMogaeJune3o,2003
Ramgoolam. Ghana, Lesotho, Mall,
and Senegal are all showing promise.
But in many other African countries,
leaders have begun their presidential
careers as democrats only to end up, a
term or two later, as corrupt autocrats:
Bakili Muluzi of Malawi, Moi of Kenya,
and, most dramatically of all, Robert
Mugabe of Zimbabwe. Other leaders,
such as Sam Nujoma of Namibia and
Yoweri Museveni of Uganda, may be
heading in the same direction.
A BOLD INITIATIVE
To build on the positive leadership exam-
ples, a select group of prominent past
[16] FOREIGN AFFAIRS
AP/WIDE WORLD PHOTOS
and present African leaders who met
over the last year decided to confront
the continent's pathology of poor leader-
ship with deeds as well as words. At the
conclusion of a series of private meetings
(the final one of which was held in
Mombasa, Kenya), they established the
African Leadership Council, promul-
gated a Code of African Leadership with
23 commandments, issued a Mombasa
Declaration promoting better leadership,
and proposed a series of courses to train
their political successors in the art of
good government.
Members of the council believe that
absolute standards of leadership are
Volume83 No. 4
both appropriate and attainable. Good
leaders deliver security of the state and
of the person, the rule of law, good
education and health services, and a
framework conducive to economic
growth. They ensure effective arteries
of commerce and enshrine personal and
human freedoms. They empower civil
society and protect the environmental
commons. Crucially, good leaders also
provide their citizens with a sense of
belonging to a national enterprise.
Conscious that Africa's poor are get-
ting poorer and that good governance
is essential for successful economic
development, the council sees itself at
the vanguard of fundamental reform
in the continent. Its approach certainly
goes far beyond the New Partnership
for Africa's Development (NEPAD) and
proposals for the African Union. The
Code of African Leadership, for example,
says in its first commandment that
leaders should "offer a coherent vision
of individual growth and national ad-
vancement with justice and dignity for
all," implying that most leaders today
do not. Other commandments demand
that African leaders encourage "broad
participation," adhere to the letter and
spirit of their national constitutions
(especially term limits), encourage dis-
sent and disagreement, respect human
rights and civil liberties, strengthen
the rule of law, promote policies that
eradicate poverty and improve the well-
being of their citizens, ensure a strong
code of ethics, refuse to use their offices
for personal gain, oppose corruption,
and bolster essential personal freedoms.
This uncommonly bold agenda seeks
to avoid renewed patrimonial leadership
debacles, such as those presided over by

[17]
 Robert I Rotberg
Mobutu Sese Seko in Zaire, Moi in coalition building, and the fundamentals
Kenya, Idi Amin in Uganda, and Jean- of modern micro- and macroeconomics.
Bedel Bokassa in the Central African Training courses will soon be launched.
Republic. The council is highly conscious, Whether the efforts of the African
too, of the hijacking of Zimbabwe's Leadership Council will reduce blood-
government by Mugabe, which has shed, diminish corruption, and encourage
resulted in starvation and drastically more prosperity for citizens across Africa
reduced living standards. is by no means certain. But as a unique
The council is chaired by former African response to the continent's im-
President Sir Ketumile Masire of mense needs, this innovative endeavor
Botswana and includes former Nigerian is a promising, dramatic step forward.0
head of state General Yakubu Gowon,
Vice President Moody Awori of Kenya,
former Prime Minister Hage Geingob
of Namibia, and a dozen other present
and former prime ministers and cabinet
ministers from Sierra Leone to Kenya,
Malawi, and Uganda. All are regarded
throughout Africa as men of unusual
personal probity and esteem and as
accomplished proponents of good gover-
nance. The council intends to recruit
additional members from the ranks of
Africa's outstanding democratic leaders,
Francophone and Anglophone, female and
male. Together they will serve the continent
by advising international organizations,
individual countries, and donor agencies
on how to improve leadership.
The group stands ready to assist civil
societies in countries undergoing serious
leadership crises. It will also urge greedy
national leaders to attack corrupt practices
and adhere to term limits (the current
presidents of Gabon, Malawi, Namibia,
Uganda, and Zambia, for example, have
all had pangs of desire for illegal third
terms). Next year, it expects to begin
holding special seminars for cabinet
ministers and others. The council's cur-
riculum emphasizes constitutionalism,
the rule of law, ethics, accountability,
diversity, good fiscal management,

[JL8] FOREIGN AFFAIRS' Volume83No. 4

 Essays

CORBIS

Detailof Trajan's Column, Rome, Italy

Although Rome dominated its world,

it did so with none of the assurance or
domestic solidity of the United States today.
History and the Hyperpower EliotA. Cohen 49

Beyond Kyoto John Browne zo

The Myth Behind Chinas Miracle Georgej Gilboy 33
A Republican Foreign Policy Chuck Hagel 64
Saving Iraq From Its Oil Nancy BirdsallandArvindSubramanian 77
Containing Iraq: Sanctions Worked GeorgeA. Lopez andDavid Cortright 90
Building Entrepreneurial Economies Carj Schramm 104
China's Hidden Democratic Legacy Orville Schell 116
 Beyond Kyoto
7ohn Browne

THE CARBON CHALLENGE

IN 1997, more than i8o countries gathered in Kyoto, Japan, in search of

a coordinated international response to global warming. The provisional
agreement they reached appeared to mark a significant step forward.
But the Kyoto Protocol is coming unraveled. Despite nearly a decade
of effort, it may not even enter into force as a binding instrument.
Canada, Japan, and the European Union-the most enthusiastic
advocates of the Kyoto process-are not on track to meet their
commitments. And the United States has withdrawn from the agree-
ment entirely. Those concerned with the sustainability of the earth's
climate could be forgiven for feeling depressed.
Clear-eyed realism is essential. But dismay, however understandable,
is a mistaken reaction. There is scope for a different and more positive
view of the last seven years and of the future. First, it has become
obvious that Kyoto was simply the starting point of a very long
endeavor-comparable, perhaps, to the meetings in 1946 at which a
group of 23 countries agreed to reduce tariffs. Those meetings set in
motion a process that led to the establishment of the General Agree-
ment on Tariffs and Trade in 1948, which, in turn, led to the creation
of the World Trade Organization in the mid-199os. Second, we have
improved, if still imperfect, knowledge of the challenges and uncer-
tainties that climate change presents, as well as a better understanding
of the time scales involved. Third, many countries and companies
have had experience reducing emissions and have proved that such
reductions can be achieved without destroying competitiveness or

LORD BROWNE OF MADINGLEY is Group Chief Executive ofBP plc.

[20]
 Beyond Kyoto
jobs. Fourth, science and technology have advanced on multiple fronts.
And finally, public awareness of the issue has grown-not just in the
developed world but all around the globe.
Seven years after the Kyoto meeting, it is becoming clear that
the reduction of greenhouse gas emissions is a soluble problem, and
that the mechanisms for delivering the solutions are within reach.
In that spirit of cautious optimism, it is time to move beyond the
current Kyoto debate.

KNOWNS AND UNKNOWNS

BEFORE considering new approaches, it is necessary to distill some

basic facts from the voluminous, complex, and incomplete scientific
work on global warming.
Global temperatures have risen by about o.6 degrees Celsius since
the nineteenth century. Other measures of climate bolster the theory
that the world is getting warmer: satellite measurements suggest that
spring arrives about a week earlier now than in the late 197os, for
example, and records show that migratory birds fly to higher latitudes
earlier in the season and stay later. According to the UN'S Intergovern-
mental Panel on Climate Change (IPcc)-by far the most authoritative
body of scientists working on this issue-humans are probably not
responsible for all the measured warming. But the trend is undoubtedly
due in large part to substantial increases in carbon dioxide emissions
from human activity. Since the middle of the nineteenth century, the
average concentration of carbon dioxide-a so-called greenhouse
gas-in the world's atmosphere has risen from some 280 parts per
million (ppm) to around 370 ppm. Burning fossil fuels account for
about three-quarters of human emissions, with deforestation and
changes in land use (mainly in the tropics) accounting for the rest.
There are two main reasons why it has been hard for societies to
tackle climate change. First, carbon dioxide has a very long life span:
it exists for hundreds of years in the atmosphere, making this a
multigenerational issue. Second, reducing carbon dioxide in the
atmosphere can be done only on a truly global basis, since emissions mix
throughout the atmosphere much quicker than individual processes
can limit their impact.

FOREIGN AFFAIRS .July/August2004 [211

 Jo n Browne
Beyond these known facts, the picture becomes murkier. For instance,
nobody knows how rapidly emissions of carbon dioxide and other
greenhouse gases will rise in the future. That outcome depends on
the pace of global economic growth and on the impact of technology
on the ways society generates and deploys useful energy. Equally, it
is impossible to determine precisely how the climate will respond
as greenhouse gases accumulate to ever-higher concentrations in
the atmosphere. The brightness and altitude of clouds, for example,
determine whether warming is amplified or diminished, yet it is not
known how exactly climate change will affect cloud patterns. Nor is
it known how the world's carbon cycle will respond. A warmer climate
might make the planet greener-which would mean more carbon
dioxide would be sucked from the atmosphere. Alternatively, climate
change might impose such severe stress on the biosphere that nature's
processes for removing carbon dioxide from the atmosphere would
become less efficient than normal.
The most recent ipcc assessment, published in 200L, concludes that
if no precautionary action is taken, carbon dioxide concentrations
will rise by 2050 to between 450 and 550 ppm and will continue to
increase throughout the twenty-first century. The Ipcc estimates
that temperatures will rise by between o. 5 degrees Celsius and 2.5
degrees Celsius by 2050, with an increase of 1.4 degrees to 5.8 de-
grees possible by 21oo.
One of the most likely effects of global warming is a rise in sea level,
as glaciers melt and warmer water expands in the oceans. The best
projections suggest seas of between 5 centimeters and 32 centimeters
higher by 2050; the outer limit projected for 210o approaches one meter.
These numbers seem small, but coastlines are shallow slopes, not firm
walls, so a rise in water levels of just tens of centimeters would erase
kilometers of wetlands and beaches.
Industrialized countries will probably be able to handle rising water
levels, at least in the next few decades. London and cities in the
Netherlands, for example, already have defenses to hold back surging
seas. And farmers in wealthy countries can respond to changes in climate
by adjusting irrigation and varying the crops they plant, in many cases
with government financial support. But the developing world, home
to four-fifths of humanity, is likely to fare considerably worse on both

[2Z] FOREIGN AFFAIRS Volume83No. 4

 Beyond Kyoto
fronts. Hundreds of thousands of people have already been displaced
by periodic flooding in Bangladesh, and subsistence farmers-who are
far less adaptive than their richer counterparts-are already struggling
at the climatic margin.
The most dramatic scenarios, although unlikely, would have grave
consequences for humanity and ecosystems. Rapid changes in climate
could upset the circulation of the North Atlantic, for example-which,
ironically, would cause much colder regional temperatures in northern
Europe by weakening the heat-rich Gulf Stream. The Amazon rain
forest could deplete dramatically due to drying in the atmosphere,
in turn releasing huge volumes of carbon that is stored in trees. And
an accelerated rise in sea level from melting
ice in Antarctica could occur. These uncer- Rapid changes in
tain consequences do not lead to crisp
timetables for policy. But they mean that climate would have
precaution and improvements in measure- grave consequences
ment and learning will be crucial. for humanity and
A sober strategy would ensure that any
increase in the world's temperature is limited ecosystems.
to between 2 or 3 degrees Celsius above the
current level in the long run. Focused on that goal, a growing num-
ber of governments and experts have concluded that policy should
aim to stabilize concentrations of carbon dioxide in the atmosphere
in the range from 5oo to 550 ppm over the next century, which is less
than twice the pre-industrial level.
On the basis of known technology, the cost of meeting this goal
would be high. But the track record of technological progress in other
fields indicates an enormous potential for costs to fall as new ideas are
developed and applied. In the energy industry, for example, the costs
of deep-water oil and gas development have fallen by a factor of three
over the last 1S years, dramatically extending the frontier of commercial
activity. There is no reason to think that research and development in
the area of benign energy systems would be less successful. Predicting
where that success might come will not be easy-but that means
progress must be made on multiple fronts.
Many people believe that the 5oo-55o ppm goal would help avoid
the worst calamities. But we must recognize this assessment for what it

FOREIGN AFFAIRS .July/August2004 [231

 John Browne
is: ajudgment informed by current knowledge, rather than a confirmed
conclusion to the story. Taking that judgment as the starting point,
the two figures on the following page reveal the magnitude of the task
ahead. Figure 1 shows an anticipated projection for emissions from
industrialized and developing countries-a "business as usual" pathway
that reflects the normal improvements in efficiency, the shift away
from carbon-heavy fuels such as coal to carbon-light natural gas, and
the expected increase in use of zero-carbon energy sources such as
nuclear and wind power. Figure 2 shows the total world emissions from
that business-as-usual pathway along with a "path to future stability"-
an optimistic but realistic projection of what it will take to stabilize the
atmosphere at 5oo-550 ppm by around 2100. The large gray shaded
area is the difference: the wedge of emissions that must be avoided.
Almost every sensible analysis of the effort needed to stabilize
carbon dioxide concentration arrives at a hump-shaped trajectory like
the path to future stability in Figure 2. In other words, the long-term
target of5oo-55o ppm is reachable even if levels of emissions continue
to rise in the short term-as long as emissions start declining thereafter.
(Emissions must be progressively curtailed beyond a certain point
because previously emitted carbon dioxide lingers in the atmosphere
for hundreds of years.) The implication of Figure 2 is that we still
have time to take measured steps. But if we are to avoid having to
make dramatic and economically destructive decisions in the future,
we must act soon.

EFFICIENCY AND TRANSFORMATION

BOTH the exact level of the peak in global carbon dioxide emissions
over time and the subsequent decline are unknown. We can safely
assume, however, that emissions from developing countries will keep
rising as economic activity and incomes grow, as shown in Figure 1.
This means that leadership must come from the industrialized world.
In the short term, the developed world can use energy much more
efficiently and profitably. With a clear impetus for change, business
could put new technologies and services to use: cautiously at first, but
more aggressively as the best systems are identified and put into practice
with the normal turnover of capital.

1241 FOREIGN AFFAIRS • Volume 83 No. 4

 Figure I Figure 2
140 140
/ -
/

120 Worst-case
$/120
1
scenario

100 II 100

80 1 ' 80
cBusiness
Business as usual-

40 4''
0
0

0
I.-

Developing
0 00
1; 20 4/ P
0 20
-- ~iUIULLW-~~

/ 1
1950 2000 2050 2100 1950 2000 2050 2100

Figure 1: The "business as usual" line shows total global emissions of carbon dioxide since 195o and
the expected volume of emissions up to zioo in the absence of significant efforts to combat climate
change. These data are drawn from the central scenarios in the scientific literature compiled in Nebojsa
Nakicenovic et al., eds., Emissions Scenarios:A SpecialReport of Working GroupIII of the Intergovernmental
Pane/on Climate Change (Cambridge: Cambridge University Press, 2000). The "worst-case scenario"
shown in the figure is the highest credible scenario drawn from the same source.
Figure 2: This figure contrasts the business-as-usual scenario from Figure i with a "path to future
stability"-an optimistic but realistic projection for stabilizing the atmospheric concentration of
carbon dioxide at 5oO-550 ppm beyond 21oo. The shaded gray area shows the wedge of emissions
that must be avoided. The path to future stability is based on published stabilization scenarios
compiled for the IPCC report cited above.

FOREIGN AFFAIRS •July/August 2004 [25]

 John Browne
Business has already found that it is possible to reduce emissions from
its operations. Counterintuitively, BP found that it was able to reach its
initial target of reducing emissions by io percent below its 199o levels
without cost. Indeed, the company added around $650 million of
shareholder value, because the bulk of the reductions came from the
elimination of leaks and waste. Other firms--such as electricity genera-
tor Entergy, car manufacturer Toyota, and mining giant Rio Tinto-are
having similar experiences. The overwhelming message from these ex-
periments is that efficiency can both pay dividends and reduce emissions.
Yet reducing emissions by the gray area in Figure 2-a reduction
that amounts to around 25 billion tons per year in 205o-will require
more than just efficiency improvements. Given the world's rising
demand for energy, we must also transform the energy system itself,
making fuller use of low-carbon fuels as well as carbon-free energy
systems. Paradigm shifts must occur across the economy: transportation
accounts for 20 percent of total emissions, industry contributes another
20 percent, the domestic and commercial sectors emit around 25 per-
cent, and power-generation accounts for another 35 percent. A wide-
ranging set of policies is thus called for.
Reducing emissions In power generation, options include
switching from coal to less-carbon-intensive
by the necessary natural gas. For example, 40o new gas plants,
amount will require each generating 1,ooo megawatts, would
more than just efficie reduce emissions by one billion tons per year.
fency Such a reduction would be difficult within
improvements, the parameters of today's electricity systems-
400,000 megawatts is roughly equal to all of
China's electric power capacity, or half the installed capacity in the
United States. Zero-carbon fuels would also help reduce emissions.
If 200,000 megawatts of coal-generated power were to be replaced
with nuclear power, carbon dioxide emissions would be reduced by
one billion tons per year. Progress on the nuclear front will demand
investment in new technologies, as well as a viable plan for locating
reactors that ensures that radioactive materials are kept out of the
environment and beyond terrorists' reach.
Coal, too, could be made carbon-free, using advanced power
plants that gasify the fuel and then generate power while stripping

[26] FOREIGN AFFAIRS Volume83No. 4

 Beyond Kyoto
away the carbon for sequestration underground. Coal gasification
could become a huge growth industry. China is among the top investors
in this technology, not just because these plants are much cleaner, but
also because they could be keystones in a program to synthesize clean
liquid fuels for transportation needs.
More efficient buildings would also result in large energy savings,
since over one-third of today's energy is used indoors. Given that
electrification is a central feature of industrial and postindustrial
societies, innovators must tap the potential for ultra-efficient electrical
appliances. Investment in a digitally controlled power grid could
aid this effort by allowing major appliances to "talk" directly with
power generators so that the whole system operates closer to its
optimum potential. Such a "smart grid" would reduce losses in
electricity transmission while also allowing fuller use of waste heat
from power generators in factories and homes.
There are efficiency savings to be made in transportation too.
Given the massive advantages of gasoline over rival fuels-both
in terms of its power density and its ease of storage-transport is
unlikely to switch to new fuels in the near future. More promising
approaches will focus on making transportation more efficient,
while meeting the ever-stricter limits on other emissions that
cause air pollution. For example, running 6oo million diesel or
gasoline cars at 6o miles per gallon (mpg) instead of3o mpg would
result in a billion fewer tons of carbon dioxide per year. Advanced
ultra-efficient diesel engines, meanwhile, are so clean that even the
strictest regulatory body in the world-the California Air Resources
Board-is taking a second look. Advanced techniques for gasoline
injection also hold promise, as do hybrid electric-gasoline cars al-
ready on the road. Such vehicles have the potential to get more than
twice the mileage per gallon of their conventional counterparts.
Given the increasing consumer demand for speed and flexibility in
air travel, policymakers should also focus on the opportunities for
cutting emissions from aircraft.
All of these efforts will require major investments. Some will also
require new infrastructures. But we must begin to build and test such
systems. Only with evidence from actual experience can we decide
how best to direct our efforts.

FOREIGN AFFAIRS .Ju1y/Alugust2004 1271

 John Browne

DOWN TO BUSINESS

THE ROLE of business is to transform possibilities into reality. And

that means being practical, undertaking focused research, and testing
the different possibilities in real commercial markets. The energy
business is now global, which offers a tremendous advantage: inter-
national companies access knowledge around the world and apply it
quickly throughout their operations.
But the business sector cannot succeed in isolation. Harnessing busi-
ness potential requires fair and credible incentives to drive the process
of innovation and change. In responding to global warming, that role
must fall to the government. Neither prescriptive regulations nor fiscal
interventions designed to collect revenue rather than to alter behavior
provide the answer. Rather, governments must identify meaningful
objectives and encourage the business sector to attain them by using
its knowledge of technology, markets, and consumer preferences.
Recent experience suggests that emissions trading regimes--whereby
government sets a binding cap on total emissions, dividing the total
into "emission credits" that are given to those who emit carbon dioxide-
are the best policy for encouraging business. Policymakers (notably in
the United States) have demonstrated that it is possible to design such
systems for other pollutants, such as sulphur dioxide, thereby har-
nessing the power of innovation and the flexibility of the market to
protect the environment, while avoiding crippling costs. The same
insights should apply to carbon dioxide. A well-designed trading
regime would include a strictly enforced cap, which would make carbon
dioxide emission credits scarcer (and thus more valuable) and would
thereby increase the incentive for business to control emissions. Such a
system would also allow firms and households the flexibility to apply
resources where they have the greatest impact, which is essential,
because the best measures for controlling carbon dioxide are hard to
anticipate with precision and are widely dispersed across the economy.
And a credible emission trading system would create incentives to
invest in radical new technologies, the kind that will be crucial in build-
ing a carbon-free energy system in the future.
Emissions trading systems need not be identical in every country, nor
be applied universally from day one. The political reality is that we are

[28] FOREIGN AFFAIRS Volume83No. 4

 Beyond Kyoto
unlikely to see the sudden emergence of a single regime; in scope and
ambition, that would be comparable to the emergence of a single global
currency. Instead, progress is much more likely to come through the
gradual process of knitting together diverse national and regional efforts
on the basis of their track records of experience and achievement. The
key task today is to find practices that will lead to a system that wil
enable today's diverse and fragmented reduc-
tion efforts to be valued on a common basis. Engaging business
The history of trade liberalization over the
second half of the twentieth century shows requires fair and
that gradualism can yield impressive results. credible incentives to
At present, the nascent European emission
trading system-which will start running drive the process of
on a trial basis in 2005-is the most advanced innovation and change.
example. Built on sound monitoring and
verification policies, the system is the cen-
terpiece of the European effort to implement the commitments
adopted at Kyoto. Yet there are still hurdles to be cleared if it is to be
fully operational by 2oo8, as planned. The process for allocating
emission credits is not yet complete. And the system will cover only
about 40 percent of Europe's emissions as it stands-mainly those
from industry. The potential for extending the scope of the trading
base is indeed considerable, not least through the incorporation of
effective incentives that will reward businesses whose investments re-
duce emissions outside Europe, such as in Russia and the emerging
market economies of Asia-where large and relatively low-cost re-
ductions of emissions are possible.
Markets are emerging in other regions as well. The Chicago Climate
Exchange, opened in December 2003, involves 19 North American
entities that have agreed to reduce their emissions by one percent per
year over four years. Canada may yet create a market for carbon dioxide
as it aims to meet the Kyoto targets. And U.S. states have become
laboratories for innovation and change. For example, Massachusetts,
New York, and New Hampshire are adopting rules that will spur the
creation of market-based emission trading systems. Voluntary systems
for measuring emissions-such as one being crafted in California-
may also provide further foundations for emission trading. There is a

FOREIGN AFFAIRS .July August 2004 [2 9]

 John Browne
strong argument for linking these efforts. U.S. policymakers should
also consider establishing a transatlantic partnership to work toward
a common market-based trading system.
Offering positive incentives is one key contribution that government
can make to stimulate business. Another is organizing research. It is
crucial to extend our understanding of the science of climate change:
monitoring key variables with sufficient precision to understand both
natural variability and the climate's response to human activity. A key
target of such work must be to understand the precise connection
between the concentration of carbon dioxide in the atmosphere and
changes in climate. Such research must also advance our knowledge
of available choices: with the clock ticking, we cannot wait for definite
answers before we take action.
Government intervention must take other forms too. Transforming
the energy system will require new technologies with risks that will
be too high (and benefits too remote) for private firms to provide all
the needed investment. This is one area in which the United States,
with its outstanding technical capacity, should take a leadership role.
Innovation will require an across-the-board infusion of resources for
basic science and technology, as well as the development of a portfolio
of key demonstration projects. The priorities for such work might
include photovoltaic cells (which convert sunlight into electricity), fission
reactor technology, energy from biomass, and the use of hydrogen.
Given the costs and risks involved in such investment, governments
with common interests and common views of the future have every
incentive to combine their efforts and resources. Fortunately, there are
many precedents of international partnerships in innovation-from
high-energy physics to astronomy and nuclear fusion. The global warm-
ing challenge is different, in that it involves not only basic science but
also the application of novel techniques through products that must
withstand the test of competition. But that is why the program of
research and development work should involve collaboration not just
between different countries but also between governments and business.
There are examples of such collaborative work already underway.
In November 2003, a ministerial-level meeting held in Washington,
D.C., began the process of building international partnerships for
research on the potential of the hydrogen economy. The United

[30] FOREIGN AFFAIRS" Volume83 No. 4

 Beyond Kyoto
States has already pledged $1.7 billion over the next five years for work
in this area. A similar collaboration-the International Carbon
Sequestration Leadership Forum-is built around the concept of
capturing carbon and storing it geologically. Again, this scheme
complements programs in the United States, such as FutureGen, a
Si billion public-private partnership to promote emissions-free coal-
fired electricity and hydrogen production. These research efforts are
a good start, but they must go hand-in-hand with the creation of
credible caps on emissions and trading systems, which will create the
incentives to transform the energy system.

DEVELOPING SOLUTIONS

IT WOULD be morally wrong and politically futile to expect countries

struggling to achieve basic levels of development to abandon their as-
pirations to grow and to improve their people's living standards. But it
would be equally wrong to ignore the fact that by 2o25, energy-related
carbon dioxide emissions from developing countries are likely to ex-
ceed those from the member states of the Organization of Economic
Cooperation and Development. Instead ofbeing daunted by the scale of
this challenge, policymakers must recognize the scale of the opportunity:
developing countries have the potential to leapfrog the developed
world's process of industrialization, thereby providing an enormous
opportunity to improve energy efficiency and reduce emissions.
So far, most international efforts to engage developing countries
have focused on the Kyoto Protocol's Clean Development Mechanism
(CDM)-a scheme that would encourage investment by awarding
emission credits for the quantity of emission reductions flowing from
a particular project. In principle, the CDM was a good idea. In practice,
it has become tangled in red tape and has required governments and
investors to do the impossible: estimate the level of emissions that
would have occurred in the absence of a project and then to calculate
the marginal effect of their actions. The only projects that can meet
this test are small and discrete: a steel mill that uses sustainably grown
wood instead of coal for coke, for example, or a tiny hydroelectric dam
that averts the need to build a coal-fired power plant. Such efforts are
important, but they are hardly the stuff of radical transformation.

FOREIGN AFFAIRS .July/August2004 [31]

 John Browne
There is no neat, off-the-shelf solution for engaging the develop-
ing world. But there are encouraging signs of the process of economic
development acting as a force for modernization. In China and India,
infrastructure necessary to substitute natural gas for coal is already
being put in place. And in many of the oil-producing regions of the
world, the spread of international technology is making it possible to
capture and reinject the natural gas that is often associated with oil,
rather than venting or flaring it into the atmosphere. Efforts to change
the incentives that govern land use in the developing world are also
encouraging. From the Congo Basin to the Amazon and the forests of
Southeast Asia, practical partnerships of governments, nongovernmen-
tal organizations, and businesses are showing the way. Small amounts
of money and skillfully designed incentives are stemming the tide of
deforestation by creating a stake in protecting the forests.
These and other efforts reflect the determination of publics,
governments, and business to transcend the harsh and unacceptable
trade-off between the desire to improve living standards and allow
people the freedom to use energy for heat, light, and mobility on the
one hand, and the desire for a clean environment on the other.

UNFINISHED BUSINESS

THE APPROPRIATE response to the faltering Kyoto Protocol is neither

dismay nor fatalism. A complete international agreement on a subject of
such complexity and uncertainty is still a long way off. But as those who
championed the cause of liberal trade found after that first meeting
in 1946, great causes acquire lives of their own. Consolidated political
agreements often follow, rather than lead, the realities on the ground.
Taking small steps never feels entirely satisfactory. Nor does taking
action without complete scientific knowledge. But certainty and
perfection have never figured prominently in the story of human
progress. Business, in particular, is accustomed to making decisions
in conditions of considerable uncertainty, applying its experience and
skills to areas of activity where much is unknown. That is why it will
have a vital role in meeting the challenge of climate change-and why
the contribution it is already making is so encouraging.0

132 1 FOREIGN AFFAIRS Volume83No. 4

 The Myth Behind
China's Miracle
George Gilboy

THE PHANTOM MENACE

CHINA'S SUDDEN RISE as a global trading power has been greeted

with a curious mixture ofboth admiration and fear. Irrational exuberance
about the country's economic future has prompted investors to gobble
up shares of Chinese firms with little understanding of how these
companies actually operate. Meanwhile, overestimates of Chinas
achievements and potential are fueling fears that the country will
inevitably tilt global trade and technology balances in its favor, ultimately
becoming an economic, technological, and military threat to the United
States. These reactions, however, are equally mistaken: they overlook
both important weaknesses in China's economic "miracle" and the
strategic benefits the United States is reaping from the particular way
in which China has joined the global economy. Such misjudgments
could drive Washington to adopt protectionist policies that would
reverse recent improvements in U.S.-China relations, further alienate
Washington from its allies, and diminish U.S. influence in Asia.
In fact, the United States and China are developing precisely the
type of economic relationship that U.S. strategy has long sought to
create. China now has a stake in the liberal, rules-based global economic
system that the United States worked to establish over the past half-
century. Beijing has opened its economy to foreign direct investment

GEORGE J. GILBOY is a senior manager at a major multinational firm

in Beijing, where he has been working since 1995, and a research
affiliate at the Center for International Studies at the Massachusetts
Institute of Technology.

[33]
 GeorgeJ Gilboy
(FDI), welcomed large-scale imports, and joined the World Trade
Organization (WTO), spurring prosperity and liberalization within
China and across the region.
China's own choices along the road to global economic integration
have reinforced trends that favor the continued industrial and tech-
nological preeminence of the United States and other advanced
industrialized democracies. In its forced march to the market, Beijing
has let political and social reforms lag behind, with at least two critical-
and unexpected-consequences. First, to forestall the rise of a politically
independent private sector, the Chinese government has implemented
economic reforms that strongly favor state-owned enterprises (SOES),
granting them preferential access to capital, technology, and markets.
But reforms have also favored foreign investment, which has allowed
foreign firms to claim the lion's share of China's industrial exports and
secure strong positions in its domestic markets. As a result, Chinese
industry is left with inefficient but still-powerful SOES, increasingly
dominant foreign firms, and a private sector as yet unable to compete
with either on equal terms.
Second, the business risks inherent in Chinas unreformed political
system have bred a response among many Chinese managers-an
"industrial strategic culture"-that encourages them to seek short-term
profits, local autonomy, and excessive diversification. With a few
exceptions, Chinese firms focus on developing privileged relations
with officials in the Chinese Communist Party (ccp) hierarchy, spurn
horizontal association and broad networking with each other, and forgo
investment in long-term technology development and diffusion.
Chinese firms continue to rely heavily on imported foreign technology
and components-severely limiting the country's ability to wield
technological or trading power for unilateral gains.
China, in other words, has joined the global economy on terms
that reinforce its dependence on foreign technology and investment
and restrict its ability to become an industrial and technological
threat to advanced industrialized democracies. China's best hope
for overcoming its technological and economic weaknesses lies in a
renewed focus on domestic political reform. Thus, rather than lapse
into shortsighted trade protectionism that could undermine current
favorable trends, Washington should pursue a policy of "strategic

[34] FOREIGN AFFAIRS" Volume83No. 4

 The Myth Behind China'sMiracle
engagement." Not simply engagement for its own sake, strategic en-
gagement would explicitly acknowledge the advantages of U.S.
technological, economic, and military leadership and seek to rein-
force them, in exchange for increased prosperity and more security
for China-the more so now that China has a compelling economic
interest in domestic political reform.

OPEN AND OPENING

RECENT DEBATES about U.S-China trade overlook the fact that the
U.S. economic relationship with China is largely favorable and that
it is conducted largely on U.S. terms. In particular, the focus on China's
currency as a source of unfair trade advantage is misplaced, as economists
Jonathan Anderson ofuBs and Nicholas Lardy and Morris Goldstein
of the Institute for International Economics have shown. Even a
moderate appreciation of the yuan would make little difference to
most U.S. firms and workers. Meanwhile, the currency issue obscures
the significant economic and strategic benefits the United States now
enjoys in its relations with China.
According to Morgan Stanley, low-cost Chinese imports (mainly
textiles, shoes, toys, and household goods) have saved U.S. consumers
(mostly middle- and low-income families) about $1oo billion dollars
since China's reforms began in 1978. (Cheaper baby clothes from
China helped U.S. families with children save about $400 million
between 1998 and 2003.) U.S. industrial firms such as Boeing, Ford,
General Motors, IBM, Intel, and Motorola also save hundreds of
millions of dollars each year by buying parts from lower-cost countries
such as China, increasing their global competitiveness and allowing
them to undertake new high-value activities in the United States.
In an effort to save 30 percent on its total global sourcing costs, Ford
imported about $500 million in parts from China last year. General
Motors has cut the cost of car radios by 40 percent by building them
from Chinese parts. And although global sourcing can cause
painful employment adjustments, the process can also benefit U.S.
workers and companies. A recent independent study sponsored by
the Information Technology Association of America found that
outsourcing to countries such as China and India created a net

FOREIGN AFFAIRS .Ju/y/August2004

[35]
 Georgej Gilboy
90,00o new U.S. jobs in information technology in 2oo3 and esti-
mated that outsourcing will create a net 317,00o new U.S. jobs by 20o8.
China is not just an exporter; it imports more than any other state in
northeastern Asia. Although it had a $124 billion trade surplus with the
United States in 2003, it had significant trade deficits with many other
countries: $15 billion with Japan, $23 billion with South Korea, $40 bil-
lion with Taiwan, and $16 billion with the members of the Association
of Southeast Asian Nations (ASEAN). Most
Foreign-funded significantly, China is a large and growing
market for domestically consumed imports
enterprises in China (ordinary trade that excludes imported goods
accounted for more that are processed and reexported). Chinese
than half of the country's imports for domestic consumption rose to
$187 billion in 2003, from $40 billion in the
exports last year. mid-199os. Discounting the processing and
reexport trade, China ran a $5 billion trade
deficit in 2003, compared to a $20 billion
surplus just five years earlier. In industries it classifies as "high tech,"
including electronic goods, components, and manufacturing equip-
ment, China has averaged a $12 billion annual deficit for the last decade.
Unlike other U.S. trading partners in Asia, such as Japan and South
Korea, which spurned U.S. imports and investment for decades, China
is also a large, open market for U. S. products. Although total U.S. exports
have stagnated in recent years, U.S. exports to China have tripled in the
last decade. They increased by 28 percent last year alone (whereas
overall U.S. exports went up by only 5 percent). In particular, China has
become a staple market for advanced U.S. technology products.
According to U.S. government data, U.S. aerospace exports to China
were valued at more than $2 billion in 2003-about 5 percent of total
U.S. aerospace exports and nearly as much as comparable exports to
Germany. U.S. firms exported $500 million of advanced manufacturing
equipment to China in 2003, more than they exported to France. And
U.S. chip makers exported $2.4 billion of semiconductors to China in
2003, the same amount they exported to Japan.
Furthermore, China allows foreign firms to invest in its domestic
market on a scale unprecedented in Asia. Since it launched reforms in
1978, China has taken in $Soo billion in FDI, ten times the total stock

[3 6 ] FOREIGN AFFAIRS Volume83No.4

 The Myth Behind China'sMiracle
of FDI Japan accumulated between 1945 and 2000. According to
China's Ministry of Commerce, U.S. firms have invested more than
$4o billion in more than 40,000 projects in China. Given its openness
to FDI, China cannot maintain its domestic market as a protected
bastion for domestic firms, something both Japan and South Korea
did during their periods of rapid growth. Instead, it has allowed U.S.
and other foreign firms to develop new markets for their goods and
services, especially high-value-added products such as aircraft, soft-
ware, industrial design, advanced machinery, and components such
as semiconductors and integrated circuits.
Thanks to this appetite for imports, powerful domestic coalitions,
particularly China's growing ranks of urban consumers and its most
competitive firms, will continue to favor trade openness. Chinese
consumers pride themselves on driving foreign-brand cars and using
mobile phones and computers with circuits that were designed and
manufactured abroad. Many Chinese firms resist protectionism, because
they need to import critical components for their domestic operations
and fear retaliation against their exports. For example, in the 199os,
China's machine tool and aircraft industries failed to secure effective
state protection in the face of opposition from domestic firms that
preferred imports, and they suffered significant decline as a result.
As an open economy and a large importing country, China could be
an ally of the United States in many areas of global trade and finance.
Already, Beijing has displayed a willingness to play by WTO rules. It has
charged Japan and South Korea with unfair trade practices-markets
the United States has also long sought to crack open. China initiated
1o antidumping investigations in 2002 on products with import value of
more than $7 billion, and another 20 investigations in 2003. China is
now a leading promoter of regional trade and investment regimes, in-
cluding a free trade zone with ASEAN and a bilateral free trade agreement
with Australia, one of the United States' closest allies in the Pacific
region. Already, Beijing's proposals on regional economic cooperation
seem far more relevant to most Asian nations than do Washington's.
The final benefit the United States enjoys from China's global
economic integration is in the long-term, patient battle to promote
liberalism in Asia. Foreign trade and development have spurred ad-
vancements in Chinese commercial law, greater regulatory consultation

FOREIGN AFFAIRS .Ju1y/August2004 [37]

 GeorgeJ Gilboy
with Chinese consumers, slimmed-down bureaucracies, and adherence
to international safety and environmental standards. Although it is still
limited, the people's freedom to debate economic and social issues has
increased, especially in the robust financial media. This process of
liberalization is incomplete and uneven, but it is in the interest of both
China and the United States to see it continue.

OUTSIDE IN
DESPITE THESE BENEFITS, business and political leaders in the
United States now fear that China's growing share of world exports,
especially of high technology and industrial goods, signals the rise
of yet another mercantilist economic superpower in northeastern
Asia. But these concerns are unwarranted, for three reasons. First,
China's high-tech and industrial exports are dominated by foreign,
not Chinese, firms. Second, Chinese industrial firms are deeply
dependent on designs, critical components, and manufacturing
equipment they import from the United States and other advanced
industrialized democracies. Third, Chinese firms are taking few
effective steps to absorb the technology they import and diffuse it
throughout the local economy, making it unlikely that they will
rapidly emerge as global industrial competitors.
A close look at the breakdown of China's exports by type of
producing firm puts China's economic rise in perspective. Foreign-
funded enterprises (FFEs) accounted for 55 percent of China's exports
last year. In this respect, China diverges from the typical Asian
success story. According to Huang Yasheng of the Massachusetts
Institute of Technology, FFES accounted for only 20 percent of
Taiwan's manufactured exports in the mid-197os and only 25 percent
of South Korea's manufactured exports between 1974 and 1978. In
Thailand, the FFES' share dropped from 18 percent in the 1970s to
6 percent by the mid-198os.
As shown in the figure on the next page, the dominance of foreign
firms in China is even more apparent in advanced industrial exports.
While exports of industrial machinery grew twentyfold in real terms
over the last decade (to $83 billion last year), the share of those ex-
ports produced by FFES grew from 35 percent to 79 percent. Exports

[3 8 ] FOREIGN AFFAIRS" Volume83 No. 4

 Private 3%
/ Collective 3%

Coproduction
Industrial Machinery Exports 2%

1993: $4.2 billion 2003: $83 billion

.Coproduction 2%
Private 1%
Computers, Components, and Collective 1%
Peripherals Exports SOE 6%

1993: $0.7 billion 2003: $41 billion

.Coproduction 3%
Private 5%
Electronics and Telecommunications Collective 3%
Equipment Exports

-Collective 1%

1993: $12.3 billion

2003: $89 billion

m FFE = {WOFE = wholly owned foreign enterprises s t ed enterprises
foreign- JV = joint ventures SOE = state-ownd r
forie Coproduction Collectives
enterprises I
SOURCE: Customs General Administration, People's Republic of China
 GeorgeJ Gilboy
of computer equipment shot from $716 million in 1993 to $41 billion in
2003, with the FFES' share rising from 74 percent to 92 percent. Likewise,
China's electronics and telecom exports have grown sevenfold since 1993
(to $89 billion last year), with the FFES' share of those exports growing
from 45 percent to 74 percent over the same period. This pattern repeats
itself in almost every advanced industrial sector in China.
The data featured in the figure highlight another trend that rein-
forces China's dependence on foreign investment and the growing
gap between FFEs and domestic Chinese companies. In the 199os,
Beijing permitted a new FDI trend to develop: a shift away from joint
ventures and toward wholly owned foreign enterprises (WOFES).
Today, WOFES account for 65 percent of new FDI in China, and they
dominate high-tech exports. But they are
China's industrial much less inclined to transfer technology
to Chinese firms than are joint ventures.
culture prompts local Unlike joint ventures, they are not contrac-
firms to seek short-term tually required to share knowledge with local
partners. And they have strong incentives to
gains, shun collaboration, protect their technology from both domestic
and curry favor with and other foreign firms, in order to capture a
local officials. greater share of China's domestic markets.
As a result, according to the most recent
Chinese government statistics for high-tech
industries (pharmaceuticals, aircraft and aerospace, electronics, tele-
communications, computers, and medical equipment), FFES increased
their total share of high-tech exports from 74 percent to 85 percent
between 1998 and 2002. But perhaps more significant, in the same
period, they increased their share of total domestic high-tech sales
from 32 percent to 45 percent, while the share of that market held by
China's most competitive industrial firms, SOES, fell from 47 percent
to 42 percent.
Finally, the data in the figure reveal that China's private firms are
not yet significant global players. Despite more than two decades of
economic reform, China's leading domestic industrial and technology
companies are still primarily SOES. Although they remain inefficient
and dependent on government-subsidized loans, they account for the
bulk of advanced industrial production in China, boast the country's

[40] FOREIGN AFFAIRS- Volume 83 No. 4

 The Myth Behind China'sMiracle
best research and development (R&D) capability, and spend the most
resources to develop and import technology. Their preferential access
to markets and resources has blocked the rise of private industrial
firms. Likewise, collective firms owned by provincial and local gov-
ernments have failed to emerge as major players in China's advanced
industrial and technology sectors.

PARTICULAR AND EXCEPTIONAL

ONE OF the key reasons that state, collective, and private firms in
China lag behind FFES is that they have failed to invest in the type of
long-term technological capabilities that theirJapanese, South Korean,
and Taiwanese predecessors built during the 1970s and 198os.
Developing technology is a difficult and uncertain process. Neither
large capital investments nor a significant stock of existing science
and engineering capability can guarantee success. To create commercially
viable products and services, firms must monitor and access new forms
of knowledge, understand evolving market trends, and respond rapidly
to changing customer demand. Firms that can develop strong links to
research institutions, financiers, partners, suppliers, and customers
have an advantage in acquiring, modifying, and then commercializing
new technology. Such horizontal networks are essential conduits for
knowledge, capital, products, and talent.
Yet China's unreformed political system suppresses such independent
social organization and horizontal networking and instead reinforces
vertical relationships. China remains a fragmented federal system, its
fractious regions unified by a single political party. The ccP controls
all aspects of organized life, including industry associations, leaving
few avenues for firms to work together for legitimate common interests.
This structure drives business leaders to focus on building relationships
through ccP officials and the bureaucracy. Although market reforms
have brought more rules to the Chinese economy, without institutional
checks and balances or direct supervision, ccP officials still exercise
wide discretion in defining and implementing those rules, especially
at the local level. They can, and often do, manipulate economic policies
to pursue particular local goals. Some engage in this "particularism"
because they are corrupt, others because they directly own or operate

FOREIGN AFFAIRS .July/August2o004 1411

 Georgej Gilboy
firms. Most, however, do it because the political elite encourages
them to: understanding that local economic growth promotes social
and political order, the ccP tolerates, and even rewards, officials who
use any means to produce local investment and employment. But
this often results in fragmented national industries and wasteful
overlapping investment.
Chinese business leaders at both public and private firms recognize
that an economy dominated by particularism is a risky business envi-
ronment. Markets are fragmented; rules constantly shift under ma-
nipulation by government officials; and political obstacles prevent
firms from associating, sharing risk, and taking collective action. To cope
with these uncertainties, Chinese business has developed a distinctive
industrial strategic culture over the past two decades-a set of
values or guidelines about what strategies "work" in this environment.
First, in response to the "particular" application of policy, Chinese
firms routinely focus on obtaining "exceptional" treatment from key
officials: special access to markets or resources, exemptions from rules
and regulations, or protection against predation by other officials.
Second, to maximize these exceptional benefits, as well as to avoid
entanglements with other firms and their patrons, many Chinese
companies shun collaboration within their industry, especially if such
collaboration crosses regional or bureaucratic boundaries. Third, they
generally favor short-term gains over long-term investments. Finally,
Chinese firms tend to engage in excessive diversification in order to
mitigate the potential damage of fratricidal price competition created
by excess production capacity and overlapping investments.

NODES WITHOUT ROADS

THIS INDUSTRIAL strategic culture is rational and effective given

the current structure of politics and business environment in China.
(These features echo patterns of interaction between authoritarian
officialdom and merchant enterprise that were established in China's
first period of industrialization in the Qng dynasty 15o years ago.)
But China's industrial strategic culture weakens the competitiveness
of Chinese firms and it may have damaging economic repercussions
down the road. Most Chinese industrial firms focus on short-term

142] FOREIGN AFFAIRS- Volume83 No. 4

 The Myth Behind China'sMiracle
gains and, despite increasing operational efficiency, sales revenues,
and profits, have not increased their commitment to developing new
technologies. Their total spending on R&D as a percentage of sales
revenue has remained below one percent for more than a decade.
R&D intensity (R&D expenditure as a percentage of value added)
at China's industrial firms is only about one percent, seven times
less than the average in countries of the Organization for Economic
Cooperation and Development (OECD).
Focusing on short-term returns has also guided China's imports of
industrial technology. Chinese firms tend to import technology by
purchasing foreign manufacturing equipment, often in complete sets
such as assembly lines. Throughout the 198os and 199os, hardware
accounted for more than 8o percent of China's technology imports,
whereas licensing, "know-how" services, and consulting accounted
for about 9 percent, S percent, and 3 percent, respectively.
Although China has recently begun importing more "soft
technology"-mainly in the form of licenses for the use of imported
equipment-the knowledge embodied in it must be absorbed and
mastered (or, in technology parlance, "indigenized") before it can
become an effective basis for domestic innovation. Chinese firms
remain weak in this regard. Over the last decade, large and medium-
sized Chinese industrial firms have spent less than lo percent of the
total cost of imported equipment on indigenizing technology. Indi-
genization spending at state firms in the sectors in which China is
most often cited as a rising power (telecom equipment, electronics,
and industrial machinery) is also low (at 8 percent, 6 percent, and
2 percent of the cost of imported equipment, respectively). This is far
lower than the average for industrial firms in OECD countries, which
amounts to about one-third of total technology import spending. The
practice of Chinese firms also stands in contrast to spending patterns
in Asian countries such as South Korea and Japan in the 1970s and
198os, when they were trying to catch up with the West. Industrial
firms in those countries spent between two and three times the purchase
price of foreign equipment on absorbing and indigenizing the tech-
nology embodied in the hardware.
Chinese firms have also failed to develop strong domestic technol-
ogy supply networks. In 2oo2, Chinese firms devoted less than one

FOREIGN AFFAIRS .July/ August 2004 [43]

 GeorgeJ Gilboy
percent of their total science and technology budgets (which include
technology imports, renovation of existing equipment, and R&D) to
purchasing domestic technology. China's best firms are among the
least connected to domestic suppliers: for every $ioo that state-owned
electronics and telecom firms spend on technology imports, they
spend only $1.20 on similar domestic goods. Thus Chinese technology
suppliers do not enjoy a strong "demand pull" from the best domestic
firms to stimulate their own innovative capabilities; they are relegated
primarily to serving rural enterprises and less competitive state-
owned enterprises. And because FFES use their investments in China
as technology "snakeheads" (a Chinese term for portals), through
which they bring product designs, advanced
Short of drastic political manufacturing equipment, and high-value
components from foreign firms or their
reform, China will not China subsidiaries, they too are poorly linked
overcome its technological to Chinese domestic technology markets.
Industrial collaboration and horizontal
networking are also rare, prompting Chinese
firms to run their R&D projects in relative
isolation. In the most recent national R&D census in 2000, Chinese
industrial firms reported that they spent 93 percent of their $2.7 bil-
lion total R&D outlay in-house, but only 2 percent on collaborative
activities with universities and less than 1percent on projects with other
domestic firms. China's research institutes are increasingly insular,
too, especially since market reforms have forced them to commercialize
their operations. In 2000, only 38 of China's 292 national industrial
research institutes devoted more than one-third of total activities to
collaborative projects, even though these institutes are specifically tasked
with diffusing technology. Instead, many are becoming competitors of
the firms they are supposed to serve. A 2oo3 World Bank report found
that many Chinese engineering research centers have been mass-
producing and marketing the products of their research for their own
financial gain, rather than diffusing these technologies through patents.
Failed collaborations have also plagued China's attempts to com-
mercialize domestic innovations. Julong Technologies, the firm that
developed China's first digital telecom switching equipment, is no longer
a major telecom-equipment player due to conflicts among its research,

[44] FOREIGN AFFAIRS - Volume8JNo.4

 The Myth Behind China'sMiracle
production, and marketing arms, which came under the influence of
competing political officials. China's homegrown mobile telephone
standard, TD-SCDMA, has received central government support, but
thus far none of China's major telecommunications operators have
agreed to commit to it, preferring a foreign standard, WCDMA, instead.
Given the political perils of challenging competitors and their local
patrons, few Chinese firms develop alliances with or invest in com-
panies in other provinces. One recent survey of 8oo companies that have
conducted domestic mergers and acquisitions found that 86 percent
of them invested in firms within their own city and 91 percent invested
in firms within their own province. Strong local political ties tend to
isolate a region from the rest of the economy, which helps explain why
Chinese firms are often small and the country's industries fragmented.
For example, a recent study performed for the State Council (China's
cabinet) revealed that Chinese managers regard the country's two
most politically powerful technology and industrial hubs, Beijing and
Shanghai, as leading centers of local protectionism in China. Among
the industries most affected by such protectionism were pharmaceuticals,
electrical machinery, electronics goods, and transport equipment. SoEs
and private firms suffered the most, FFES the least-which suggests that
the burden of particularism falls most heavily on Chinese firms.
To avoid the difficulties of developing interregional supply chains
while securing short-term profits, Chinese firms tend to engage in
excessive diversification---also with damaging results. Many of China's
most famous firms have made unsuccessful forays into ancillary busi-
nesses: Haier (from household appliances into computers, mobile
phones, and televisions), Fangzheng (from computers into tea, steel,
software, and financial services), and Shougang (from steel into banking,
auto assembly, and semiconductors). Huawei, China's best technology
firm and maker of network equipment, has recently made a question-
able entry into the mobile-handset market, where sales prices and
margins have fallen dramatically for the last five years and 37 licensed
vendors produced excess inventories of 2o million phones last year.
Together, China's institutions and the industrial choices of local
firms have restricted the ability of Chinese firms to develop new
products and services. The share of total sales revenues accounted for
by new products at Chinese industrial firms was flat, at about lo percent,

FOREIGN AFFAIRS .July/ August 2004 [45]

 GeorgeJ Gilboy
throughout the 199os. (In contrast, new products account for 35 percent
to 40 percent of sales revenue for industrial firms in OECD countries.
Chinese firms lag behind firms in other developing countries as well:
in 2000, for example, new products accounted for about 40 percent
of total sales revenues in Brazil's electrical machinery industry.) And
because of overlapping investments, fragmentation, and the weakness
of industry associations, even those firms in China that make new
products often find themselves engaged in vicious price competition,
which prevents them from reaping high returns from their innovations.
Rather than thinking of China as yet another Asian technological
and economic "giant," it may be more useful to regard it, like Brazil
or India, as a "normal" emerging industrial power. Thanks to the
interaction of political structure and industrial culture, Chinas twenty-
first-century technological and economic landscape looks like a pattern
of "nodes without roads"--a few poorly connected centers of techno-
logical success. Burdened by these peculiarities, China has yet to lay the
domestic institutional foundations for becoming a technological and
economic superpower. Without structural political reforms, its ability
to indigenize, develop, and diffuse technology will remain limited. And
most of its industrial firms will struggle to realize exiguous margins at
the lower reaches of global industrial production chains.

STRATEGIC ENGAGEMENT

GIVEN THESE LIMITS on China's potential to threaten the global

balance of economic power, the United States should resist the false
promise of protectionism, whether in the form adopted by the Bush
administration (rhetorical jabs at the Chinese currency peg) or that
recommended by the AFL-CIO labor federation (calls for tariffprotection
in the guise of better rights for Chinese workers).
Rather, recognizing both the challenges and the opportunities
presented by Chinas industrial landscape, Washington should pursue
a policy of strategic engagement with Beijing. The purpose of this
policy would be to bolster U.S. technological, economic, and political
leadership, while helping China become more prosperous, stable, and
integrated into global economic networks. Pursuing it will require
simultaneously strengthening the basis for U.S. technological and

[46] FOREIGN AFFAIRS Volume83No. 4

 The Myth Behind China'sMiracle
manufacturing mastery in the United States and promoting U.S.
exports, investment, and liberal values abroad.
The United States should revitalize manufacturing at home, for
example. Tax cuts are no panacea; the United States needs focused
policies to strengthen R&D, reduce legal and health care costs, and
improve education. Innovation is critical to growth, but R&D spending
in the United States has declined in relative terms from 6o percent
of world R&D in the 196os to 30 percent today. Meanwhile, al-
though U.S. manufacturing productivity has risen by 27 percent in
the last five years, health care premiums have risen by 34 percent
and litigation costs by about 33 percent, according to the National
Association of Manufacturers.
To maintain its lead abroad, the United States should push its
products into the portal opened by its investment "snakeheads" in
developing markets. It currently lags behind competitors in doing so:
while Japan and the EU exported $79 billion and $49 billion in goods
to China last year, the United States exported only $37 billion. Both
the U.S. government and U.S. industry must do more to help small
and medium-sized U.S. firms reach out to China's markets.
The United States must accept that China is a work in progress and
cannot yet meet all of the standards common in advanced industrialized
economies. But focused bilateral sanctions, WTO complaints, and multi-
lateral diplomacy should be vigorously pursued if China undertakes
unfair trade practices that challenge core U.S. interests. The United
States should prioritize carefully, however, focusing on the issues that
pose the greatest threats and present the greatest opportunities.
These include China's recent attempts to impose technical standards
on foreign firms in China, such as for DVD players, wireless commu-
nications, and mobile telephones, or to tax imported goods such as
integrated circuits (a policy tantamount to a domestic subsidy and
prohibited by WTO rules). Washington should also urge Beijing to
curb investments in excess manufacturing capacity, as they could
threaten key industries such as automobiles and semiconductors.
Continued engagement of this kind will help the United States
consolidate the benefits it already reaps from the current relationship,
ensure China's continued prosperity and stability, and encourage
China to play by global rules. Working with its allies to further

FOREIGN AFFAIRS July /August 2004 [47]

 GeorgeJ Gilboy
incorporate China's economy in international trade and industrial
networks, the United States can reinforce the technological leader-
ship of the advanced industrialized democracies, while diminishing
the scope for Chinese technological and economic mercantilism.
The paradox of China's technological and economic power is
that China must implement structural political reforms, not simply
freer markets or greater investment, before it can unlock its potential
as a global competitor. But if it were to undertake such reforms, it
would likely discover even greater common interests with the United
States and other industrialized democracies. Pursuing strategic
engagement is thus a way for the United States to hedge its bets: to
preserve its competitive edge while encouraging China to continue
developing its economy and liberalizing its politics. Chinese political
reform is in the long-term interest of both Beijing and Washington.
Unfortunately, the burden of a long history of fragmentation and
authoritarian rule weighs heavily against China's successfully com-
pleting this final modernization.0

[48] FOREIGN AFFAIRS" Volume 83 No. 4

History and the Hyperpower
Eliot A. Cohen

EMPIRE'S NEW CLOTHES

Mo ST HISTORIANS cringe at talk of the "lessons of history." Trained

as specialists and wary of sweeping comparisons, they flinch from
attempts to make past events speak directly to current policy. They
remind us ofwhat makes circumstances unique, highlighting differences
where others see similarities.
Politicians and policymakers, on the other hand, have few compunc-
tions about drawing on historical analogies to frame and explain policy
choices. Scholars may wince at their shallow thinking and imprecision,
but such practitioners always have the last word. And even ifwe try to un-
derstand our world purely in its own terms, implicit, historically grounded
beliefs--in trends and turning points, analogies and metaphors, parallels
and lessons--inevitably shape our views. Better, then, to ask explicitly
how history should inform our understanding of the present.
The historical analogy making the rounds of late is the notion
that the United States today is an empire that can and should be
compared with imperial powers of the past. This idea gained im-
mediacy when U.S. soldiers trod in the footsteps of Alexander the
Great in Afghanistan and U.S. tanks rumbled through the ancient
imperial heartland of Mesopotamia: ruling and remaking distant,
recalcitrant peoples looks very much like an imperial project.
Casual talk of a Pax Americana-harking back to the Pax Britannica,
itself an echo of the Pax Romana-implies that the United States is

ELIOT A. COHEN is Robert E. Osgood Professor and Director of the

Philip Merrill Center for Strategic Studies at Johns Hopkins University's
School of Advanced International Studies and the author of Supreme
Command: Soldiers, Statesmen, andLeadership in Wartime.

[49]
 EliotA. Cohen
following a pattern of imperial dominance that holds precedents and
lessons. The metaphor of empire merits neither angry rejection nor
gleeful embrace. It instead deserves careful scrutiny, because imperial
history contains analogies and parallels that bear critically on the
current U.S. predicament.

CURRENCIES OF POWER

AN EMPIRE is a multinational or multiethnic state that extends its

influence through formal and informal control of other polities. The
Indian writer Nirad Chaudhuri put it well: "There is no empire without
a conglomeration of linguistically, racially, and culturally different
nationalities and the hegemony of one of them over the rest. The
heterogeneity and the domination are of the very essence of imperial
relations. An empire is hierarchical. There may be in it, and has been,
full or partial freedom for individuals or groups to rise from one level
to another; but this has not modified the stepped and stratified structure
of the organization."
Most people throughout history have lived under imperial rule.
The current international system, with nearly two hundred independent
states and not a single confessed empire, is a historical anomaly. Most
empires, however, have had only regional scope and limited ambitions.
In the nineteenth century, the French, Russian, Turkish, and Austro-
Hungarian Empires jostled one another at the margins and waged
war in conjunction with other allies, but none towered over the rest.
Of past empires, only ancient Rome and the British Empire in the
nineteenth century had enough power and influence to dominate
the international system. Each exerted not only military strength, but also
cultural influence; each made international economic order possible;
each was envied, resented, and ultimately displaced-not by a single
foe but by a combination of enemies abroad and weaknesses within.
How does the United States compare with Britain and Rome? Start
with the reserve currency of empire: military strength. Rome's legions
hacked their way to world power, suffering a series of military disasters
in the process: Gauls, Greeks, Carthaginians, Persians, and numerous
barbarian bands inflicted on Roman forces defeats of a kind that U.S.
troops have not suffered since the early days of the Korean War. The

[50] FOREIGN AFFAIRS" Volume83 No. 4

 CORBIS

The proto-president?CaesarAugustus
(theAugustus ofPrimaporta),Vatican City

legions shed their blood in internecine warfare, clashes among rival dic-
tators, and massive revolts by humiliated clients and mutinous subjects-
ills without contemporary American parallel. Rome recruited many of its
soldiers from conquered lands. These soldiers owed allegiance chiefly to
their own leaders and fellow troops, not to a government, constitution,
or homeland. Thus, although Rome dominated its world, it did so with
none of the assurance or domestic solidity of the United States.
The British army, meanwhile, relied on pluck, not numbers. Its
force was negligible compared with the great conscript armies of
continental Europe; Bismarck once scoffed that if the British were to
land their army on the Baltic coast, he would send the Berlin police
force to arrest it. From 1815 to 1914, the British Empire essentially
withdrew from the game of continental warfare, a fact that British
statesmen recognized as a restraint on their behavior. As for the Royal
Navy, it ruled the seas but teetered constantly on the verge of tech-
nological obsolescence and (as it believed) overall inferiority. The

FOREIGN AFFAIRS •July/August 2004 [51]

 EliotA. Cohen
French introduced ironclad warships before the British did, and even
when the British made a breakthrough--as with the Dreadnought class
big-gun battleships---it was with the knowledge that their technological
rivals, Germany and the United States, would soon follow suit.
U.S. military power is of a different order entirely. The United
States now accounts for between 40 and 50 percent of global defense
spending, more than double the total spending of its European allies
(whose budgets are so riddled with inefficiencies that, aside from
territorial defense, peacekeeping, and some niche capabilities, the
European pillar of NATO is militarily irrelevant). In virtually every sphere
of warfare, the United States dominates, an unprecedented phenom-
enon in military history. On and above the earth and on and below
the sea, U.S. military technology far surpasses that of any potential
opponent. No other power has the ability to move large and sophis-
ticated forces around the globe; to coordinate and direct its own forces
and those of its allies; to keep troops equipped, fed, and healthy; and
to support those troops with precision firepower and unsurpassed
amounts of information and intelligence.
Viewed from within, of course, the picture looks very different.
U.S. soldiers know all too well their own deficiencies and vulnerabilities:
they grouse about aging trucks, jammed rifles, and intermittent data
links. Viewed from the outside, however, the world has seen nothing
like the U.S. military. British infantrymen in 19oo shot more accu-
rately than their continental European counterparts but did not differ
all that much from them in terms of equipment and unit skills (and
the Tommies found themselves inferior to Boer citizen-soldiers
equipped with German-made rifles). Today, an average U.S. battalion
has better kit-from body armor to night vision devices-than any
comparable unit in the world; with a few exceptions (mostly allies of
the United States), it trains more effectively in the field; and it has
officers and sergeants groomed by a military schooling system more
thorough than any in history.
This qualitative advantage looms even larger at the higher levels
of the armed forces. No other military has the B-2 bombers or the
satellite constellation, the aircraft carriers or the long-range unmanned
aircraft of the U.S. Navy and Air Force. No other country is remotely
close to having the resources afforded by a $40o billion defense budget

[5 2] FOREIGN AFFAIRS - Volume83 No. 4

 History and the Hyperpower
or the accumulated military-industrial capital of years of spending on
construction and infrastructure. No other research establishment can
match that of the United States, which receives more money than the
entire defense budget of its largest European ally.
Put thus, U.S. military power seems to invite hubris. But again,
viewed from within the picture appears different. Generals and admirals
fret over forces stretched too thin, anticipate threats from unconven-
tional and irregular opponents who will avoid U.S. strengths and seek
out weaknesses, and worry that their political masters will succumb
to the intoxication of great power or their
fellow citizens will fail to understand the American claims of
commitment of money and blood that any
war requires. Such leaders understand bet- benign intentions are
ter than their civilian superiors the fragility no more or less sincere
of great military strength. But that does than those of imperial
not undermine the basic fact of U.S. pre-
dominance. Augustus lost his legions in the powers in the past.
Teutoburger Wald, Disraeli his regiments
at Isandhlwana-in both cases, succumbing to primitive opponents
inferior in weaponry and, according to the imperial powers, culture
as well. Not even in Vietnam, where the odds of such a debacle's
occurring were highest, did U.S. forces suffer a similar defeat. Today,
the legions of the United States have no match, and the gap between
them and other militaries is only growing.
No empire, of course, can sustain itself by raw military power
alone. It requires, at the very minimum, sufficient resources to generate
power. Here, too, the contrasts between the United States and its
imperial predecessors are striking. Rome was a city, Britain a set of
moderately sized islands on the periphery of Eurasia. The United
States spans a vast, rich continent. In the middle of the nineteenth
century, the United Kingdom's population numbered only slightly
more than half that of France and considerably less than those of the
rising powers-Germany, the United States, and Russia. Its once-
impressive economic lead over the rest of Europe had dwindled
everywhere but in the area of finance. By the end of the century, it
had fallen behind Germany in the production of steel and electrical
power. The United States, in contrast, is the third most populous

FOREIGN AFFAIRS .July/ August 2004 [53]

 EliotA. Cohen
country on the planet and, unlike most developed countries, has a
birth rate at or near replacement rate. It accounts for just under a third
of the world's economic production. It does not not live off plunder
or accumulated finance or the farming of large estates. Its economy
remains the largest, most productive, and most dynamic on the planet.
The might of Rome and Britain depended on ideas as much as on
power or resources: imperial power resided in science, literature, and
education. Gauls learned Latin, and Indians learned English. Yet the
United States can claim greater influence in the realm of ideas as well.
In the ancient world, Greek was the language of philosophy; in the
nineteenth and early twentieth centuries, German was the language of
science. Today, English is the lingua franca of the planet for everything
from air traffic control to entertainment. U.S. universities dominate
in higher education, while low- and middle-brow American culture
floods a planet that simultaneously loathes and embraces Spielberg,
Starbucks, and MTV. American music, food, idiom, work styles, and
manners are inescapable.

DEFINING DOMINANCE

AND YET, can the United States be an empire? Raymond Aron

famously called the United States "the imperial republic," but even
that title sits uncomfortably with Americans. On the whole, the
United States has proven itself reluctant to exercise prolonged formal
control over states or peoples who do not have the option of becoming
its citizens. A country whose sacred texts begin "We the people" and talk
of"inalienable rights," which celebrates self-government and legal equal-
ity, can never comfortably enjoy imperial rule as traditionally understood.
And indeed, even the United States' most overtly imperial endeavor-
rule over Cuba and the Philippines following the Spanish-American
War-generated internal opposition and ended in a remarkably swift,
self-imposed retreat.
A longer historical perspective, moreover, suggests that democracy
and empire are ultimately incompatible. The tragedy of Athens in
Thucydides' PeloponnesianWar lies in democracy's difficulty in with-
standing the pressures of imperial necessity, compulsions that corrupt
and even destroy the freedoms at the root of democracy. The British

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 History andthe Hyperpower
empire could liberalize domestically and exert dominion externally
only so long as Britons believed their subjects to be inferior, childlike,
or incapable of self-government, a prejudice undermined by the spread
of democratic principles. Whether or not one agrees with the current
U.S. attempt to create a democratic Iraq, no one dares suggest (at least
not publicly) that Iraqis are, by virtue of history, culture, faith, or race,
incapable of ruling themselves.
When the United Kingdom granted independence to the Irish
Republic after World War I, it acknowledged the fundamental principle
of self-determination-a concession, some observers have noted, that
spelled the end of the British empire and perhaps of all European
empires. In the twentieth century, three waves of disintegration-the
first induced by nationalism and World War I, the second by World
War II, the third by the collapse of the Soviet Union-brought an
end to the empires that had dominated the three previous centuries:
the Austro-Hungarian, Turkish, British, French, Dutch, Portuguese,
and Russian.
To be sure, influence and even a few possessions linger, and the
imperial era left a strong legacy in everything from institutions and
attitudes to street names and school systems. And some forms of
imperial rule persist. What is the European and U.S. presence in
Yugoslavia, for example, if not a kind of neocolonialism? Dour white
men may no longer raise flags and color overseas possessions in red
on their maps, but that hardly changes the reality of hierarchy and
subordination in international politics. American claims of benign
intentions to spread democracy are surely no less and no more sincere
than the missions civilisatricesof imperial powers in the past.
But the basic fact remains: empires have dissolved, and they will
not return. To talk about the United States as an empire is, from
this point of view, to engage in useless and potentially dangerous
anachronism, a temptation to hubris, overstretch, and disregard of
the claims of the international community.
In the end, however, the applicability of a particular term (debates
about empire tend to degenerate into semantic squabbles) does not
matter. The fact of the overwhelming power of the United States
does. No potential adversary comes close to it, and, for the moment,
there is no question of a countervailing coalition to block, let alone

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 EliotA. Cohen
replace, it. Its roots lie in a growing and extraordinarily productive
population, a stable political system, and a military that is unsurpassable
in the foreseeable future. And the United States will not, as some hope
and others fear, bind itself to an international institutional and legal
order that will domesticate and restrain it. If nothing else, domestic
politics would prohibit it. No U.S. leader in the next decade or two
will call for a dramatic reduction in defense spending or deny that this
country must be the strongest in the world, ready to exert its power
globally and act unilaterally if necessary.
The "Age of Empire" may indeed have ended, then, but an age of
American hegemony has begun. And regardless of what one calls
it or how long it will last, U.S. statesmen today cannot ignore the
lessons and analogies of imperial history.

ANXIETIES OF INFLUENCE

THE LOGIC of the Cold War was one of ideological struggle and
bipolar contest. The logic of contemporary international politics is
that of predominance and its discontents. The first lesson of imperial
history is that the absence of rivals does not diminish the challenges
for statesmen. Indeed, to crawl inside the heads of British statesmen
in the nineteenth century (or, more imaginatively, of Roman leaders
during the republic and early empire) is to find leaders weighted
down by anxieties.
One overwhelming problem results from the sheer scope of imperial
politics. In virtually any government, a handful of people make the
critical decisions on foreign and security policy. The larger the empire,
the less likely that this small group will know what it must about the
nature and extent of imperial problems. Leaders face an unattractive set
of options: mastering the challenges of one segment of their political
universe while scanting others; dealing with all problems superficially;
or devolving large areas of policy to proconsuls and viceroys.
The imperial power faces another fundamental disadvantage in its
contests with smaller states or political movements: its leaders cannot
focus in the way their opponents can. Smaller actors who recognize this
can manipulate an imperial center's politics. Both the Indian National
Congress and the Irish Republican Army contained astute students

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 Historyand the Hyperpower
of British politics who knew how to wrestle with a metropolitan
government that only intermittently concentrated its attention on the
problems of India or Ireland. The stumbles and follies of U.S. foreign
policy result in part from a similar problem: its demands simply exceed
the capacity of the handful of men and women who manage them..
The U.S. decision-making elite, moreover, has none of the social
uniformity and cohesion of the Roman Senate (with its ladder of
political-military-religious advancement, intermarriage, and adoption).
or the British upper class (with its network of universities, clubs,
country houses, and regiments). The openness of the American elite
may make it more dynamic, but it also makes it harder to lead.
The universal enmity that hegemonic power breeds presents another,
and perhaps graver, challenge to imperial statesmen. Empires have
no peers and precious few friends. Indeed, to the imperial mind,
"friendship" means a relationship in which clients render services and
patrons provide protection. The result, as Great Britain found out at
least twice during its heyday (first during the American Revolution,
when the European powers turned against a global empire forged
during the Seven Years' War, then in the Boer War, when European
sympathy went exclusively to the unruly British subjects), is diplomatic
and military isolation. An empire's opponent always looks like the
underdog, the imperial power always the bully. The victories of in-
surgents become inspiring tales of audacity and sacrifice, the triumphs
of legions the inevitable consequence of superior technology, training,
and numbers. The empire's claims to act for the good of the international
system will always be dismissed (often rightly) as the mere exercise of
self-interest. (In moments of reflection, the more honest imperialists
confess as much: Rome introduced the Britons to Latin, togas, arcades,
baths, and banquets, of which Tacitus remarked, "The unsuspecting
Britons spoke of such novelties as civilization, when in fact they were
only a feature of their enslavement.")
The inevitability of anti-imperial sentiment may help explain the
tide of anti-Americanism that has swept much of the world since
September u, 2ool. Some of that antipathy surely emerged in reaction
to the personality of an assertive U.S. president whose manner and
core beliefs aggravate the elites of Europe and the Middle East. Some
surely results from understandable apprehension about U.S. courses

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 EliotA. Cohen
of action, in the Middle East especially. But some also stems from
the swirl of hostility to the colossus, to all it embodies, and, indeed, to the
very fact of its existence. The consequences of that hostility may be
managed and mitigated in the years ahead, but some level of antipathy
will remain, perhaps grow, and conceivably become dangerous. To be
an empire, or something like an empire, is to be envied, resented,
suspected, mistrusted, and, often enough, hated.

THE ART OF UNDERSTATEMENT

FROM IMPERIAL PROBLEMS arise maxims of imperial policy. Few

outside of university classics departments read the major Greek and
Roman historians today, but their works still have much to offer. The
ancient world considered Rome's success both a marvel and a puzzle:
the Romans seemed to lack a deep culture, wise statesmen, and
invariably successful armies, yet they managed to conquer their world
and keep it. The ancients wondered how they did it, and so too did
political philosophers of the Renaissance and the Enlightenment,
such as Machiavelli and Montesquieu.
Polybius and many who followed him sought an explanation in the
role of the Senate, a body that, although internally divided, provided
a degree of steadiness to otherwise turbulent policy. Underlying the
turmoil of Roman politics, these authors claimed, was a consistent
imperial style that persisted despite the rise and fall of consuls and
dictators. That style had some simple rules. "Above all, their constant
maxim was to divide," Montesquieu observed, and it is such a simple
guide to conduct in foreign affairs that its importance is easily over-
looked. It was no accident that Rome never faced a coalition of the
many powers and peoples that opposed it. Rome's rise was neither
foreordained nor without perils: it faced more numerous enemies,
more wily commanders, and more ferocious warriors than it had at its
command. It picked its fights, however, and took care not to take on
the great powers of the world all at once or to allow unified powers to
arise against it-a piece of wisdom that, two millennia later, imperial
Germany failed to learn. In 2003, the United States stumbled into
similar wisdom when, after decades of benign indifference to the
formation of a European Union under Franco-German direction, it

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 History andthe Hyperpower
realized the merits of siding with the weaker factions inside the EU.
(It turned out, however, to be inept in its conduct of a policy that
Roman statesmen would have found trivial.)
Reflecting on the practices of the Romans as described by Livy,
Machiavelli noted, "One of the great prudences men use is to abstain
from menacing or injuring anyone with words." Roman statesmen
did not generally bluster or fume. They did
not threaten or menace. Instead, they made The United States
requests and promises and followed through
on both. When the simply clad Roman should exercise power
senator Gaius Popilius Laenas delivered with a bland smile, not
Rome's demand that Antiochus IV with-
draw from Egypt, he did not threaten the boastful words.
Syrian king. Rather, he walked over to the problematic monarch and
with his staff drew a circle around him in the sand, insisting on an
answer to the Senate before Antiochus stepped out of it. The Seleucid
king turned pale and acceded, and this act of submission destroyed
his reputation in his own luxurious court.
Great Britain, too, made an art of imperial understatement.
Throughout the nineteenth century, its leaders assiduously sought to
prevent a grand coalition from rising against it, even if that meant
accommodating U.S. orJapanese claims. U.S. statesmen today might
similarly benefit from maintaining a discreet silence and avoiding
offense until absolutely necessary. In retrospect, for example, the
brusque manner of the Bush administration's rejection of the Kyoto
Protocol, the International Criminal Court, and other measures dear
to European hearts created a climate of opinion that made the prewar
crisis over Iraq much worse than it need have been. And even if the
administration had decided to punish its wayward allies for not sup-
porting the war, it should never have publicly announced its decision
to ban their companies from postwar reconstruction contracts, but
merely excluded them without saying a word.
U.S. power is so obvious a fact, particularly to non-Americans,
that there is no need to remind anyone of it. If the United States
intends to exercise its power effectively, even against the wishes of its
allies, it should do so with a bland smile, not boastful words. Weaker
states will inevitably view the strongest power as arrogant, inconsiderate,

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 EliotA. Cohen
and demanding. There is no need to make it any worse than it must
be: Roman discretion offers as important a historical example as
Roman assertion.

MAKING VIRTUE OF NECESSITY

THE MILITARY BURDEN of past empires fell not only on the power
at the center. The British had their Indian Army, the Romans auxiliaries
who proved indispensable to the success of armies built around the
legion, itself a masterpiece of ancient military organization. Even
the United States has, and will have, far too few soldiers for the tasks
at hand. In some ways, Washington has succeeded at handling its
own auxiliaries: NATO is, in practical terms, a military alliance that
allows the United States to bring forces other than its own to bear on
the unstable periphery of Europe. But in other ways, the United States
has yet to master the art of developing foreign military institutions,
especially when it must do so swiftly. And history suggests that the
hope expressed by some U.S. leaders-of handing off peacekeeping and
humanitarian intervention to smaller powers-is misplaced: the auxil-
iaries did not fight without the legionaries there to back them up, and
the British interlaced the Indian Army with British units and officers.
For Britain, like Rome, imperial governance required proconsuls.
The viceroy of India wielded enormous authority, which he often
exercised at variance with the views of the government back home.
Belief in the superior judgment of "the man on the spot" was the
unofficial credo of the British Empire, and although centralizing
tendencies existed, they had to yield to the necessities of distance.
London had few promising alternatives before the advent of near-
instantaneous communication, and travel times in the empire were
measured in weeks, not hours. Around the necessity of delegation
grew up cultures of initiative, authority, and responsibility, without
which empire could not have survived.
The United States does not rule parts of the world in the way the
European empires did, but it faces similar challenges. Theater com-
batant commanders (formerly known as commanders-in-chief, or
CINCs) have served as its proconsuls. Their standing in their regions
has usually dwarfed that of ambassadors and assistant secretaries of

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 Historyand the Hyperpower
state. They have had the regional outlook, the sophisticated staffs,
and the resources to make things happen. It is small wonder that
much of U.S. policy abroad has been effectively militarized, at the
expense of a State Department whose collective strength has rarely
matched the quality of individual diplomats.
As happened in the case of Rome (although to a far lesser degree),
these U.S. proconsuls have become politicized. Once out of uniform
(and, in some cases, even before) they endorse or denounce politicians;
once retired, one recently ran for president, an activity usually reserved
for successful commanders in great conflicts. No retired American gen-
eral, of course, will cross the Rubicon in arms, and their various missteps
in recent years will likely cause most of them to return to the dignified
silence that characterized many of their predecessors. The phenome-
non is revealing, however, because of what it says about the weak-
ness of the civilian side of the U.S. policymaking apparatus-which has
created the vacuum into which generals are drawn.
The United States needs to develop its own versions of viceroys,
legates, residents, and procurators. The troubles of Iraq following the
overthrow of Saddam Hussein showed that, however skilled its armies,
the United States has neither the cadre of administrators nor the
organizations necessary to establish order and begin establishing
domestic institutions that will prevent a relapse into violence and
disorder. Indeed, in this respect especially, the imperial analogy
breaks down. In the old days, the great powers-for reasons of pride,
greed, and sheer competitiveness-desired colonies. In the twenty-
first century, in contrast, the projection of power into another country
results not from the lure of profit or ambition but from the fear of
chaos. Formal colonial rule has lost all legitimacy. And yet, what can
substitute for it? International administration of the kind found in
Kosovo and Bosnia has a mixed record at best; although the United
Nations can usefully provide legitimacy for such rule, and although
individuals and organizations have served valiantly and effectively (the
name Sergio Vieira de Mello comes to mind), the UN'S failures outweigh
its successes. And even those successes have required the backing of
military powers acting out of traditional self-interest. To legitimize
colonial rule by some other name, and to create institutions that can
conduct it, has become one of the great challenges of contemporary

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 EliotA. Cohen
statecraft-necessary not only to ease the misery of anarchy, but also
to avert the dangers posed by anarchy in the age of weapons of mass
destruction and suicide bombers.

THE CHOICE

HISTORY "gives no comfort to the many able, subtle, dedicated

minds that crave finality and certitude," Jacques Barzun once noted.
But it does offer training for the tough-minded who can tolerate
uncertainty and operate within it.
In the end, it makes very little difference whether one thinks of
the United States as an empire or as something else-a hyperpower
sui generis, a new order of political entity. Many of the practical
problems it faces resemble those faced by past empires, and that
alone requires reflection. The results of such reflection, however, are
sobering, because soon comes a time when empire no longer looks
quite as attractive as it does at the peak of its success and influence.
Thucydides captured this by juxtaposing two speeches by the
Athenian statesman Pericles. In the great funeral oration delivered
over the first casualties of the war with Sparta, he celebrates Athens
as "the school of Hellas," "a pattern to others" rather than "imitators
ourselves." In words that may remind some ofJohn E Kennedy at
the outset of his presidency, he calls a generation to greatness. Yet
after setbacks in war and the ravages of the plague, he warns his
countrymen that "to recede is no longer possible, if indeed any of
you in the alarm of the moment has become enamored of the hon-
esty of such an unambitious part. For what you hold is, to speak
somewhat plainly, a tyranny; to take it perhaps was wrong, to let
go is unsafe."
Herein lies one of the curses of empire: to let go never looks safe,
and indeed rarely is. The United Kingdom withdrew from its lead-
ing role in world affairs without too much damage to itself (although
at the price of massive bloodshed in places such as India and Yemen),
but that had much to do with the readiness of the United States to
take its place-to fill the vacuum left by British power and take up
the British role in many parts of the world. Nor did the British
have much choice in their withdrawal from empire, other than by,

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 History andthe Hyperpower
as Machiavelli put it, "anticipating necessity," pulling back just before
forces too strong for them to master would have compelled them.
The United States today also has less choice about its role in world
affairs than its worried leaders and their critics, or its anxious friends
and numerous enemies, think. The logic of empire is a logic of exten-
sion, and the strategic conundrum of empire is that ofovercommitment
and overstretch. Despite the wishes of French and Chinese politicians,
no countervailing state or federation will restore a balance-of-power
system akin to that of Europe in the eighteenth and nineteenth cen-
turies, at least not in the near future. Despite the wishes of idealists,
no international institution has proven capable of effective action in
the absence of the power generated and exercised by states. And a
third possibility-anarchy unleashed after a disgusted United States
recalls its legions in a spurt of democratic disgust at and indifference
to the rest of the planet-is too horrifying to contemplate. The real
alternatives, then, are U.S. hegemony exercised prudently or foolishly,
consistently or fecklessly, safely or dangerously-and for this, U.S.
leaders must look back to school themselves in the wisdom that will
make such statesmanship possible.0

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 Campaign 2004

A Republican Foreign Policy

Chuck Hagel

Editor'snote:
This is the thirdin a series ofcommissioned
essays onforeignpolicy concernsfor the next president.

THE GENERATIONAL CHALLENGE

THE TERRORIST ATTACKS of September u, 2001, that killed nearly

three thousand Americans were signposts of a new era, a turning point
in our history. Terrorism is a historic and existential challenge that
redefines traditional notions of security, and combating it must be at the
top of the nation's agenda and therefore at the core of a Republican
foreign policy. But the war on terrorism cannot be considered in iso-
lation, without taking into account the wider crisis of governance
throughout the developing world, especially in the greater Middle East.
In taking military action against al Qaeda and the Taliban in
Afghanistan, President George W. Bush understood that the war on
terrorism must be more than the rightful use of military force. There
must be a U.S. purpose commensurate with our use of power. As Pres-
ident Bush told a joint session of Congress on January 29, 2002, "we
have a greater objective than eliminating threats and containing
resentment. We seek ajust and peaceful world beyond the war on terror."
A wise foreign policy recognizes that U.S. leadership is determined
as much by our commitment to principle as by our exercise of power.

CHUCK HAGEL is a U.S. Senator from Nebraska.

[64]
 A Republican ForeignPolicy
Foreign policy is the bridge between the United States and the world,
and between the past, the present, and the future. The United States
must grasp the forces of change, including the power of a restless and
unpredictable new generation that is coming of age throughout the
world. Trust and confidence in U.S. leadership and intentions are
critical to shaping a vital global connection with this next generation.
The challenges to U.S. leadership and security will come not from
rival global powers, but from weak states. Terrorism finds sanctuary
in failed or failing states, in unresolved regional conflicts, and in the
misery of endemic poverty and despair. Rogue regimes that support
terrorism seek legitimacy and power through the possession of
weapons of mass destruction, rather than from the will of their people.
Terrorism and proliferation go hand in glove with the challenges of
failed and failing states.
Five billion of the world's six billion people live in less developed
regions. Most of the world's population growth in this century will
come from these regions, where nearly one in three people is under
the age of 15. As this younger generation grows into adulthood, it
will be the greatest force for change in world politics in the first half
of the twenty-first century. Many governments in the developing
world, especially in Africa, the greater Middle East, and Asia, will
not be able to meet the basic demands of their growing populations
for jobs, health care, and security. Although poverty and despair do
not "cause" terrorism, they provide a fertile environment for it to
prosper. The strains of demography, frustrated economic development,
and authoritarian governments contribute to radicalized popula-
tions and politics. The developing world's crisis of governance thus
cannot be separated from the United States' greater global interests.
This is the context in which discussions of current foreign policy
must be understood.

A REPUBLICAN FOREIGN POLICY

TRADITIONALLY, a Republican foreign policy has been anchored by

a commitment to a strong national defense. The world's problems will
not be solved by the military alone, but force remains the first and last
line of defense of U.S. freedom and security. When used judiciously,

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 Chuck Hagel
it is an essential instrument of U.S. power and foreign policy. Ter-
rorists or states that attack the United States should expect a swift
and violent response.
Republicans recognize that strength abroad begins with strength at
home. U.S. resources require wise and judicious management. Deficits
and entitlement programs, if unchecked, will undermine confidence
in our economy, impede economic growth and investment, make the
United States less competitive, and erode our position as a world eco-
nomic leader. U.S. policymakers will then be forced to make hard
choices between national security and domestic priorities.
Americans must be educated about the realities of the global
economy and the commitments of global leadership. Our education
policies should emphasize foreign languages, culture, and history, and
create more incentives and programs for study abroad. We must also
prepare students and workers for those industries and services that
will provide the United States a comparative advantage in the global
economy in the first part of the twenty-first century.
Republicans understand that a successful foreign policy must be
not only strong but sustainable. A sustainable policy requires a domes-
tic consensus and commitment. This begins with strong presidential
leadership and vision about the United States' role in the world. The
president's national security team must be unified and cohesive. That
does not mean different points ofview should not be tolerated; different
perspectives are imperative in the formulation of any sustainable policy.
But once a decision has been made, palace intrigues and personal
dramas must not be allowed to infect policy and the implementation
of that policy. Only a president can bring this effort together. Congress
also has a constitutional role and responsibility to help shape U.S. for-
eign policy. Without congressional engagement and support, U.S.
foreign policy will lack legitimacy and sustainability.
A lack of consensus at home means foreign policy trouble abroad.
This was one of the lessons of Vietnam, where the United States, divided
at home and isolated abroad, failed to succeed in Southeast Asia.
Republicans also know that a successful foreign policy must be clear
and comprehensive, with the flexibility to respond to the uncertainties,
nuances, and uncontrollables that are the everyday occurrences of
foreign policy. The U.S. force structure and resources should match

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 A Republican ForeignPolicy
the security and foreign policy commitments required for the next
generation. That may require some form of mandatory national service.
If in fact the United States is engaged in a generational war, then all of us
should share the burdens, sacrifices, and costs of this national challenge.
Taking all of this into account, a Republican foreign policy for
the twenty-first century will require more than traditional realpolitik
and balance-of-power politics. The success of our policies will depend
not only on the extent of our power, but also on an appreciation of its
limits. History has taught us that foreign policy must not succumb to
the distraction of divine mission. It must inspire our allies to share
in the enterprise of making a better world. It can do so by remaining
true to seven principles.

PRINCIPLES AND PRACTICE

FIRST, the United States must remain committed to leadership in the

global economy. The rule of law, property rights, advances in science
and technology, and large increases in worker productivity all have
contributed to the United States' leading edge in global markets. In-
creased productivity may mean fewer workers in some sectors, such as
manufacturing. But over time these gains mean more and betterjobs and
investment in high-growth, high-tech sectors. As Michael Porter wrote
in his classic work The ComparativeAdvantageofNations,"a nation's stan-
dard of living in the long term depends on its ability to attain a high and
rising level of productivity in the industries in which its firms compete."
This means that the United States must expand free and fair trade
agreements and encourage intraregional trade and investment in
developing regions. Trade is the driving force for sustained economic
prosperity, security, and job creation, both in the United States and
throughout the world. During periods of uncertainty and change,
countries may close markets and protect certain domestic industries.
Americans are not immune and have in the past sought refuge in an
insular political tradition that has contributed to isolationism at home
and instability abroad. These temptations must be resisted, and hard-
earned lessons should not be forgotten.
U.S. foreign policy must also promote good governance, the rule
of law, investment in people, private property rights, and economic

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 Chuck Hagel
freedom. The United States can continue to set an example, not
arrogantly, but cooperatively, through strong leadership and partner-
ship. All nations can share in the prosperity that comes from sound
economic governance practices and trade-based growth policies. That
is the purpose of the Millennium Challenge Account (MCA), established
by the Bush administration as a "compact for global development"
between developed and developing countries.
Second, U.S. foreign policy cannot ignore global energy security.
Discussions of U.S. energy policy are often detached from economic and
foreign policy. The United States has an interest in assuring stable
and secure supplies ofoil and natural gas. According to the Department
of Energy, the United States imports nearly 6o percent of its crude oil.
Twenty percent of U.S. imports come from the Persian Gulf; by 2025,
this share is estimated to grow to 26 percent. The share of American
oil imports from the members of the Organization of Petroleum
Exporting Countries (OPEC) is also expected to grow from 40 percent
to 53 percent. But even if U.S. dependence on Middle Eastern oil
were to decrease, instability and conflict in the Persian Gulf would
still affect us, since oil markets operate on a global basis. U.S. national
security therefore depends on political stability in the Middle East and
other potentially volatile oil- and gas-producing regions. In addition to
helping assure such stability, the United States must develop alternative
fuel sources; expand natural gas production, networks, and facilities;
and take greater advantage of nuclear power, clean coal technology, and
more aggressive conservation programs.
Third, the United States' long-term security interests are connected
to alliances, coalitions, and international institutions. A Republican
foreign policy must view alliances and international institutions as
extensions of our influence, not as constraints on our power. No single
country, including the United States with all its vast military and eco-
nomic power, can successfully meet the challenges of the twenty-first
century alone. Winning the war on terrorism, for example, will require
a seamless network of relationships.
The United States must therefore help strengthen global institutions
and alliances, beginning with the United Nations and NATO. Like all
institutions, the UN has its limitations. It needs reform. Too often, the
UN, especially the General Assembly, succumbs to the worst forms of

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 A Republican Foreign Policy
political posturing and irresponsible action. But the UN is more rele-
vant today than it has ever been. The global challenges of terrorism,
proliferation of weapons of mass destruction, hunger, disease, and
poverty require multilateral responses and initiatives.
The UN has an essential role to play in postconflict transitions,
providing international legitimacy and expertise in places such as
East Timor, the Balkans, Afghanistan, and Iraq. Helping to bring
stability and democracy to those troubled areas requires an immense
international effort. At times the United States can and must lead, but
it would be wise to share the authority for--as well as the burdens,
costs, and risks of-such operations with others.
At the core of the United States' alliance network must be a
recommitment to the transatlantic partnership. The common interests
of the United States and Europe reach beyond the Cold War. As
President Gerald Ford said at the 1975 Conference on Security and
Cooperation in Europe in Helsinki, "We
are bound together by the most powerful of The UN has its
all ties, our fervent love for freedom and
independence, which knows no homeland limitations, but it is
but the human heart." more relevant today
NATO must remain the central alliance in
U.S. global strategy. The end of the Cold than it has ever been.
War has meant a shift in NATO 's strategic
focus from the defense of Europe to the greater Middle East, Central
Asia, and Africa. It will therefore require a new strategic doctrine for
the twenty-first century. As NATO adjusts to both new members and
new strategic circumstances, its members must address gaps in military
capabilities and expenditures. The United States cannot be expected
to continue to shoulder a disproportionate share of the costs. This
means that our allies will have to redefine their commitments to the
alliance. Military power will continue to play a vital and central role,
but the future success of NATO will be determined by its members'
ability to deepen and expand their cooperation in the command
and control, intelligence, law enforcement, economic, diplomatic, and
humanitarian fields.
The fourth principle of a Republican policy should be that the United
States must continue to support democratic and economic reform,

FOREIGN AFFAIRS •July/August2004 [69]

 Chuck Hagel
especially in the greater Middle East. We cannot lose the war of ideas.
In many developing countries and throughout the Muslim world, we
are witnessing an intracivilizational struggle, driven in part by the
generational challenges of demography and development. This is not
a clash of civilizations, as in Samuel Huntington's score, but one
within cultures and societies about models of governance. States are not
built from the outside in; they are built from the inside out. Many Islamic
societies are seeking a path that balances modernity, tradition, and the
demands of a younger generation for greater political freedoms and
economic opportunities. Iran, Pakistan, Saudi Arabia, Afghanistan,
Indonesia, and Iraq are all bellwethers of this struggle.
Initiatives to promote political reform should be based on realistic
assessments of the needs and dynamics of each country, not on ideo-
logical orthodoxy. As Henry Kissinger has noted, "a foreign policy to
promote democracy needs to be adapted to local or regional realities,
or it will fail. In the pursuit of democracy, policy-as in other realms-
is the art of the possible."
We should support democratic change through partnerships
with friendly governments and democrats abroad, developed through
consultation, diplomacy, economic incentives, human rights standards,
and performance-driven measures for success. A model of foreign
policy success in this area is Georgia, where U.S. support for democratic
institutions and anticorruption initiatives over time helped contribute
to the success of the "Rose Revolution" of 2004.
The Bush administration's "Forward Strategy for Freedom" for the
greater Middle East, including the Middle East Partnership Initiative
and increased funding for the National Endowment for Democracy,
is a good start on an ambitious and pragmatic program for change in
this region. Sustainable democracy will depend on institutions that
support education, women's rights, and private-sector development.
But it will also depend on progress toward the resolution of long-
standing regional disputes such as the Israeli-Palestinian conflict. This
problem does not stand still, it worsens-and as it does, it increases
the capacity for radical politics and extremist acts of violence through-
out the region and the world.
The United States and its allies must therefore develop a regional
security order for the greater Middle East that includes Israel, our

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 A Republican Foreign Policy
Arab allies, Iraq, Turkey, Pakistan, and Iran. Regional security can be
a bridge to a U.S. dialogue with Iran and another means to address
Iran's support for terrorism and its nuclear program. Dealing with
regional security in the greater Middle East, and especially with Iran
and Iraq, will require intensive cooperation with our European and
regional allies. The decision by Libyan leader Muammar al-Qaddafi
to give up his nuclear ambitions and join the community of nations
could be an example for Iran and other potential proliferators in the
Middle East and elsewhere.
Fifth, the western hemisphere must be moved to the front burner of
U.S. foreign policy. The process of economic integration that began
with the North American Free Trade Agreement (NAFTA) must evolve
into a comprehensive program for the entire western hemisphere. En-
ergy, trade, transportation, and immigration, as well as terrorism and
illegal narcotics, are all critical to our national security interests.
The relationship with Mexico, in particular, is as critical as any in
U.S. foreign policy. Mexico has nearly loo million people and a
2,000-mile border with the United States; it is the bridge between
North and South America and a strategic pivot for our economic and
security relationships in the western hemisphere. The United States
should therefore encourage reforms there, including the liberalization
of Mexico's foreign investment laws, especially in the energy sector.
The commitment to reform in Mexico should be seen as an investment
in our shared security and prosperity, not foreign aid.
Those who have criticized NAFTA have missed one of the most im-
portant developments of the past decade in U.S. foreign policy. Total
trade among the United States, Mexico, and Canada more than doubled
in NAFTA 's first ten years. We must continue this progress. Multilateral
trade agreements such as the U.S.-Chile Free Trade Agreement will
build on the success of NAFTA by promoting the rule of law, private
property rights, open government and regional cooperation. The
Central America Free Trade Agreement (cAFTA) and the Free Trade
Area of the Americas (-rAA) are important steps to deeper political and
economic integration among all 34 nations of the western hemisphere.
The United States' cultural integration with the western hemisphere
has been progressing for many years. More than 50 percent of U.S.
immigrants are from Latin America. By 2050, nearly 25 percent of the

FOREIGN AFFAIRS .Ju/y/August2004 [71]

 Chuck Hagel
U.S. population is projected to be Hispanic. As part of this larger
agenda, the United States and Mexico must work together on immi-
gration policies that are based on strength, not fear. Immigration is a
vital part of U.S. strength and vitality. A more prosperous and stable
Mexico and Latin America will help curb illegal immigration and
improve the climate for trade and investment throughout the region.
Sixth, the United States must workwith its allies to combat poverty
and the spread of disease worldwide. This is one of the core challenges
of governance in the developing world. Avian flu, severe acute respi-
ratory syndrome (SARS), HIV/AIDS, tuberculosis, malaria, and other
possible pandemics can begin as acute crises in Africa and Asia but
quickly acquire global reach and implications. The historian William
McNeil wrote in his book Plaguesand Peoples that infectious disease is
"one of the fundamental parameters and determinants of human
history." The speed of international travel today reduces the time for
containing another outbreak of avian flu or SARS. And Africa will be un-
able to achieve sustainable development without a historic initiative to
control and eradicate AIDS, the number one killer in sub-Saharan Africa.
The seventh and final principle of a Republican foreign policy is
the importance of strong and imaginative public diplomacy. The
coin of the realm for leadership is trust and confidence, and popular
discontent and questioning of U.S. foreign policy intentions will
undercut our efforts in the war on terrorism and initiatives in the
greater Middle East.
Public diplomacy initiatives require strategic direction. The answer
does not lie in a flashy media campaign or more air time devoted to high-
profile American performers. Instead, more Foreign Service public
affairs officers are needed to engage the publics in their host countries,
meet the people, listen to what they have to say, and coordinate this
information into an effective public diplomacy strategy. Professional and
educational exchange programs, meanwhile-the bedrock of public
diplomacy for years-were set back by homeland security and visa
policies after September u. This was an understandable reaction in the
short term, but renewed exchange programs and immigration reforms
that pay due weight to both security and openness are now required.
Public diplomacy is the link between U.S. policies and the percep-
tion of its purpose. The United States' purpose in world affairs must

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 A Republican ForeignPolicy
always be anchored by its interests and values but balanced by the under-
standing that U.S. interests are not mutually exclusive from the interests
of friends and allies. President Dwight D. Eisenhower put it well in
his farewell address to the nation:

Throughout America's adventure in free government, our basic purposes

have been to keep the peace; to foster progress in human achievement,
and to enhance liberty, dignity, and integrity among people and among
nations. To strive for less would be unworthy of a free and religious
people. Any failure traceable to arrogance, of our lack of comprehension
or readiness to sacrifice would inflict upon us grievous hurt both at
home and abroad.

STRATEGIC RELATIONSHIPS

REPUBLICANS understand that U.S. foreign policy in coming years

will require careful attention to four vital relationships-those with
the European Union (EU), Russia, India, and China. The United
States' relations with these major powers will be critical to global
stability and security.
The EU will represent one of the most significant power blocs of
the twenty-first century. U.S. foreign policy should recognize the EU
as a geopolitical force in its own right, distinct from, although
connected to, the NATO security alliance. Washington's relationship
with NATO will in fact be strengthened through recognition of the
diplomatic and economic significance of the U.S.-EU relationship.
The EU comprises 25 nations with internal borders open for trade
and investment. U.S.-EU commerce constitutes the largest trade and
investment relationship in the world, with more than $i trillion ex-
changed annually. Beyond increasing this already immense economic
connection, the United States and the EU can benefit by teaming up
to address the global issues of the coming era. Both would also benefit
from Turkey's eventual membership in the EU.
Since the implosion of the Soviet Union in 1989, meanwhile, Russia
has been struggling with political and economic reform. The United
States must continue to support Russia's reform efforts. President
Vladimir Putin has worked closely with the United States over the

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 Chuck Hagel
last four years to bring greater political and economic reforms to
Russia while on the road to joining the World Trade Organization,
but Russia must do more.
Strengthening the U.S.-Russian relationship means developing
more effective bilateral trade, which would ultimately create addi-
tional jobs, security, and prosperity in both countries. The United
States should engage Russia as a strategic energy partner. Russia
has proven oil reserves in excess of 6o billion barrels and natural
gas reserves reaching some 1,700 trillion cubic feet. As U.S. energy
policy seeks to ensure diversified sources of energy to meet the
United States' needs, we must seek a policy that includes Russia as
a strategic trading partner.
With over one billion people, India is set to become the most pop-
ulous nation in the world by the middle of the twenty-first century.
The world's largest democracy, it faces many of the challenges of
governance and demography described
The United States' above, but it also has great potential. A U.S.-
Indian strategic relationship will produce
purpose in foreign benefits for U.S. interests not only in Cen-
policy is once again tral and South Asia, but more broadly as
chart a course in a well. For the relationship to achieve its full
to cpotential, however, the government of India
world "lit by lightning" must liberalize its economy and continue
to work with Pakistan to seek resolution of
the Kashmir conflict. Our strategic relationship with India need
not come at the expense of our relationship with Pakistan; the
United States must work with both countries to prevent further
regional instability and conflict.
Regarding China, it was in these pages in 1967 that Richard
Nixon foreshadowed his historic opening of relations. He gave no
ground in his opposition to communist China's politics and policies,
but concluded that, "for the long run, it means pulling China back
into the world community-but as a great and progressing nation,
not as the epicenter of world revolution." Successive presidents
have followed Nixon's lead, and to good effect. The challenge for
the United States today is how to ensure that China stays on the
path of normalization and stability. Home to almost 1.3 billion

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 A Republican ForeignPolicy
people and a world power with nearly unlimited economic potential,
China must continue to be encouraged toward even greater regional
integration and global responsibilities.
The United States and China will not always agree, and the
United States should not shy away from voicing its concerns about
human rights and the rule of law. But its voice will be heard most
clearly and constructively in the context of a bilateral relationship that
is generally strong and confident. Trade, a major common denom-
inator between the two countries, should be seen not as an excuse
for deferring tough decisions or excusing troubling behavior, but
rather as an opportunity to build a stable relationship in which
other issues can also be discussed.
Three areas in particular will determine whether relations between
China and the United States will continue to deepen. First, China's
role and influence will be critical in helping contain the nuclear
ambitions of North Korea. China's special relationship with North
Korea allows it to play a unique role in encouraging Pyongyang to
make the right choices. Without China, our influence with North
Korea is reduced.
Second, China will be instrumental in global efforts to reduce
proliferation of missile and dual-use technologies. The Chinese
government recently published regulations on missile-related export
controls and dual-use biological agents and technologies. But China
must enforce its own rules more vigorously and transparently, holding
its own companies and individuals accountable for any violations that
may be discovered.
Third, the United States supports the peaceful resolution of
differences between the People's Republic of China and Taiwan.
The strengthening of cross-strait economic linkages is one of the
most positive trends in the region. However, the continuing deploy-
ment of missiles and other armed forces targeted against Taiwan
generates suspicion and increases tension. The United States is
committed to the "one China" policy, and to its obligations under
the Taiwan Relations Act. Secretary of State Colin Powell said it
best when he noted that "whether China chooses peace or coercion
to resolve its differences with Taiwan will tell us a great deal about
the kind of role China seeks with its neighbors and seeks with us."

FOREIGN AFFAIRS .July/August 2oo4 [7S]

 Chuck Hagel

"LIT BY LIGHTNING"

SEIZING OPPORTUNITY in crisis has been the hallmark of great

leadership. Thirteen years ago, President George H.W. Bush took
the measure ofSaddam Hussein and not only reversed Iraq's annexation
of Kuwait, but in the process also charted a course for the post-Cold
War world. In seeking Soviet cooperation against Iraq, Bush told
Soviet President Mikhail Gorbachev, "I want to go to the American
people tomorrow night to close the book on the Cold War and offer
them the vision of this new world order in which we will cooperate."
At the turn of this new century, Republicans believe that the United
States must continue to be a force for humanity, freedom, and
progress. They know that a U.S. foreign policy that clearly represents
our identity, our beliefs, and our vital interests is the legacy of 2oo years
of Americans' faith in their destiny. The United States has been a
central force for a free, prosperous, and peaceful world. As the Greeks
noted centuries ago, "character is fate."
In words that could be delivered today, President Ronald Reagan
captured in his second inaugural address the optimism that lies at
the heart of U.S. foreign policy. He described the world as "lit by
lightning. So much is changing and will change, but so much en-
dures, and transcends time." Now as then, the United States' purpose
in foreign policy is to chart a new course in a world "lit by light-
ning." U.S. foreign policy must convey the dynamism and urgency
of this new century. This purpose reflects neither the hubris that comes
with great power nor the conviction that our power and resources
are without end. A Republican foreign policy should unite us at
home and gather friends and influence abroad for the great project
of making a better and freer world for the next generation.0

[7 6 ] FOREIGN AFFAIRS' Volume83 No. 4

 Saving Iraq
From Its Oil
Nancy Birdsall and Arvind Subramanian

ESCAPING THE RESOURCE CURSE

As THE United States, the United Nations, and the Iraqi Governing
Council struggle to determine what form Iraq's next government should
take, there is one question that, more than any other, may prove critical
to the country's future: how to handle its vast oil wealth. Oil riches are
far from the blessing they are often assumed to be. In fact, countries
often end up poor precisely because they are oil rich. Oil and mineral
wealth can be bad for growth and bad for democracy, since they tend
to impede the development of institutions and values critical to open,
market-based economies and political freedom: civil liberties, the
rule of law, protection of property rights, and political participation.
Plenty of examples illustrate what has come to be known as the
"resource curse." Thanks to improvements in exploration technology,
34 less-developed countries now boast significant oil and natural gas
resources that constitute at least 30 percent of their total export
revenue.' Despite their riches, however, 12 of these countries' annual
per capita income remains below $1,5oo, and up to half of their
population lives on less than $i a day. Moreover, two-thirds of the
34 countries are not democratic, and of those that are, only three
(Ecuador, Sao Tom6 and Principe, and Trinidad and Tobago) score
in the top half of Freedom House's world ranking of political free-
dom. And even these three states are fragile: Ecuador now teeters on

NANCY BIRDSALL is President of the Center for Global Development.

ARVIND SUBRAMANIAN is a Division Chief at the International
Monetary Fund.

[77]
 Nancy BirdsallandArvind Subramanian
the brink of renewed instability, and in Sao Tom6 and Principe, the
temptations created by sudden oil wealth are straining its democracy
and its relations with next-door Nigeria.
In fact, the 34 oil-rich countries share one striking similarity: they
have weak, or in some cases, nonexistent political and economic
institutions. This problem may not seem surprising for the several
African countries on the list, such as Angola and the Democratic
Republic of the Congo, that have only recently emerged from civil
conflict. But it is also a problem for the newly independent, oil- and
gas-rich republics of the former Soviet Union, which have done little
to consolidate property and contract rights or to ensure competent
management or judicial independence. And even the richer countries
on the list, such as Libya and Saudi Arabia, suffer from underdeveloped
political institutions. Concentrated oil wealth at the top has forestalled
political change.
Can Iraq avoid the pitfalls that other oil-rich countries have
fallen into? The answer is yes, but only if it is willing to implement a
novel arrangement for managing its oil wealth with the help of the inter-
national community. This arrangement should not mimic the much-
maligned oil-for-food program set up in the aftermath of the Persian
Gulf War, under which Iraq's oil income was directly controlled and
administered by foreigners. Instead, the Iraqi people should embed
in their new constitution an arrangement for the direct distribution
of oil revenues to all Iraqi households-an arrangement that would
be supervised by the international community.

FROM MANNA TO WITCHES' BREW

To UNDERSTAND the corrupting effect that oil can have on a country,

it is useful to understand the way thinking about development has
changed over the last five decades. Development theory-the prevailing
view of how to ensure economic and political development in non-

1
The list includes Algeria, Angola, Azerbaijan, Bahrain, Brunei, Cameroon, Chad,
Colombia, the Democratic Republic of the Congo, Ecuador, Egypt, Equatorial Guinea,
Gabon, Iran, Iraq, Kazakhstan, Kuwait, the Kyrgyz Republic, Libya, Mexico, Nigeria,
Oman, Qatar, Russia, Sao Tom6 and Principe, Saudi Arabia, Sudan, Syria, Trinidad and
Tobago, Tunisia, Turkmenistan, the United Arab Emirates, Venezuela, and Yemen.

[78] FOREIGN AFFAIRS- Volume83 No. 4

 Saving IraqFrom Its Oil
industrialized countries-has evolved through three phases. In the
first phase, in vogue until the 1970s, development experts emphasized
augmenting a society's physical capital or "hardware," such as its
dams, roads, and power plants. Following the popular success of
the Marshall Plan in Europe and what was then seen as the success
of the Soviet model, the World Bank, the United States, and other
official donors concentrated on financing infrastructure-related pro-
jects in the world's poor countries. The approach promised to deliver
quick and visible results for newly independent governments shaking
off the yoke of colonial rule.
In the second phase, popular during the 198os, the ideological
pendulum shifted to getting poor countries to pursue liberal economic
policies-including opening themselves up to trade and foreign
investment, reducing the role of the state, encouraging competition
through privatization and deregulation, and maintaining sound fiscal
policy. This approach, later dubbed the "Washington consensus," was
driven by disenchantment with the meager results of the hardware
approach and a widespread recognition that appropriate economic
incentives were necessary to stimulate private-sector participation in
an economy.
In the 199os, the development community gave up on the expectation
that growth would automatically trickle down and turned to health,
education, and other investments to reduce poverty directly. By the
end of the 199os, however, it had become clear that even the right
hardware, the right policies, and the right poverty-focused programs
would not guarantee sustained growth and development. Latin
America, for example-a champion of privatization and openness to
trade-managed a growth rate of only i.6 percent per capita during
the 199os despite major increases in infrastructure and social spending,
whereas growth in sub-Saharan Africa declined by 0.2 percent a year
despite massive externally funded investments and the constant guidance
of the World Bank and the International Monetary Fund. Meanwhile,
the economies of eastern Asia, especially China's, grew rapidly during
this period, despite their obvious deviations from the liberal model.
The prevailing view of development theory has thus started to shift
again. Today, experts emphasize the "software" of an economy: the
institutions, customs, laws, and social cohesion that help to create and

FOREIGN AFFAIRS .July/August2004 [79]

 Nancy BirdsallandArvind Subramanian
sustain markets. Good software can come in many forms, ranging
from the European Union's independent central bank to the ingenious
Chinese experiment with the village enterprise system. In some societies,
software can take less tangible forms: the long-standing trust that exists
between private contracting Chinese parties, for example, was key to the
investments from expatriate Chinese that fueled early growth in Malaysia
and now in China. In others places, it takes the form of enforceable
property titles and contracts and an uncorrupted court system.
Conversely, it is becoming increasingly clear that economies without
the right software will falter. Poor supervision of banks can lead to
financial crises; civil service systems without performance standards
and rewards undermine public services; and abuses of property rights
discourage small business.
The problem for newly reconstituted states such as Iraq is that
growth-friendly institutions cannot simply be imported. They must be
nurtured domestically over long periods of time. And time is a luxury
that troubled developing countries with vast natural wealth rarely have.
Throughout history; many countries with natural resources have fared
worse than "poorer" nations. In the seventeenth century, the Netherlands
outdid resource-rich Spain, despite the fact that the latter's coffers were
overflowing with gold and silver acquired in the New World. Similarly,
Japan and Switzerland moved past Russia in the nineteenth and
twentieth centuries. More recently, resource-poor countries in eastern
Asia have surged ahead ofresource-rich Argentina, Mexico, Nigeria, and
Venezuela, all ofwhich repeatedly went bankrupt or lapsed into political
upheaval. Natural resources may seem like manna from heaven at first,
providing new states the means to escape poverty and invest in schools
and roads. And indeed, sometimes the money is spent wisely, as in
Kuwait and Bahrain. More often, however, such riches prove a curse.
There are several explanations for why oil undermines societies.
World prices for oil and similar resources are notoriously volatile,
especially compared to those for manufactured goods, and so countries
that rely on the export of natural resources are exposed to much greater
uncertainty and risk. Fluctuations in price can create a dangerous cycle
in which governments spend wildly when they are flush, only to be
forced into disruptive and costly spending cuts (leaving schools with-
out teachers, or public buildings unfinished) when prices fall.

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 Saving IraqFromIts Oil
A second explanation for the oil curse is the so-called Dutch disease.
As the Netherlands experienced when it discovered natural gas in the
North Sea in the 196os, the exploitation of mineral resources can
crowd out other activities in a country's economy. When resources are
discovered or their prices increase, a country's currency becomes stronger.
This hurts domestic manufacturers, who soon find it difficult to compete
with lower-priced imports. More of the country's labor and capital
starts to be deployed in local nontradeable sectors, and unless cor-
rective steps are taken, soon the whole
country suffers, since it loses the benefits- Natural resources
such as technological innovation and good
management-that a strong domestic man- tend to impede the
ufacturing sector can provide, development of a
The most important explanation for the
oil curse, however, has to do with the role country's economic and
natural resources play in impeding the political institutions.
development of a society's economic and
political institutions. Oil works its poison in many ways. Natural
resources, unlike output created by human endeavor, yield large
"rents," which are rewards in excess of effort. But such rents are easy
to appropriate-either by the state or by the few who control the
resources' extraction. In the former case, as in Iran, Libya, and Saudi
Arabia, one set of problems arises. The state is relieved of the pressure
to tax and has no incentive to promote the protection of property
rights as a way of creating wealth. As for the country's citizens, because
they are not taxed, they have little incentive and no effective mecha-
nism by which to hold government accountable. This can lead to the
unchecked abuse of state power and undermine the process by which
political systems reconcile conflicting interests and demands. Indeed,
such conditions make it very hard for political institutions to develop.
When a subset of the population is able to control the natural
resource wealth, meanwhile, it can "buy" or "become" the state, as
occurred in Angola or in what was then Zaire (now the Democratic
Republic of the Congo). Even where the state and those who control
its resources remain distinct (as in Russia and Venezuela), public
officials tend to become corrupt. Vicious fights over the distribution
of resources often result. These battles are often portrayed as ethnic

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 Nancy BirdsallandArvindSubramanian
rivalries, when in fact they may actually be simple fights to monopolize
wealth. Even when the resulting problems do not explode into outright
civil conflicts, they discourage investment and growth and corrode
political institutions.
According to economic historians, this pattern explains the very
different ways North and South America developed. In the latter, large
plantations of sugar allowed landed elites to maintain concentrated
economic and political control, and these elites resisted democratic
reforms and the institution of property rights. In North America, by
contrast, the cultivation of wheat and corn on small farms led to a
dispersion of economic power and more favorable conditions for
democratization and institutional development.

SCARCE SUCCESS

NOWHERE HAVE all the pathologies associated with oil manifested

themselves more clearly than in Nigeria. In the late 196os, the Biafran
war of secession-then Africa's biggest civil war, which killed a million
people-was, in part, an attempt by the country's eastern, predominantly
Igbo, region to gain exclusive control over oil reserves. Nigeria has also
suffered the assassination of two of its leaders, six successful coups and
four failed ones, and 30 years of military rule. Its "pirates in power," as one
Africa historian called its leaders, have plundered Nigeria's oil wealth to
the tune of perhaps $ioo billion. The explosion in windfall-financed
government expenditures has also provided increased opportunities
for kickbacks. All of these forces have contributed to poor economic
growth and other staggeringly malign results. Between 197 o and 2000,
the number of people living below the poverty line in Nigeria in-
creased from 19 million to nearly 9o million, and inequality widened:
the top 2 percent of the population, which earned as much as the
bottom 17 percent in 197o, now earns as much as the bottom 55 percent.
Nor are such statistics unique to Nigeria. In different forms and at
different times, natural-resource wealth has wreaked similar havoc in
Angola, Equatorial Guinea, Gabon, and Venezuela, and now threat-
ens to affect tiny Sao Tom6 and Principe. In Angola, an estimated
$4.2 billion has gone missing from government coffers over the last
few years. In Venezuela, poverty has nearly doubled since the late

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 Saving IraqFrom Its Oil
1970s and the share of national income going to business owners has
increased from 50 percent to nearly 8o percent; as a result, ordinary
workers now get a mere 20 percent of the economic pie.
The oil-rich countries of the Middle East have so far escaped some
of the worst side effects of mineral wealth-but only because of the
sheer magnitude of their oil resources relative to the size of their
populations. And they have not avoided the stunted political and
social development associated with oil. The UN Development Program's
2002 Human Development Report identified the lack of press and
other freedoms and the low status of women as key obstacles to the
Arab world's long-run progress. Moreover, although current economic
performance in the Middle East may be broadly satisfactory, it cannot
be expected to remain so for long. Venezuela shows how even a rela-
tively affluent country can deteriorate over time as the fight over easy
oil wealth corrodes its political and economic institutions.
Indeed, amid all the examples of countries undermined by their
own resource riches, two success stories stand out: Norway and
Botswana. And even these examples serve only to reinforce the
dangerous impact of natural resources. Norway discovered its oil in
the 1970s, well after it had developed mechanisms for accountability.
The country survived its sudden boom because well-entrenched
checks and balances prevented oil revenues from being wasted or si-
phoned off. Decisions about how to spend oil money were taken
through the normal democratic process.
Even more interesting is the case of Botswana, which has mined
diamonds for several decades. Botswana did not succumb to the
resource curse because it is one of the few countries in Africa that
emerged from British rule in 1966 with strong institutions, thanks to
pre-existing local and tribal traditions that fostered broad political
participation. Fortunately, colonial administration never penetrated
deeply enough into Botswana to destroy these traditions, which, after
independence, formed the foundation for a functioning democracy.
Uninterrupted democracy and good political leadership have ensured
that the rents from natural resources were not squandered, as they
have been elsewhere in Africa.
Norway and Botswana illustrate that the natural resource curse
can be avoided if states have institutions strong enough to cushion

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 Nancy BirdsallandArvindSubramanian
themselves from the usual malign influences. Oil and other natural
resources do not predestine all developing countries to failure. In-
donesia and Mexico provide guarded optimism that the oil curse can
be avoided. Although Indonesia has suffered economic and political
setbacks ever since the onset of the Asian financial crisis in 1997, it
did enjoy two decades of sustained growth and poverty reduction
before the crisis hit. Meanwhile, Mexico has also managed its oil
responsibly, and in zooo elected an opposition candidate, Vicente Fox,
as president. In both cases, however, the jury is still out on whether
they will be able to durably defy the oil curse. Chile and Malaysia
provide even better examples. Although they started the development
race economically poor, institutionally weak, and heavily dependent
on resources (copper in Chile and rubber in Malaysia), they have sub-
sequently managed to grow rapidly and escape resource dependence.

CURE FOR THE CURSE

GIVEN HOW BAD oil and other natural resources have proved for the
development of markets and political freedom, how should they
be managed in Iraq and other countries? Three options should be
considered: privatizing oil resources, creating special oil funds that
limit government discretion in spending the money, and transferring
the proceeds from oil directly to the people.
The first approach-privatizing the oil sector-has proved disap-
pointing. In countries with weak institutions, assets of immense value
have too often been sold at throwaway prices to a lucky few who happen
to have good financial or political connections. In Russia, for example,
privatization of the country's Soviet oil companies and other resources
only entrenched the economic imbalances of the status quo. The re-
sulting oligarchic capitalism has undermined Russia's market economy,
making it more difficult to foster public trust in market institutions
such as private property, the rule of law, and the sanctity of contracts.
When privatization leads to greater economic imbalances, these in
turn impede a country's transition to democracy or result, as in the
case of Nigeria or Russia, in what Newsweek's Fareed Zakaria has called
"illiberal democracies." In such cases, elections are held periodically,
but civil liberties are limited and the state sometimes undermines,

1841 FOREIGN AFFAIRS " Volume8 No.4

 Saving Iraq FromIts Oil
rather than protects, individual freedom and property rights. Oil
tends to perpetuate the power imbalances by favoring incumbents
(who have easy access to oil resources) and encouraging patronage
and corruption.
The second alternative for dealing with a country's oil wealth-the
creation of special oil funds with constitutional or other restrictions on
the use of revenues-has been used in Kuwait and Norway for several
decades, and in Colombia and Venezuela since the 199os. Azerbaijan
and Chad have also recently created such funds, and East Timor and
Sdo Tom6 and Principe plan to do so this year. Although they vary in
detail, these national oil funds all represent an attempt to insulate and
render transparent the spending of some or all of a country's oil
revenues. The funds are meant to help stabilize a country's spending-
building up resources during the fat years to help the country weather
lean ones-and to help it save revenues for the benefit of future
generations. The newer funds also aim to force suddenly cash-rich gov-
ernments to focus their spending on socially productive investments.
Unfortunately, apart from Norway (with its strong government
institutions and healthy democracy), the experience of national oil
funds has not been encouraging. In Venezuela, for example, the
government has changed the rules stipulating how money in the oil
fund should be spent six times in the last few years. As a result, the fund's
resources have practically dried up, and it has not managed to ensure
prudent revenue management or an improvement in the quality of
spending. In Azerbaijan, ad hoc expenditures from the fund have also
started to raise questions about its long-term promise. And in
Chad, where the oil fund was created as a condition of a World
Bank loan to help finance an oil pipeline, the country's president-
despite oversight by nongovernmental organizations-still managed
to use the first wave of revenue to buy a presidential airplane. Although
the fund itself was not actually raided, the airplane purchase was
unexpected and inconsistent with the overall budget program
agreed on by Chad and its international creditors. Oil funds, there-
fore, seem unable to insulate oil revenues from appropriation by
weak or unaccountable governments. They are no substitute for
public accountability or for the checks and balances provided by the
press and a healthy democracy.

FOREIGN AFFAIRS .July/August2004 [851

 Nancy BirdsallandArvindSubramanian
The third alternative for managing a country's oil wealth-
distributing it directly to the people-has a better record, at least in the
few places (the state of Alaska and the Canadian province of Alberta)
where it has been tried. (In both cases, the interest from oil funds,
rather than oil revenue itself, is distributed.) Such systems minimize
opportunities for corruption and misappropriation, since windfall
revenue stays out of the hands of public officials. They also avoid the
imbalance of economic and political power associated with private
control of revenues. Moreover, in developing
The best alternative countries, the direct distribution ofoil revenues
would instantly increase per capita income,
is to distribute a sometimes substantially. In Chad, for example,
country's oil wealth where per capita income is about $zoo a year,
equally distributing the country's expected net
directly to ipeople. oil revenues among its population would
increase average income by 20 percent in 2008;
in Sao Tom6 and Principe, the increase would be greater still. Such an in-
crease would enable parents to keep their children in school, help farm
producers diversify, and stimulate more government investment in roads
and other infrastructure. In other words, distribution of oil revenues
would aid the development of homegrown markets and local politics.
Proposals to distribute oil revenues to the public, however, are often
met with two standard objections: that the loss of oil revenue to the gov-
ernment could cause macroeconomic instability, and that distributing
revenues to the people only to then partially tax them back to finance
public investment and other sensible government expenditures is
inefficient. Neither objection is compelling. In macroeconomic terms,
channeling oil wealth to the public instead of government shifts the
problem of price volatility to individual households. And in countries
with weak institutions, households are much better at managing volatil-
ity than is the government; in fact, they are better judges not only of how
much to spend, but ofwhat to spend it on. Recent history is replete with
examples of governments creating white elephants during revenue
upsurges, such as Indonesia's benighted commercial jet industry or
Nigeria's infamous Ajakouta steel complex (which has not produced a
single ton of saleable steel in more than four decades). It is hard to imag-
ine individual investors making mistakes of such magnitude or duration.

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 Saving IraqFrom Its Oil
The second objection-that distribution followed by taxation is
wasteful-has some logic. But the costs in efficiency are eclipsed by
the benefits of encouraging public scrutiny of government spending.
Governments that derive revenues from natural resources such as oil live
in a dangerous supply-sider's paradise. When the marginal cost of
raising public resources is virtually zero, governments have little
incentive to manage well, provide adequate public services, respond to
citizens' demands, or invest in and sustain the software of market
economies and good governments. Ironically, good government and
strong institutions require that the raising of public resources be costly.
Distributing oil revenues directly to people would be difficult in
poor countries with limited administrative capacity, but not necessarily
impossible. Before political problems overwhelmed Bolivia's reforms,
for example, its government managed to distribute the "pension" returns
from its share in privatized enterprises to all senior citizens. And
although initially identifying all potential recipients and ensuring
consistent and efficient distribution (probably via coupon-like vouchers)
would be challenging, it would not be qualitatively different from that
of immunizing children, which many poor countries have managed.
It could in fact be easier, since citizens, eager for their windfall, would
be quick to cooperate.
The greater problem with implementing a distribution plan would
be political. Change would meet resistance on the part of current
beneficiaries with a vested interest in the status quo, be they workers
in a state-owned enterprise, oligarchs, or political incumbents. After the
first year or so, moreover, the administrative apparatus for distribution
would become vulnerable to cheating and corruption. Even immu-
nization programs in poorer countries, for example, tend to need donor
attention if they are to maintain their integrity.

HELP FROM OUTSIDE

LUCKILY, Iraq is not as poor as Angola or Nigeria. And despite
its current difficulties, Iraq is, in one respect, an economic policy
practitioner's dream: it provides a relatively clean slate, allowing
new policy approaches to be attempted with a minimum of resistance
from vested interests. With the right solution in place-the distribution

FOREIGN AFFAIRS .July/AugUst2004 [87]

 Nancy BirdsallandArvindSubramanian
of Iraq's oil revenue directly to its people-Iraq has a good chance of
beating the oil curse. To ensure that this happens, a provision should
be incorporated into the new Iraqi constitution enshrining the right
of each Iraqi household to receive a share of the country's oil proceeds.
This right would extend for a minimum period of, say, ten years. The
justification for this forfeiture of traditional, Westphalian sovereignty
is straightforward: it would prevent future Iraqi governments-
even democratically elected ones-from changing the arrangement
for the given period. After it expired, the people of Iraq could,
through the democratic process, determine their own arrangements
for managing future oil proceeds.
This temporary forfeiture of traditional sovereignty, frustrating
though it may be, would actually uphold and strengthen the under-
lying sovereignty of the Iraqi people. It may be the only practical way
to develop democratic institutions free of the corrupting influence of
oil and to ensure the long-term economic and political empowerment
of ordinary Iraqis.
The international community, ideally in the form of the UN, would
supervise the implementation of this proposal. With some UN officials
now under investigation for mishandling oil-for-food funds in the 199os,
more effective arrangements for transparency and accountability would
have to be developed under the new system. Iraq today is an intrinsically
more open environment than it was during the sanctions era. Greater in-
volvement by civil society and the Iraqi people themselves-who would
assert their constitutional right to claim their share of the oil resources-
would help ward off mishandling and misappropriation of the funds.
The direct distribution of oil proceeds to the people could also help
resolve the problem of Iraq's foreign debt. Many new democracies,
such as Nigeria, have tried to get their external debts lifted, especially
when a sizable part of the debt is "odious" (that is, contracted by
previous dictators, often with the creditors' complicity). But donors will
be justifiably wary of absolving the debts of a fledgling, faction-ridden
Iraqi government. Transferring oil proceeds directly to the people
rather than the government could allay this fear and hence make
donors more amenable to granting debt relief.
Just how much of Iraq's oil revenues should be distributed? On the
one hand, the more that goes to the population, the less the chance

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 Saving IraqFrom Its Oil
that oil will spoil the new Iraq. On the other hand, loo percent dis-
tribution is probably infeasible. The new Iraqi government will face
pressing needs, notably the rehabilitation of an infrastructure ravaged
by the recent war and years of neglect under Saddam Hussein, as
well as the servicing of some of its international debt. In the short
run, financing these expenses through taxation will be unrealistic
because Baghdad's machinery of taxation remains rudimentary.
Some oil revenues should thus be retained by the government. But
at least 50 percent should be distributed to the people.
In the long run, and not just in Iraq, the international community
needs to put pressure on oil companies, which too often abet local
corruption. For example, during the last several years, some 34 multi-
national oil companies paid the Angolan government to extract
and refine its oil without ever disclosing where the money was
going or what it was being used for within Angola. The international
community should push governments and oil companies for greater
transparency in the governance of natural resources. Collective action
is key, however, since it is not in the interest of any one company to
become transparent and honest on its own. Such collective action can
be ensured through coordinated efforts by government, the private
sector, and civil society. Many efforts have already been made in this
regard, including the Extractive Industries Transparency Initiative
sponsored by the United Kingdom's Department for International
Development-although so far with limited success. Real efforts must
also be made to crack down on corruption. Western countries should
pass laws analogous to the EU's attempts to make the bribery of foreign
officials a crime, and build on the UN'S Convention Against Corruption.
If the Iraqi experiment succeeds, the result will be a major boon-
and not just for Iraqis. A success in Iraq would also provide a powerful
example for other resource-rich countries to follow, illustrating how
they could improve their economies and political systems. Resource-
rich countries must realize that change, even radical change, is less
risky than maintaining the status quo, in which oil continues to wreak
the kind of damage it has so often around the world.0

FOREIGN AFFAIRS .July/August2004 [8 9]

 Containing Iraq:
Sanctions Worked
George A. Lopez and David Cortright

SUCCESS DISREGARDED

THE Bush administration's primary justification for going to war

against Iraq last year was the threat posed by Saddam Hussein's
weapons of mass destruction (WMD) programs. But almost as soon as
U.S. forces took Baghdad, it became clear that this fear was based on
bad intelligence and faulty assumptions. Since then, the failure to
find WMD in Iraq has caused a furor.
Sympathetic analysts argue that Washington had no way of know-
ing how serious the threat of Iraqi WMD was, so intelligence agencies
provided the administration with a wide-ranging set of estimates.
In the post-September n security environment, the argument goes,
the Bush administration had little choice but to assume the worst.
Critics charge that the White House inflated and manipulated weak,
ambiguous intelligence to paint Iraq as an urgent threat and thus make
an optional war seem necessary. A recent report by the Carnegie
Endowment for International Peace, for example, found not only that
the intelligence community had overestimated Iraqi chemical and
biological weapons capabilities but also that administration officials
"systematically misrepresented" the threat posed by Iraqi weapons.
Public debate has focused on the question ofwhat went wrong with
U.S. intelligence. Given the deteriorated state of Iraq's unconventional

GEORGE A. LoPEZ is Director of Policy Studies at the Joan B. Kroc

Institute for International Peace Studies at the University ofNotre Dame.
DAVID CORTRIGHT is President of the Fourth Freedom Forum and
Research Fellow at the Kroc Institute.

[90]
 ContainingIraq.-Sanctions Worked
weapons programs and conventional military capabilities, this is only
appropriate. But missing from the discussion is an equally important
question: What went right with U.S. policy toward Iraq between
199o and 2003? On the way to their misjudgments, it now appears,
intelligence agencies and policymakers disregarded considerable evi-
dence of the destruction and deterioration of Iraq's weapons programs,
the result of a successful strategy of containment in place for a dozen
years. They consistently ignored volumes of data about the impact of
sanctions and inspections on Iraq's military strength.
The United Nations sanctions that began in August 199o were the
longest running, most comprehensive, and most controversial in the
history of the world body. Most analysts argued prior to the Iraq war-
and, in many cases, continue to argue-that sanctions were a failure.
In reality, however, the system of containment that sanctions cemented
did much to erode Iraqi military capabilities. Sanctions compelled
Iraq to accept inspections and monitoring and won concessions
from Baghdad on political issues such as the border dispute with
Kuwait. They also drastically reduced the revenue available to Saddam,
prevented the rebuilding of Iraqi defenses after the Persian Gulf
War, and blocked the import of vital materials and technologies for
producing WMD.
The unique synergy of sanctions and inspections thus eroded Iraq's
weapons programs and constrained its military capabilities. The renewed
UN resolve demonstrated by the Security Council's approval of a "smart"
sanctions package in May 2oo2 showed that the system could continue
to contain and deter Saddam. Unfortunately, only when U.S. troops
invaded in March 2003 did these successes become clear: the Iraqi
military that confronted them had, in the previous twelve years, been
decimated by the strategy of containment that the Bush administration
had called a failure in order to justify war in the first place.

EVIDENCE OF ABSENCE

MOST COVERAGE of the weapons inspections that began after the

Gulf War focused on Baghdad's efforts to stall, evade, and obstruct
UN monitors. But despite Saddam's recalcitrance, the record now
shows that the UN disarmament program-which Vice President

FOREIGN AFFAIRS .July/August2004 [91]

 GeorgeA. Lopez andDavid Cortright
Dick Cheney dubbed "the most intrusive system of arms control in
history"-decapitated Iraq's banned weapons programs and destroyed
the infrastructure that would have allowed it to restart clandestine
programs. From 1991 to 1998, the UN Special Commission (UNSCOM)
identified and dismantled almost all of Iraq's prohibited weapons. In
conjunction with the International Atomic Energy Agency (IAEA), it
conducted hundreds of inspection missions at weapons sites and doc-
umentation centers, systematically uncovering and eliminating Iraq's
nuclear weapons program and most of its chemical, biological, and
ballistic missile systems. After four months of further inspections
from November 2002 until March 2003 -which included 237 missions
to 148 sites-the UN Monitoring, Verification, and Inspection Com-
mission (UNMOVlC) confirmed the depleted state ofIraq's capabilities.
Of course, the political assessments of these accomplishments
were muted. In Washington during the 199os, each new weapons
report was taken as confirmation of Saddam's perfidy rather than as
a measure of success. There was a lingering belief that behind each new
discovery lay more hidden contraband. Especially after the terrorist
attacks of September n, 2001, the achievements of UN disarmament
were ignored, and Saddam's defiance was taken as confirmation that
deadly stockpiles remained. Despite these suspicions, however, progress
was being made. As former chief UN weapons inspector Hans Blix
wrote in his recent book, "the UN and the world had succeeded in dis-
arming Iraq without knowing it."
The greatest success of the UN disarmament mission was in the
nuclear realm. IAEA inspectors found an alarmingly extensive nuclear
weapons program when they entered Iraq in 1991, and they set out
to destroy all known facilities related to the nuclear program and to
account for Iraq's entire inventory of nuclear fuel. In 1997, the IAEA
and UNSCOM concluded that there were no "indications that any
weapon-useable nuclear material remain[ed] in Iraq" or "evidence in
Iraq of prohibited materials, equipment or activities." After four
months of resumed inspections in 2002-3, IAEA Director-General
Mohamed ElBaradei confirmed that, according to all evidence, Iraq had
no nuclear weapons and no program to redevelop them. He reported
to the UN Security Council in March 2003 that inspectors had found
"no indication of resumed nuclear activities ...
nor any indication of

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 ContainingIraq.-Sanctions Worked
nuclear-related prohibited activities at any inspected sites." The IAEA'S
report noted, "During the past four years, at the majority of Iraqi
sites, industrial capacity has deteriorated substantially." (Inspectors
also found documentation of the alleged Iraqi attempt to import uranium
from Niger to be "not authentic" and rejected claims that Iraq had at-
tempted "to import aluminum tubes for use in centrifuge enrichment.")
UN weapons inspectors also catalogued and destroyed Iraq's once-
substantial ballistic missile capability. All but two of the 819 banned
Scud missiles known to have existed in Iraq prior to 199o were accounted
for. Although inspectors discovered that Iraq had failed to declare
some dual-use equipment and attempted to import Russian ballistic-
missile guidance systems, they found no evidence that Iraq had actually
developed or flight-tested any prohibited missiles. Anthony Cordesman
of the Center for Strategic and International Studies told the Senate
Foreign Relations Committee inJuly 2002, "Iraq has not fired any Scud
variants in nearly twelve years."
When UN inspectors returned to Iraq in late 2002, they noted "a
surge of activity in the missile technology field." UNMovic determined
that the Al Samoud II missile exceeded the permitted range (15o kilo-
meters) by 30 kilometers and discovered large chambers that could be
used to produce missile rocket motors. But when UNMOVIC officials
demanded that the missiles and the chambers be destroyed, Baghdad
yielded: eradication was underway when the U.S. invasion began.
UNscoM achieved similar success eliminating Iraq's chemical and
biological weapons programs. After the Gulf War, inspectors discovered
stockpiles of chemical weapons. They disposed of 480,0o0 liters of live
chemical agent and more than 3,ooo tons of precursor chemicals. As a
panel of Security Council experts reported, "the prime [chemical
weapons] development and production complex in Iraq was dismantled
and closed under UNSCOM supervision and other identified facilities have
been put under monitoring." Inspectors also supervised the destruction of
Iraq's biological weapons program, especially after Saddam's son-in-law
General Hussein Kamel defected and confirmed the large-scale produc-
tion and weaponization of anthrax, botulinum toxin, and aflatoxin; in
1996, UNSCOM demolished the main biological production facility at Al
Hakam. When UNMOVIC inspectors entered Iraq in 2002, they found no
evidence of renewed chemical or biological weapons programs.

FOREIGN AFFAIRS .July/August 2oo4 [93]

 GeorgeA. Lopez andDavid Cortright
The considerable deterrent value ofweapons monitoring also went
unacknowledged by Washington. The presence in Iraq of more than
1oo highly trained weapons inspectors equipped with the world's
most advanced monitoring technology provided an unprecedented
ability to discover any clandestine efforts by Baghdad to redevelop
WMD. The Ongoing Monitoring and Verification (oMv) system
mandated by the Security Council in 1991, for example, installed an
elaborate network of radiological and chemical sensors, cameras,
ground-penetrating radar, and other detection systems, bolstered by
aerial surveillance and no-notice visits to weapons facilities by inspectors.
As Blix concluded in the aftermath of last year's war, "it is becoming
clear that inspection and monitoring by the IAEA, UNMOVIC and its pred-
ecessor UNSCOM, backed by military, political and economic pressure,
had indeed worked for years, achieving Iraqi disarmament and deterring
Saddam from rearming." And with the open-ended reauthorization of
OMV in 1999, there was solid UN backing for continued monitoring.
Another benefit of UN monitoring must be acknowledged: inspectors
were a vital source of intelligence. After UNSCOM inspectors left Iraq
in December 1998, just before the start of the Operation Desert Fox
bombing campaign, U.S. and UN officials were left blind. Without
inspectors on the ground and without the extensive data provided
by OMV monitoring instruments, they had no independent means
of knowing the status of Saddam's weapons capabilities. Deprived of
on-site reports and up-to-date information and forced to rely on
testimony from Iraqi defectors, U.S. officials fell back on preexisting
worst-case assumptions. The withdrawal of UN inspectors thus set
the stage for reliance on the military option in 2003: Washington
officials became convinced that regime change was the only way to be
sure that Saddam did not have banned weapons.

THE SANCTIONS SAGA

IN T HE PAST several months, the previously unacknowledged success

of UN weapons monitoring and disarmament has become clear. But
few analysts have gone a step further to identify the primary reason
for this success: the UN-enforced sanctions regime. Dismissed by hawks
as weak and ineffective and reviled by the left for its humanitarian

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 ContainingIraq. Sanctions Worked
costs, the sanctions regime has had few defenders. The evidence now
shows, however, that sanctions forced Baghdad to comply with the
inspections and disarmament process and prevented Iraqi rearmament
by blocking critical imports. And although many critics of sanctions
have asserted that the system was beginning to break down, the
"smart" sanctions reform of 20ol and 2002 in fact laid the foundation
for a technically feasible and politically sustainable long-term em-
bargo that furthered U.S. strategic and political goals.
The story of the nearly thirteen years of UN sanctions on Iraq is
long and tortuous. For the first six years, comprehensive sanctions cut
Iraq off from all world trade and shut down its oil exports, devastating
its economy and society. Coupled with the damage caused by Gulf
War bombing, sanctions helped spur a severe humanitarian crisis
that resulted in hundreds of thousands of preventable deaths among
children during the 199os. When the oil-for-food program took
effect in 1996-allowing Baghdad to sell oil
and use the revenue, under UN supervision, Deprived of on-site
to purchase approved civilian goods-the
hardships of Iraqi civilians began to ease. reports and up-to-date
Sanctions were met with considerable information, officials
skepticism from the start when they failed fell back on worst-case
to force Iraq's withdrawal from Kuwait. Nor
did they persuade Iraq to comply with the assumptions.
full range of demands in the cease-fire
agreement after the Gulf War. Yet Washington viewed sanctions as a
punitive instrument and refused to consider even a partial lifting of
sanctions in exchange for partial Iraqi compliance. (That position
contradicted Security Council Resolution 687, which stated that
sanctions would be lifted once Iraq lived up to UN disarmament
obligations.) Meanwhile, Baghdad exploited the humanitarian crisis
in Iraq to win international support for the lifting of sanctions.
But despite such political failings and the initial humanitarian
cost, sanctions forced Baghdad to make significant concessions on
disarmament. Most important was Iraq's acceptance of the oMv system.
In October 1991, as Baghdad's resistance to intrusive disarmament
became evident, the Security Council approved Resolution 715 man-
dating continuous monitoring to prevent Iraqi rearmament. Saddam

FOREIGN AFFAIRS .Ju/y/August2004 [95]

 GeorgeA. Lopez andDavid Cortright
resisted initially, but he yielded in November 1993, resulting in the
installation of monitoring equipment in 1994. The pressure of UN
sanctions was responsible for extracting this concession. In discussions
of the resolution in 1992, Iraqi leaders told UN officials that they
wanted concrete assurances that sanctions would be lifted before Iraq
would agree to accept the OMV system: they hoped that accepting
monitoring would bring them benefits from the Security Council.
Russian and French diplomats and UNSCOM Chairman Rolf Ek~us
encouraged such reasoning, believing that the prospect of eased
sanctions would entice Iraq to comply with monitoring. (When Iraq
accepted Resolution 715 in 1991, Russia and France proposed a state-
ment from the Security Council taking note of Iraqi compliance. The
United States and the United Kingdom blocked the statement, refusing
even to consider easing coercive pressure. Ekdus adjusted his message
accordingly. He told the Iraqis that the lifting of sanctions would be
an all-or-nothing proposition, depending on full compliance with
every aspect of the disarmament mandate.)
Once the ongoing monitoring system was in place, sanctions
continued to help force the regime to disarm. There were numerous
disputes between UN officials and the Iraqi government, ranging from
David Kay's famous 1991 standoff with Iraqi officials in a Baghdad
parking lot to the confrontations in 1998 that prompted UNSCOM to
withdraw. At several points, Ek~us had to cajole Iraqi leaders to end
their obstructionism-using the pressure of sanctions, and dangling
the prospect that they might some day be lifted, to assure compliance. In
1995, for instance, Ek~us and his deputy, Charles Duelfer, threatened to
prolong sanctions in order to get Iraqi officials to disclose past efforts
to produce vx nerve gas. Without further revelations, they warned, the
chances of Iraq's getting the sanctions lifted would be much reduced.
In 1997, as Iraqi harassment of inspectors increased, UNSCOM again used
the threat of continuing sanctions to overcome resistance. In the face
of Iraqi obstruction, the Security Council passed Resolution 1U5 in June
1997, temporarily suspending the regular sanction reviews (thereby
preventing any action to lift sanctions) and threatening additional
unspecified measures unless the harassment of inspectors ceased.
Ek~us described the critical importance of sanctions to the disar-
mament process-a "combined carrot-and-stick approach"-in a

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 ContainingIraq:Sanctions Worked
2ooo interview: "Keeping the sanctions was the stick, and the carrot
was that if Iraq cooperated with the elimination of its weapons of
mass destruction, the Security Council would lift the sanctions.
Sanctions were the backing for the inspections, and they were what
sustained my operation almost for the whole time." And according to
former UNSCOM adviser Tim Trevan, Iraqi Foreign Minister Tariq
Aziz told UN inspectors that "the only reason Iraq was cooperating
with UNSCOM was that it wanted to be reintegrated into the interna-
tional community. Chief among the benefits was the lifting of the
economic sanctions."

DESTROYING THE WAR MACHINE

IN ADDITION to driving the disarmament process, sanctions under-

mined Iraqi military capabilities and prevented rearmament by keep-
ing Iraq's oil wealth and imports-which could be used to produce
WMD-OUt of the hands of Saddam Hussein. Contrary to the Bush
administration's assertion that Iraq was a "gathering" threat, the Iraqi
military and weapons programs had, in fact, steadily eroded under the
weight of sanctions.
Estimates of the total amount of oil revenue denied the Iraqi
government range as high as $250 billion. For the first six years of
sanctions, Iraq sold no oil except for a small allowance to Jordan.
After the oil-for-food program began, oil sales generated, according
to UN figures, $64.2 billion in revenue. But the proceeds from these
sales went straight into a UN escrow account, not the Central Bank of
Iraq. Sanctions also blocked foreign investment and oil development,
which could have increased Iraq's oil output to as much as seven million
barrels a day by the late 199os (compared to a peak of around three
million barrels a day prior to the Gulf War).
Of course, no sanctions regime can be loo percent effective; smug-
gling and black marketeering inevitably develop. Baghdad labored
mightily to evade sanctions, mounting elaborate oil-smuggling and
kickback schemes to siphon hard currency out of the oil-for-food
program. Investigations by the U.S. General Accounting Office
(GAO) and The Wall StreetJournalput Iraq's illicit earnings at $i. 5 billion
to $2.5 billion a year. An updated GAO report estimated that illegal

FOREIGN AFFAIRS .Juy/August2004 197]

 GeorgeA. Lopez andDavid Cortright
Iraqi revenues from 1997 through 2002 amounted to $io.i billion,
about 15 percent of total oil-for-food revenues during that period.
Still, the sanctions worked remarkably well in Iraq-far better
than any past sanctions effort-and only a fraction of total oil revenue
ever reached the Iraqi government. The funds that Baghdad obtained
illicitly were grossly insufficient to finance a large-scale military
development program. The government had no other major source
ofincome, in part thanks to the economic impact of sanctions. Revenues
from smuggling and kickbacks went mostly toward maintaining
Saddam's massive army and internal security apparatus (as well as to
building palaces and paying bribes to political loyalists). As a result,
almost no money was available for the development of nuclear,
chemical, or biological weapons systems, however much Saddam
might have wished to rebuild his arsenal. A regime that had previously
spent lavishly on its war machine was thus denied the means to rebuild
its war-ravaged military.
Indeed, U.S. government figures show a precipitous drop in Iraqi
military spending and arms imports after 199o. State Department
estimates suggest that spending levels plummeted from over $15 billion
in 1989 to less than $1.4 billion a year through the 199os. The estimated
cumulative arms import deficit-the amount that Iraq would have
spent had it continued to import arms at the same pace as it did in the
198os-through 1998 was more than $47 billion, a deficit that Baghdad's
various weapons-smuggling efforts and black-market schemes could
hardly diminish. The Iraqi army thus found itself with, in the words of
a 1998 report from the Center for Strategic and International Studies,
"decaying, obsolete, or obsolescent major weapons."
The sanctions system also prevented the import of specific items
that could be used for the development of long-range ballistic missiles
and nuclear, chemical, and biological weapons. The United States
especially, but other major powers as well, made a major investment in
sanctions enforcement; the Security Council remained united in its
resolve to deny Iraq the means to rebuild its weapons programs; and
the dragnet was highly effective in denying Iraq the means to redevelop
WMD. Led by Washington, intelligence, military, and police officials in
many countries mounted a massive effort to block shipments of pro-
hibited weapons to Iraq. State Department nonproliferation specialists

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 ContainingIraq:Sanctions Worked
vetted oil-for-food contracts to screen for possible weapons imports.
The U.S. Navy established the Maritime Interception Force, a multi-
national operation that over a ten-year period searched more than
12,ooo vessels in the northern Persian Gulf. Such measures led to a se-
ries of high-profile successes. In August 1995, for example, U.S. officials
received a tip from Israeli intelligence about a delivery of U5 missile
gyroscopes passing through Jordan to Iraq. The CIA immediately dis-
patched a team to Amman and intercepted the guidance equipment. A
month later, UNSCOM officials fished another shipment of gyroscopes
from the bottom of the Tigris River, where Iraqi officials had dumped
them. A combination of watchful external intelligence and inspectors
on the ground prevented the guidance systems from ever being used.
Similarly, the specialized aluminum tubes that were a source of
controversy in the prewar debate never reached Iraq. Regardless
ofwhether they were to be used for uranium enrichment, as the admin-
istration claimed, or for conventional rockets, as UN experts reported,
the tubes were intercepted before arriving,
according to the British government's Sep- Sanctions had left
tember 2002 dossier. The dossier documented
foiled Iraqi attempts to purchase vacuum
tubes, a magnet production line, a large war machine in a state
filament-winding machine, fluorine gas, and
other items that could have nuclear of utter disrepair.
weapons-related applications. As long as sanctions remained effec-
tive, the report found, "Iraq would not be able to produce a nuclear
weapon." It also noted that "sanctions and the earlier work of the in-
spectors had caused significant problems for Iraqi missile develop-
ment," by preventing Iraq from buying potential ingredients of rocket
fuel such as magnesium powder and ammonium chloride.
Ironically, rather than bolstering the case for sanctions, the inter-
diction of prohibited items was often seen as a sign of their failure.
Those skeptical of sanctions focused on Iraq's attempts to smuggle
material in the first place, not on their having been thwarted. Inflated
intelligence assumptions mistook Iraq's nefarious intentions for real
capabilities, even in the face of evidence showing how deteriorated the
latter were. In reality, sanctions had left Saddam's once-vaunted war
machine in a state of utter disrepair.

FOREIGN AFFAIRS -July/August 2oo 4 [99]

 GeorgeA. Lopez andDavid Cortright

A STRONGER NET

IN THE RUN-UP to war last year, some in Washington acknowl-

edged the impact of inspections and sanctions but believed that
sanctions would soon collapse. Kenneth Pollack reiterated this
argument in a January 2004 article in The Atlantic Monthly,
insisting that war was necessary because "containment would not
have lasted much longer" and Saddam "would eventually have
reconstituted his WMD programs." Support for sanctions did in-
deed begin to unravel in the late 199os. But beginning in 2001,
the Bush administration launched a major diplomatic initiative
that succeeded in reforming sanctions and restoring interna-
tional resolve behind a more focused embargo on weapons and
weapons-related imports.
One major reason for this renewed consensus was the creation of
a new "smart" sanctions regime. The goal of "smart" sanctions was
to focus the system more narrowly, blocking weapons and military
supplies without preventing civilian trade. This would enable the
rehabilitation of Iraq's economy without allowing rearmament or
a military build-up by Saddam. Secretary of State Colin Powell
launched a concerted diplomatic effort to build support for refor-
mulating sanctions, and, in the negotiations over the proposed
plan, agreed to release holds that the United States had placed on
oil-for-food contracts, enabling civilian trade contracts to flow to
Russia, China, and France. Restrictions on civilian imports were
lifted while a strict arms embargo remained in place, and a new sys-
tem was created for monitoring potential dual-use items. As the
purpose of sanctions narrowed to preventing weapons imports
without blocking civilian trade, international support for them in-
creased considerably: "smart" sanctions removed the controversial
humanitarian issue from the debate, focusing coercive pressure in a
way that everyone could agree on. The divisions within the Security
Council that had surfaced in the late 199os gave way to a new con-
sensus in 2o02. The pieces were in place for a long-term military
containment system. The new sanctions resolution restored political
consensus in the Security Council and created an arms-denial system
that could have been sustained indefinitely.

[1oo] FOREIGN AFFAIRS" Volume83 No. 4

 ContainingIraq: Sanctions Worked

In the months prior to the invasion, as Bush administration

officials threatened military action and dismissed sanctions as
useless, additional suggestions were offered to strengthen the
sanctions system. Morton Halperin, former director of policy
planning at the State Department, recommended a "containment
plus" policy during July 2002 testimony before the Senate Foreign
Relations Committee. The goal of such a system, Halperin said,
"would be to tighten the economic embargo of material that would
assist Iraq in its weapons of mass destruction and other military
programs as well as reducing Iraq's receipt of hard currency outside
the UN sanctions regime."
Additional measures could have further refined and strengthened
the sanctions regime. These could have included provisions to es-
tablish sanctions assistance missions and install detection devices
on Iraq's borders to monitor the flow of goods across major com-
mercial crossings; to eliminate kickbacks by preventing unscrupu-
lous firms from marketing Iraqi oil and mandating public audits of
all Iraqi oil purchases; and to control or shut down the reopened
Syria-Iraq pipeline. This last option, especially, was an obvious,
feasible step that would have immediately reduced the flow of hard
currency to Baghdad. The other measures would have taken more
time and diplomatic capital, but the United States had enormous
leverage, precisely because it threatened military attack, and it
could have used its clout to tighten the noose. Syria and other
neighboring states, for example, could have been persuaded to co-
operate in containing Iraq in exchange for improved diplomatic
relations with Washington. This would have solidified long-term
containment and laid the foundation for improved political relations
in the region. As with other nonmilitary options for achieving
U.S. aims, however, such proposals to enhance containment were
cast aside and ignored.
The adoption of "smart" sanctions in Iraq was a diplomatic tri-
umph for the Bush administration. It was followed a few months
later by Iraq's acceptance of renewed inspections and Security
Council approval of a tougher monitoring regime in Resolution 1441.
Indeed, the Bush administration spent its first two years methodi-
cally and effectively rebuilding an international consensus behind

FOREIGN AFFAIRS .Juy/August2004 [1o3]

 GeorgeA. Lopez andDavid Cortright
containment. By the fall Of 2002, it had constructed the core elements
of an effective long-term containment system-only to discard this
achievement in favor of war.

DEMONSTRATION EFFECT

THE IRAQ CA S E demonstrates that intelligence estimates that fail to

take into account the success of past actions imperil future policy. As
Washington begins sensitive dialogues with Iran, Libya, Syria, and
North Korea about preventing the proliferation of WMD, this mes-
sage-specifically as it relates to sanctions and diplomatic pressure-
could not be more relevant.
The case of Libya shows that sanctions can indeed influence
regime behavior in the long term. Muammar al-Qaddafi was once
as much an outlaw as Saddam Hussein. But over time, and under
the weight of international sanctions, Libya accepted international
norms, ended its support of terrorism, and gave up its clandestine
efforts to acquire or build WMD. President Bush and other supporters
of the war in Iraq have attributed Libya's dramatic turnaround to
what Representative Tom Lantos (D-Calif.) termed the "pedagogic
value" of the war. But in reality, Libya's reversal began years before.
UN sanctions during the 199os brought about the negotiations that
convinced Libya to turn over suspected terrorists for trial in The
Hague. The State Department's 1996 report on global terrorism
stated, "Terrorism by Libya has been sharply reduced by UN sanc-
tions." Subsequent discussions with Tripoli led to cooperation in
the campaign against terror and, most recently, to Libya's full dis-
closure of prohibited nuclear weapons programs and cooperation in
disassembling them.
Senior officials from both the Clinton and the current Bush ad-
ministrations have confirmed that progress with Libya dated back
to the 199os. Flynt Leverett, senior director for Middle Eastern
affairs at the National Security Council in 2003, wrote that the Iraq
war "was not the driving force behind Libya's move. ... Libya was
willing to deal because of credible diplomatic representations ...
that doing so was critical to achieving their strategic and domestic
goals." Seif al-Islam al-Qaddafi, influential son of and heir apparent

[1021 FOREIGN AFFAIRS' Volume83No. 4

 ContainingIraq: Sanctions Worked
to Qaddafi, told Le Monde that the U.S.-Libyan dialogue began
years ago and had nothing to do with the attack on Iraq. Of course,
sanctions were not the only factor in Libya's transformation. But
the desire to be reintegrated into the world economy was a power-
ful incentive for reform.
Having failed to understand how sanctions and inspections
worked in Iraq, the United States risks repeating its mistake in the
future. The crisis of intelligence that pundits and politicians
should be considering is not why so many officials overestimated
what was wrong in Iraq; it is why they ignored so much readily
available evidence of what was right about existing policies. By dis-
regarding the success of inspections and sanctions, Washington
discarded an effective system of containment and deterrence and,
on the basis of faulty intelligence and wrong assumptions,
launched a preventive war in its place.0

FOREIGN AFFAIRS July/August 2oo4 [103]

 Building Entrepreneurial
Economies
Carl 7. Schramm

POOR IMITATION

THE UNITED STATES, using its own direct-aid programs and its
influence over development agencies, has encouraged other nations
to adopt the features and institutions of post-Cold War American
capitalism. But this approach-the so-called Washington consensus-
has often yielded disappointing results. Many economies in Latin
America, eastern Europe, and elsewhere are stagnant or backsliding,
and most of the world's poorest economies show few signs of new
life. Going forward, the American economic model should not be
abandoned, as some development economists advocate, but it must
be improved. The current template is incomplete. In particular,
it fails to reproduce a vital element of the U.S. economy: support
for entrepreneurship.
Not only does the United States have a high rate of new business
starts, it breeds a constant flow of new high-impact firms-the kind
that create value and stimulate growth by bringing new ideas to market,
be they new technologies, new business methods, or simply new and
better ways of performing routine tasks. These firms do not appear
automatically, as a natural by-product of having free-market institutions.
Nor are they the result of any single factor. Rather, the United States
has evolved a multifaceted "system' for nurturing high-impact entre-
preneurship-a system that, with the right development policies,
might be cultivated in many other countries as well.

CARL J. SCHRAMM is President and Chief Executive Officer of the

Ewing Marion Kauffman Foundation.

[104]
 Building EntrepreneurialEconomies
Such an approach has been missing so far. The Washington con-
sensus focuses on macroeconomic issues such as finance and trade,
along with general institution building. Nations are urged to create good
banking systems, reasonable interest and exchange rates, and stable
tax structures. They are expected to privatize, deregulate, and invest
in infrastructure and basic education. Entrepreneurship, meanwhile,
is considered only as an afterthought and in piecemeal fashion. Some
policymakers, for instance, have suggested that venture capital firms
should be added to the list of financial institutions that developing
countries ought to have. But venture capital will do no good without
ventures to support. Micro-enterprises are not sufficient either. Ex-
isting programs to support small businesses, such as those promoted
by the U.S. Agency for International Development and nongovern-
mental organizations, offer livelihoods to many people. But these
ventures tend to involve cottage industries that add little to the economy
in terms of productivity or growth. Even micro-entrepreneurs with
great potential cannot succeed without national mechanisms to feed
and sustain them. Nor can a developing nation prosper in the long
term only by attracting outsourced work, which has a disturbing ten-
dency to migrate to still lower-cost locales. Real opportunities arise
only when a nation is the initiator: a breeder of new firms, based on
new ideas that add unique value.

START-UPS' STARRING ROLE

THE SYSTEM that generates and supports entrepreneurship in the

United States is surprisingly unappreciated. Perhaps this is because
when modern economic thought first took shape in the early and
middle decades of the twentieth century the West already had a mature
industrial economy. With a universe of large corporations and modern
equity markets already in place, economists were preoccupied with
impersonal market forces, business cycles, capital markets, and govern-
ment stimuli via fiscal and monetary policy. Microeconomic thinking
also focused on big-firm behavior, rather than on the start-up process.
Few people realize how many Americans today still make their living
in entrepreneurial settings. More than oo,ooo "employer firms"
(businesses with employees) are started in the United States every year.

FOREIGN AFFAIRS .July/August 2004 [105]

 Carlj.Scbramm
The latest Global Entrepreneurship Monitor (GEM) survey, funded
by the Ewing Marion Kauffman Foundation, found that in 2003,
approximately 1i of every loo working adults in the United States
were engaged in entrepreneurial activity, either starting a business or
playing a lead role in one less than three and a
The ability to support half years old. That rate is higher than any in
Europe and roughly twice that of Germany
or the United Kingdom. And although most
vital element of the Americans work in large or mid-sized firms,
research for the U.S. Census Bureau and
U.S. economy, others has found that most net newjobs are
created either by start-up activity or by firms in a rapid-expansion
phase. Among other benefits, this relieves the nation's mature companies
from being hobbled by guaranteed-employment practices. Instead of
maintaining jobs artificially, they can trim staff as needed to stay com-
petitive, with the entrepreneurial base cushioning the blow by providing
a steady supply of new jobs.
The United States is also unusual in that many of its big, strategically
important corporations were created very recently. Dell and Cisco
Systems, for example, were started in 1985 and 1984, respectively. New
firms have been national leaders in creating wealth and raising living
standards: Charles Schwab has pioneered low-cost securities trading,
enabling more people to participate in equity markets, while large
retailers such as Wal-Mart have reinvented business models, reducing
the cost of consumer goods.
Overall, new firms play two essential roles in the U.S. economy. First,
they are engines of innovation. Although large, established firms inno-
vate, they tend to do so only in certain ways, wary of straying too far from
their existing lines of business. Compare the birth of two industries:
nuclear power and software. Innovation in the first was driven mainly
by big companies such as Westinghouse Electric that were already in the
power-generation business. By contrast, there was no software industry
in the early days of computing. Computer programs were either custom-
written or sold along with the machinery; writing and selling them
separately, for widespread use, was not seen as a viable business strategy.
People such as John Swanson, an engineer who left Westinghouse in
1969 to become an entrepreneur, turned this conventional wisdom on its

[10o6] FOREIGN AFFAIRS - Volume83 No. 4

 Building EntrepreneurialEconomies
head. Realizing that the kind of design work he was doing could be
greatly enhanced by writing a general-purpose computer simulation
program, he started a company now called Ansys. Its software has been
used to help design goods ranging from automobiles to shoes. Thanks
to the efforts of thousands of similar entrepreneurs, the software indus-
try has done what nuclear power was once expected to do: benefited
every sector of the economy and spurred tremendous growth.
The second essential role that new firms play in the U.S. economy
is smoothing the exigencies of the business cycle. Time and again, the
breeding of new companies, new jobs, and new industries has helped
pull the economy out of a slump and fuel a rebound-as occurred
after the recession in the early 199os. Japan, in contrast, has many in-
novative large firms but the lowest per-capita rate of entrepreneurial
activity of 37 countries studied by GEM-a possible explanation for its
prolonged stagnation.
Entrepreneurship is thus what enables American-style capitalism
to be generative and self-renewing. The problem confronting
policymakers is to model the entrepreneurial dimension of the U.S.
economy in a way that is comprehensive enough to capture all the
important dynamics and is also transferable to other economies. Such
a model is proposed here.

THE FOUR-SECTOR MODEL

THE AMERICAN entrepreneurial system involves four sectors of the

economy: high-impact entrepreneurs, large mature firms, the govern-
ment, and universities.
The first sector is inhabited by new firms. The people who start them
need not be scientists or inventors of new products themselves. Henry
Ford did not invent the automobile and Michael Dell did not invent any
computer technology. Both built their firms largely around production
and marketing ideas, freely borrowing from existing concepts.'

'Ford's moving assembly line was famously said to have been inspired by a meat-
packing plant. To this model he added a vigorous dealer network, making the automo-
bile a mass-market good. Dell lowered the cost of PCs by building them to order rather
than carrying inventory and by selling directly so as to eliminate the dealer-two ideas
that have been used in other industries.

FOREIGN AFFAIRS .July/August2004 [lO7]

 The Four-Sector Model

The American entrepreneurialsystem involvesfour sectors ofthe economy.

high-impact entrepreneurs,maturefirms, the government,and universities.

__ Venture
-funds and
~personal savings

t
apital

R&D
funding

IIMature firms III Government IV Universities

Endowment
Equity and debt Tax revenue income

[0o8 ] FOREIGN AFFAIRS Volume3 No. 4

 BuildingEntrepreneurialEconomies
New companies require more than just ideas, however: money,
skilled people, and other resources are also needed. In the United
States, entrepreneurs often obtain these things from large, mature
firms-the second sector. Business mythology portrays new firms as
adversaries of established ones, with the nimble newcomers trying to
outwit lumbering dinosaurs who are in turn trying to flatten the
upstarts. Something like that may occur at times, but a powerful
symbiotic relationship is more common.
There are several ways in which new and established businesses
work together. First, and most obvious, established firms often become
customers of the new firms. U.S. corporations have learned to use
new companies as reliable sources of innovation, buying from them,
for example, specialized software and business services or components
that can be embedded in their own products. Second, large U.S. firms
today effectively "outsource" much of their research and development
to start-ups. Rather than take on all of the effort and risk of developing
an idea internally, they help a new firm do so, via strategic investments
or working partnerships. There are many twists on this strategy. Intel,
for example, tries to build markets for its chips by investing in com-
panies that develop new systems and products that will use the chips;
it has invested in more than a thousand such start-ups. Third, once a
new company has developed a good product, a larger outfit often
simply buys the start-up, thus acquiring a complete package of proven
technology and expertise. This practice is now common in the phar-
maceutical and health care product industries. Finally, mature firms
support start-up firms by providing human capital. Bright young people
often develop their skills and learn about a particular industry by
working at a big corporation, and then leave to start or join a new one.
The third important contributor to entrepreneurship is the gov-
ernment, which, in the United States, uses some of its tax revenues
to foster new businesses. One way it does this is by funding large
programs that traffic in innovation, such as defense and space explo-
ration. The Department of Defense is always in the market for new
systems and technologies, not only for weaponry, but also for com-
munications, intelligence, logistics, and support. Government agencies
also invest directly in new firms through channels such as the Small
Business Innovation Research Program and the Central Intelligence

FOREIGN AFFAIRS .Ju/y1/August2004 [1o9]

 CarlJ.Schramm
Agency's In-Q-Tel venture fund. More indirectly, the U.S. gov-
ernment promotes entrepreneurship by funding research in fields
of knowledge from information technology to medicine and the
physical and human sciences. Total federal spending on research
and development equals about one percent of U.S. GDP. Although
some of this funding goes to the government's own laboratories (such
as Argonne and Sandia) or to private firms and industry consortia,
much of it flows into the fourth sector of the U.S. entrepreneurial
system, the nation's universities.
U.S. universities generate a constant flow of ideas for new businesses.
Since the 196os, the number of faculty members and students doing
university research has expanded greatly, due to investment from both
the federal and the state governments. An invention or discovery moves
out of a university into the entrepreneurial sector when investors and
businesspeople help to form a company that commercializes the idea.
Typically, universities own a share in any patent developed on their
premises and will then license these rights in exchange for an equity
share of the new company. (The Bayh-Dole Act ofi98o, which allowed
this process to be followed even for discoveries and inventions derived
from federally funded research, greatly accelerated the transfer of tech-
nology from universities to the U.S. economy.)
The resulting economic growth has been tremendous. It has
been estimated that the companies spun out from just one university,
the Massachusetts Institute of Technology (MIT), would constitute
a nation with the twenty-fourth largest GDP in the world. Returns
to the universities also have been significant. Earnings from just one
spinoff company, Lycos, enabled Carnegie Mellon University to
construct a new building and create three endowed faculty chairs.
Research professors often take leaves to help start a new company,
typically holding a title such as "chief technology officer" while an
experienced businessperson manages the firm.

PRACTICAL STEPS

THE FOUR-SECTOR MODEL of the U.S. economy provides a useful

framework for guiding policies to promote entrepreneurship in the
developing world.

[11o] FOREIGN AFFAIRS Volume8JNo. 4

 BuildingEntrepreneurialEconomies
With respect to the first sector, developing nations must establish
certain underlying conditions that allow the entrepreneurial process
to flourish: favorable business policies and regulations, and access to
investment and human capital. U.S. laws make it easy to start, fund,
grow, and sell a company. An American citizen can incorporate a new
business under state law and obtain all the federal identity needed from
the Internal Revenue Service in an afternoon. U.S. tax laws encourage
private investment in new firms, and bankruptcy laws provide an orderly
end to a failed business, reducing the risk for creditors and allowing
entrepreneurs to start anew.
In many developing countries, by contrast, starting a business is
fraught with expensive and time-consuming red tape. The Peruvian
economist Hernando DeSoto notes that entrepreneurs and property
holders in such countries will often adapt by
setting up a complete parallel economy out- With the right policies,
side the law, with its own complex rules and
written contracts. An oft-cited drawback of the U.S. system of
this approach is that the government does entrepreneurship could
not get tax revenue. But perhaps the greater be cultivated in other
cost is that the entrepreneurs involved are
seriously constrained by the resources and countries too.
horizons of their underground world, finding
themselves unable to attract major investments, recruit skilled man-
agers and technicians from outside, or legally protect, convert, and
transfer their assets. The "official" economy, meanwhile, remains
the province of a select few: privileged insiders, existing firms, and
state-related enterprises.
Another important factor in the first sector is sources of capital for
new firms. Development experts tend to focus on replicating the U.S.
venture capital system. The system is a powerful one, but many
entrepreneurs do not even want venture capital, since they would
have to give up a great deal of ownership and control in exchange
for the investment. Most of the firms on Inc. magazine's list of the
500 fastest-growing small companies in the United States have not
used venture capital. And despite the common misconception, venture
capitalists do not usually provide start-up money. In 1996, according
to the National Venture Capital Association (NVCA), 77 percent of

FOREIGN AFFAIRS July/August 2004 [ill]

 CarlJ.Schramm
venture-capital-funded companies were at least three years old when
they received their first round of investment. That changed during
the Internet start-up frenzy, but normal patterns have returned since
then. In the first quarter of 2004 (again, according to NVCA figures),
only 17 percent of venture-capital dollars in the United States were
invested in "early stage" companies, with the rest going to "expansion
stage" and "later stage" firms.
Entrepreneurs in the United States get early-stage capital from a
variety of sources. Many take second mortgages on their homes, as
the founders of Cisco Systems did. Many make liberal use of credit
cards for short-term operating funds. Virtually all solicit investments or
personal loans from family and friends. Some find wealthy individuals
called "angels"-frequently successful entrepreneurs themselves-who
provide advice and contacts along with money. And once they are started,
many entrepreneurs "bootstrap" their firms, reinvesting revenues or
obtaining bank credit.
In countries where personal wealth is not as widespread as it is
in the United States, emulating this diversity of financial resources
will not be easy. But the process might be started by persuading
wealthier individuals to invest in new ventures (perhaps through tax
incentives), or encouraging banks and pension funds to commit a
portion of assets to such ventures. Moreover, countries' labor policies
should not tie economic security to long-term employment. Americans
have many close-at-hand ways to obtain support for starting a company,
and at the same time they have little incentive to stay with a big firm
for job security.
The Washington consensus approach to development-which
stresses privatization of state-owned companies and the freeing up of
local business environments to help existing firms-already has a
positive impact in the second sector, that of large firms. But more
needs to be done to induce a real symbiosis between established firms
and entrepreneurs. First off, developing countries must ensure that
there is a level playing field between old and new firms. The United
States tries to achieve this in a variety of ways, such as by protecting
intellectual property and discouraging monopolies and unfair trade
practices. Developing nations must resist pressures from existing
businesses to preserve markets and prevent innovation. And the "treaty"

1112] FOREIGN AFFAIRS" Volume83No. 4

 BuildingEntrepreneurialEconomies
between large and small firms must be built on an understanding that
large firms benefit from entrepreneurial activity. The most promising
entrepreneurs should be helped to find big corporations as partners-
which, in today's global economy, can include corporations based in
the United States or elsewhere. Developing countries' own large
firms and government agencies also could be given incentives to
"farm out" and support employees who have good ideas for starting
spinoff companies.
In the third sector--the government-nations should do as much
as possible to invest in infrastructure that supports entrepreneurship.
South Korea offers a good example with its efforts to promote end-
user connectivity to the Internet. An estimated 6o to 70 percent of
the country already has high-speed broadband access. One rationale
for this investment has been to make government more efficient and
responsive by moving citizens' interactions online. But the policy is
also helping to build a countrywide platform for entrepreneurship:
every South Korean will soon be linked to massive online flows of
knowledge and to online markets.
Another infrastructure investment that can help entrepreneurs is
subsidizing laboratories and testing facilities for shared use, which
young technology firms often need but cannot afford on their own.
Shared facilities also encourage entrepreneurs to cluster geographi-
cally, as they do in the United States-gathering in certain cities or
around research universities-thereby gaining a dense network of peers
for partnering and mentoring.
In the fourth sector, the Washington consensus rightly calls for
countries to invest in education, but it emphasizes primary education.
Higher education should be made a priority, too. Consider India:
in 1951, shortly after gaining independence, it launched the Indian
Institute of Technology (IT), modeling it on world-class universities
such as MIT. This may be one of the best decisions a newly liberated
nation ever made. The IT now has seven campuses across India. Its
alumni make up part of India's formidable and growing professional
class (the group from which many high-impact entrepreneurs
emerge), and it has fueled interest in primary education by giving
young Indians and their parents a great university toward which to
aim. A similar approach has also benefited older industrial nations

FOREIGN AFFAIRS .Juy/August2004 1113]

 CarJ Schramm
with stalled economies. In recent decades, the government of Ire-
land has invested heavily in higher education, which has helped
produce a period of rapid growth, accompanied by a dramatic in-
crease in high-tech business start-ups, that has been dubbed the "Irish
miracle." Universities not only train skilled people; they also attract
them. In the United States, for example, about one-fourth of the
new businesses in Silicon Valley since 198o have been started by
immigrants, many of whom were first drawn to the region to study
or teach at its universities.
High-impact entrepreneurship will thrive most in countries that
pay proper attention to all four sectors of the entrepreneurial system.
China is an example of a developing nation that currently does this.
While adopting policies that actively encourage entrepreneurship,
Beijing is pushing to have more of its college-age population enrolled
in higher education, for example. And it is developing high-skill,
high-tech business in tandem with low-wage contract manufacturing,
steelmaking, and other basic industries. China seems to understand
that the commodities it currently manufactures can be obtained
from less developed countries-and that many of the world's highly
sought-after goods will come from laboratories, skilled people, and
entrepreneurs. As a result, it may well arrive at its post-industrial
stage very quickly.

THE CULTURE CHIMERA

CRITICS may object that the four-sector approach does not give
enough weight to cultural factors. It is often argued, for instance, that
whereas "individualistic" cultures such as that of the United States are
conducive to entrepreneurship, more "collectivist" cultures are not.
Yet the example of China, with its communist cultural legacy, suggests
that this objection is weak. The cultural argument also looks flimsy
in light of U.S. history. American culture in the 195os was by no
means favorable to entrepreneurship. Bright young men of that era
were expected to join an established firm and climb the ladder while
their wives stayed home taking care of the children. William Whyte's
book The OrganizationMan warned that the United States was
becoming a "nation of bureaucrats," with a "conspiracy of the mediocre"

I[L11 FOREIGN AFFAIRS Volume83No.4

 Building EntrepreneurialEconomies
threatening to stifle innovation. Yet by the 198os, a potent new gen-
eration of entrepreneurs had emerged, and people such as Steve Jobs
and Bill Gates quickly became national icons.
Developing countries and development agencies, then, should not
worry too much about cultural intangibles. They should try to emulate
the practical features of the U.S. entrepreneurial system, as expressed
in the four-sector model, with the knowledge that culture can change
as incentives and conditions change. Encouraging entrepreneurship
may do developing countries more good, in terms of long-term
growth and gains in productivity, than policies aimed at accelerating
near-term growth. And as individuals step into the market, assume
risk, and work to turn their aspirations into businesses, they will
insist on political and economic liberalization-the very goals prior-
itized by the Washington consensus. Ironically, entrepreneurs, who
are by nature agents of change, may prove to be among the most
important forces for global stability.0

FOREIGN AFFAIRS .July/August2004 [1115]

 China's Hidden
Democratic Legacy
Orville Scbell

A STARTING POINT FOR REFORM

EVER SINCE Deng Xiaoping began to undercut Mao Zedong's

revolution in late 1978, halting and then attenuated political reform
has been the hallmark of China's ruling Communist Party. Notwith-
standing the tectonic events of 1989, this high-wire act between too
much and too little political and economic reform has kept China
relatively stable for almost a quarter of a century. But it has also left
the People's Republic of China (PRC) in a state of extreme contradiction,
its newly adopted market economy straining against a political structure
borrowed from Stalin's Russia. Whether the PRC will be able to continue
straddling the widening divide between its economic system and its
anachronistic political system is the most crucial question that China
faces-especially if the current boom turns to a bust.
No one knows where, in its very energetic way, China is expecting
to go. But it is becoming more and more difficult to imagine that it
can continue to transform itself into a more stable, cosmopolitan,
and global country without a clearer sense of its ultimate political
destination. The Chinese Communist Party has so far prevented
the sort of directed, public discussion that could lead to such a vi-
sion. As Beijing University professor Jiao Guobiao said recently,
"[Chinese intellectuals] are supposed to act like children who
never talk back to their parents." But China's leaders cannot fore-
stall debate forever.

ORVILLE SCHELL is Dean of the Graduate School of Journalism at the

University of California, Berkeley, and the author of many books on China.

[116]
 China'sHidden DemocraticLegacy
When the time for national discussion does finally arrive, what
process might the Chinese people use to decide how it should advance
and what it should become? Where should contemporary Chinese
intellectuals, politicians, and leaders turn for ideas and potential
models? In short, how should China go about the task of politically
reinventing itself? Fortunately, China is able look to its own past for
ideas, if not answers.

THE FIRST (AND LAST) LIBERAL AGE

ALL TOO MANY discussions of democracy in China have foundered

precisely because they were viewed as overly U.S.- or Eurocentric.
Indeed, when it has come to the prospect of importing political ideas
directly from the West in the recent past, China has frequently
evinced something akin to a tissue-rejection mechanism. (Ironically,
the one "ism" that did successfully seduce the Chinese-Marxism-
Leninism-was imported from the West.) This sensitivity toward
"foreign borrowing" means that, to be successfil, Chinese democrats are
advised first to draw on indigenous wellsprings of democratic thought.
Since 1949, the PRC has been an authoritarian state that has, aside
from a few spasmodic moments, systematically limited free and open
discussion. It is important to remember, however, that China's mod-
ern political history did not begin with the victory of communism in
1949. In fact, in the first decades of the twentieth century-when, after
the fall of the last imperial dynasty in 19n, the Chinese last found
themselves searching for a new political beginning-China was a
fermentation vat of free thinking, political inquiry, open discussion,
self-criticism, research, and writing. Then as now, China found itself
in a period of profound transition. The national conversation that
began in the final years of the Qng dynasty during the 189os and lasted
until the Japanese occupation in the early 193os has clear relevance for
the challenges of China's current need for political self-reinvention.
This "Chinese Enlightenment" was started by the likes of Kang
Youwei, Yan Fu, and Liang Qlchao, three classically trained scholars.
In searching for ways to reform their country's imperial systems of
education and governance-to bring back China'sfuqiang,or wealth
and power-they turned outward, breaking with Confucianism's

FOREIGN AFFAIRS .July/August 2004 [117]

 Orville Schell
tradition of insularity. They became the first generation in China to
embrace foreign ideas and institutions, including the notions of con-
stitutional monarchy, republicanism, and democracy, which where
considered every bit as unorthodox and heretical by the imperial
establishment as they are by the Communist Party establishment today.
In the face of new ideas challenging Confucian traditionalism and
accompanying calls for reform and revolution, the Qing dynasty fell,
plunging China into a period of chaotic change. Intellectuals began to
search urgently for new cultural and political answers, creating an envi-
ronment charged with inquiry, iconoclasm, and intellectual vigor.
Listening to some of these century-old voices, it becomes clear not only
that China has a legacy of vibrant discussions that focused on reinventing
its system of governance, but also that many of the leaders and thinkers
who led those discussions were of towering intellect and sophistication,
which are all of enormous relevance to China's current predicament.
In criticizing the emperor's unilateral power at the end of the Qing
dynasty, reformer Kang Youwei called for complete reform. He was one
of the first Chinese thinkers of consequence to declare that change was
the most basic and dynamic force in history and that China would
perish if it did not find a way to break the embrace of traditional think-
ing that clung to the past as the only model for the future. In addressing
the young emperor Guang Xu in 1898, Kang boldly proclaimed, "Today
it is really imperative that we reform. It is not because we have not talked
about reform, but because it was only slight reform, not a complete one.
We change the first thing, but do not change the second, and then we get
everything so confused as to incur failure, and eventually there will be no
success. ... The prerequisites of reform are that all laws and the political
system and social systems be changed and decided anew, before it can be
called reform." Still speaking to the emperor's face, Kang added, "Most
of the high ministers are very old and conservative, and they do not
understand matters concerning foreign countries. IfYour Majestywishes
to rely on them for reform, it will be like climbing a tree to seek fish."
When Emperor GuangXu was deposed, Kang paid for his boldness
with exile, like many contemporary Chinese dissidents who languish
abroad. His advocacy of constitutional monarchy had threatened the
whole autocratic system of imperial rule by challenging the idea of
tianming-the mandate of heaven, the notion that imperial rule was

11181 FOREIGN AFFAIRS Volume8 3 No. 4

 CORBIS

A mode/citizen ?AstrophysicistFangLizhi,Cambridge, U K, 199o

sanctioned by cosmic forces, just as the monarchs of Europe were once

believed to be sanctioned by the "divine right of kings." Kang's clarion
call for a new kind of polity was radically different from anything that
Chinese had heard for millennia, as bold as today's calls for democracy
are in confronting China's Marxist-Leninist political system. "It was
like a cold shower for me, or a blow right to the head with the Zen
master's staff, suddenly depriving me of my defenses, leaving me dazzled
without knowing what to do," wrote another reformer, Liang Qichao,
after meeting Kang. Liang was left feeling "shocked and delighted,
embittered and remorseful, frightened and uncertain."
In his turn, Liang, a classical scholar who had become interested in
foreign ideas while traveling in Japan and the United States, soon also
became convinced that the Chinese government's relationship to its
citizenry was in need of a radical reformulation. "Treat the people as
slaves, guard against them as against brigands, and they will regard
themselves as slaves and brigands," he wrote darkly of the Confucian
political hierarchy, which demanded obedience of inferiors to superiors.
At first, such iconoclastic voices went mostly unheard, especially by
a mass audience. But as this intellectual ferment grew, China's mass
media also started to come of age. In the six months following the May

FOREIGN AFFAIRS July/August 2004 [119]

 Orville Schell

4 th Movement (the 1919 populist movement in favor of "science and

democracy"), some 400 new publications, with names such as The
New Atmosphere and The New Learning, were started to spread the
gospel of reform. As Columbia University scholar Andrew Nathan
has noted, "the new political press soon surpassed the commercial
press in numbers, circulation and liveliness." Liang and his activist
colleagues welcomed this fluorescence. "Government is entrusted by the
people, is the people's servant," wrote Liang. "So a newspaper regards
the government the way a father or elder brother regards a son or younger
brother--teaching him when he does not understand, and reprimanding
him when he gets something wrong."
In trying to formulate the proper relationship between China's
incipient new press and a new form of government, Liang hoped that
the beginning of the twentieth century would prove a time when "as
many doctrines of the world as possible" could be freely brought into
China as a way of"jolting it into modernity." In his 1899 introduction
to his Notes on Freedom, Liang quoted John Stuart Mill: "In the
progress of mankind, there is nothing more important than freedom
of thought, speech, and of the press."
It was through free speech, an idea that was just being introduced
to China, that Liang hoped to educate "a new citizenry" for China's
new republican future. He wrote, "A free society and a republican
nation demand only that the individual have the power of free choice
and that he bear the responsibility for his own conduct and actions. If
this is not the case, then he does not possess the ability to create his
own independent character. And if society and the nation do not pos-
sess independent character, they are like wine without yeast, bread
without leaven, the human body without nerves. Such a society has
absolutely no hope of improvement or progress." Genuflecting to the
American Revolution, Liang even opened one chapter of an essaywith
Patrick Henry's well-known cri de coeur."Give me liberty or give me
death!" He went on to proclaim elsewhere that "liberty is a universal
principle, a necessary condition of life, and is applicable everywhere."
But, like Kang and many other classical scholars who became enam-
ored of reform, Liang was also deeply fearful of abandoning the entire
corpus of traditional thought, culture, and political institutions-
lest China lose its bearings and its sense of self and become lost and

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 China'sHidden DemocraticLegacy
unstable. Indeed, it is a familiar Chinese story: reformers who understand
that the future requires bold new thinking and action but that moving too
quickly risks uncertainty and chaos. There thus was, and still is, a deeply
conservative strain in most Chinese political reform movements.

MERGING EAST AND WEST

WHAT distinguished these pre-Marxist Chinese intellectuals was their

interest in combining foreign ideas with Chinese elements to develop a
new synthesis. At heart, they were pragmatists, not idealists. Although
they were drawn to the Frenchphilosophesand the experiment launched
by the American Founders, they also read the English and Scottish
utilitarians. Liang and his counterparts struggled to synthesize these
strands: the imperatives of individualism, freedom, and democracy and
the need for a strong state that could restore Chinese unity and pride. (Of
course, a similar tension was present at the U.S. Founding between John
Adams, the Federalist, and Thomas Jefferson, the Republican idealist.)
As postimperial China disintegrated, Liang focused much of his
thought on how to create a new kind of effective government power
without hobbling it with too much democracy. Ultimately, in his
brand of syncretic liberalism, societal and state interests almost always
ended up triumphing over those of the individual. Human rights
were viewed not so much as "natural" (much less as "God-given," as
the philosophes and Jefferson had believed) but as something that an
intelligent government would want to confer on its citizens in order
to motivate them to constructive action.
Liang's intellectual framework, especially as it developed in his later
years, came to form something of a template for "liberal" political
thought in China. In fact, one of those influenced by Liang's thinking
was the Cantonese medical doctor Sun Yat-sen, a nationalist dedicated
to curing Chinas humiliation by forming a new government that was
both strong and essentially republican.
Although Sun lived abroad for many of his formative years, his
ideas for remaking China came to play an important role in the debate
about how China would be governed without an emperor. He disparaged
China as a semicolonized "heap of loose sand," "one of the poorest
and weakest nations in the world," and in danger of "being lost or

FOREIGN AFFAIRS .Ju/y/August2004 [IL21]

 Orville Schell
destroyed" by foreign domination. If his fellow Chinese wished "to
avert this catastrophe," he admonished, they must "espouse nationalism
and bring this national spirit to the salvation of the country." Sun was
an advocate of outright revolution against the Qing dynasty rather
than piecemeal reform leading toward a constitutional monarchy. He
envisioned Chinese republicanism developing in three progressive
stages, by a process he called "guided democracy," which he spelled
out in his classic, The Three Principlesof the People.
But although Sun believed that China's salvation would come from
greater democracy, it was "the liberty of the nation," not individual
liberty, that he most ardently sought. Indeed, he feared that too
much individualism and democracy would
Chinese reformers only exacerbate China's plight. So it was
not surprising that he, too, called for strong
struggled to balance executive leadership, a provisional constitution,
democracy and and training of the people in local self-
individualism with the government during a period of authoritarian
"tutelage." Like Liang, he was hardly an
need for a strong state. advocate of unrestrained (much less "inalien-
able") individual rights. He wanted a process
that would lead to a strong China, one that could defend itself and
stand up to the predatory powers that sought to dismember it. He was
a democrat (and went on to become president of the short-lived
Chinese republic), but democracy, for him, was a tool for helping
China cast off the bonds of foreign imperialism, not a goal in itself.
The Chinese intellectual most profoundly influenced by the
Enlightenment and Jeffersonian ideals was the U.S.-educated scholar
Hu Shih. He venerated Liang and, like him, tried to determine what
aspects of the Western liberalism he had come to know while studying
in the United States in 191o-7 were congruent with the salvageable
parts of traditional Chinese culture. Hu came out of the New Culture
and May 4 th Movements animated by the writings of Liang and Kang.
Such movements were fed by the the eruption of popular sentiment
against foreign domination that was triggered by the Treaty of Versailles
and that had generated among intellectuals the belief that China's sur-
vival as a nation demanded both political and cultural reformation. But
during this period ofgrowing Chinese nationalism, Hu remained deeply

[1 2] FOREIGN AFFAIRS" Volume83 No. 4

 Cbina'sHidden DemocraticLegacy
enamored of the American political experience and championed the
ideas of freedom, democracy, science, progress, the sanctity of individ-
ual rights, and the need for a system of law to protect those rights. "The
rights of man cannot be guaranteed, and a system of law established, by
an ambiguous mandate," he wrote. "Government by law means that
no action of government officials shall go beyond the law." Even after
China's republican experiment collapsed into warlordism, Hu urged his
country not to give up on democracy. Unlike Sun, he held that democ-
racy was not something that should come only after the citizenry
had been prepared for it in a period of authoritarian rule; rather, he
proclaimed, "The only way to have democracy is to have democracy."
At the same time, Hu steadfastly rejected the idea of total revolu-
tion espoused by those enamored of Marxism and Leninism. He came
down instead in favor of a gradualist process, driven by foreign bor-
rowing when needed, a commitment to individual rights, and a belief
in the need for a strong constitution to protect those rights. But this
commitment to gradualism did not mean that Hu thought it possible
for China to reform itself through what he called "lazy evolution." He
advocated "conscious reform," which presupposed clear analysis, well
defined goals, and an Enlightenment belief in the universality and in-
herent quality of individual rights (rather than only in their utilitarian
value as a tonic for national weakness). This belief soon divided him
from many of his fellow intellectuals, who were seduced by Marxism.
What strikes one about Hu's elegant prose today is not only his in-
tellectual curiosity, erudition, and honesty, but also that he wrestled with
many of the same questions that face the current generation of Chinese
reformers, who, unlike him, have been denied the latitude to discuss them
publicly. Hu confronted these questions head-on, ignoring the strait-
jacket of orthodoxy while disparaging the notion that China might be
incapable of facing the challenge of reform. He was a rarity in China: an
independent intellectual who was also an idealist and a democrat.

CONTEMPORARY ECHOES

DIPPING BACK into the intellectual ferment that marked the first
half of the twentieth century and comparing it to the stilled public
dialogue today, it is easy to feel wistful for a time in China when

FOREIGN AFFAIRS .July/August2004 [123]

 Orville Schell
debate was common, ideas and discussions mattered, and thinkers
were open to the world and able to speak freely. Kang Yuowei, Liang
Qichao, Hu Shih, and Sun Yat-sen were only a few of scores of well-
known, politically engaged intellectuals who peopled China's first
and last "liberal age." As they absorbed foreign ideas of every kind and
tried to graft them onto China's own past traditions, they wrestled
with almost every political question imaginable, especially how to
reformulate the relationship of citizen to state.
A more recent Chinese "democrat" in this tradition is the astro-
physicist Fang Lizhi, vice-president of the Institute of Science and
Technology of China during the late 198os (just before the student
demonstrations of 1989), the most politically open and intellectually
vibrant period since the May 4 th Movement 6o years earlier. Fang rose
to prominence in 1986, as he traveled from university to university fear-
lessly speaking out about the bankruptcy of China's one-party political
system and its need for scientific rationalism, freedom of expression,
political tolerance, human rights, democracy, and openness to the
outside world. Calling for a new program of intellectual and political re-
form, he launched a comprehensive critique of Communist Party rule.
Fang's uncensored speeches electrified students. Soon, they were
passing dog-eared copies of hand-transcriptions around the country.
But Fang's meteoric rise as China's first "establishment dissident"
alarmed leaders in Beijing to the point where they sacked him from
his job, expelled him from the Communist Party, and then sent him
into exile. Like other banished reformers, he is now relegated to the
margins of China's political discourse and largely ignored.
But as China grapples to find alternatives to the PRC's Marxist-
Leninist-Maoist legacy-as one day soon it must-intellectuals and
political leaders should be encouraged to remember that China has
another legacy to draw on: a cadre of founding father-like intellectuals
who envisioned a path to openness and democracy and even articulated
it in their native language. Their forgotten speeches and writings lie
in Chinese libraries and archives awaiting rediscovery, just as the
classics of Greek and Latin antiquity lay sequestered in medieval
monasteries awaiting the Renaissance.0

11241 FOREIGN AFFAIRS - Volume83 No. 4

 Reviews & Responses

AP/WIDE WORLD PHOTOS

GeneralMuhammadSalih, Falluja,Iraq,April3 o, 2004

The mistakes made by the

CIA in West Germany need not be
repeated in Iraq, but the sorry case of
General Jasim Muhammad Salih suggests
that U.S. recruitment is in disarray.
Berlin to Baghdad TimothyNaftali 126

First Principals Walter RussellMead 133

The Unsettled West JoshuaKurlantzick 136
The Fire Last Time Scott Snyder 144

Letters to the Editor 149

ForeignAffairs Bestsellers 152
 Review Essay

Berlin to Baghdad
The Pitfalls of Hiring Enemy Intelligence

Timothy Naftali

Partnersat the Creation:The Men Behind
Postwar Germany'sDefense and
Intelligence Establishments. BY JAMES
H. CRITCHFIELD. Annapolis: Naval
Institute Press, 2003, 243 pp. $32.95.
As the United States approached war with
Iraq in early 2003, some journalists turned
to an 86-year-old retiree for perspective.
A decorated World War II Army officer,
James Critchfield later joined the CIA and
became one of the nation's most influential
spies. The journalists called him because
of his stint supervising CIA activities in the
Middle East in the 196os, during which
he helped arrange the 1963 coup that over-
threw General Abd al-Karim Kassem and
set in motion the Baath Party's 40-year
domination of Iraqi politics. Had they
been sharper, they would also have asked
about the lessons of an episode from still
earlier in his career: his creation of the
foreign intelligence service of West Ger-
many from the ashes of the Nazi state.
Critchfield died two weeks after
the toppling of Saddam Hussein's statue
in Baghdad, but, fortunately, he had
been able to keep his cancer at bay long
enough to finish a detailed treatment
of his experiences in postwar Germany.
Part memoir and part history, the post-
humously published Partnersat the
Creationtells the story of the men behind
West Germany's emergence as a stalwart
member of the Atlantic alliance in the
1950s. Its discussion of building new
pro-U.S. security services from the rem-
nants of a defeated tyranny could not
be more timely: it serves as an uncannily
appropriate backdrop to the agonizing
dilemmas facing decision-makers in
Iraq today.

TIMOTHY NAFTALI is Director of the Presidential Recordings Program at

the University of Virginia's Miller Center of Public Affairs and co-author of
US. Intelligence and the Nazis.

[126]
 Berlin to Baghdad
chairman of NATO'S military committee
THE ENEMY OF MY ENEMY in the 196os.) "Germany's transition from
Partnersat the Creationfocuses on an enemy to an ally of the United States
Critchfield's mentoring of two of Hider's and the West was probably destined by
former generals, the controversial Rein- broader forces," Critchfield writes. "But
hard Gehlen and the lesser-known the ultimate success of this pivotal mo-
Adolf Heusinger, both of whom would ment in history should be credited in
ultimately play large roles in West Ger- no small part to Reinhard Gehlen and
many's national security community. the small circle of former German Army
During the war, Gehlen directed the General Staff officers at the center of
German army's intelligence organization the Gehlen Organization."
on the eastern front, the Fremde Heere Those in favor of the swift and extensive
Ost, while Heusinger was wartime chief rehabilitation of former Baathists and high-
of the operations division of the German ranking military officers in Iraq might well
army general staff. Heusinger participated cite Critchfield's experiences in West
in the resistance movement against Hider Germany as evidence of how successful
and was jailed for it in 1944; Gehlen did not. such an approach can be. Yet that would
A defender of old-fashioned realpolitik, not reflect the true balance sheet of U.S.
Critchfield credits U.S. success in occupied sponsorship of Gehlen and his crew, for
Germany to flexibility in handling former even Partnersat the Creationhints that
enemies, and he uses his own experiences the policy had significant flaws, and ob-
as an example. Washington's relationship servers more detached than Critchfield
with Gehlen began in 1945-46, when the might take a much dimmer view of the
U.S. Army, looking warily at its Soviet compromises involved.
counterpart, asked him to reconstitute Gehlen and the CIA, for example, never
both his wartime analytical group and agreed on how much information the
the intelligence networks that had fed Germans were required to reveal to their
Berlin information on the Soviet military. occupiers and patrons. "I think Gehlen's
Soon, the Gehlen organization ballooned inclination to be secretive with the Amer-
in size (it eventually comprised 4,000 icans about his organization was a major
employees), and the Pentagon was looking error," writes Critchfield. "When we
for help in subsidizing and handling it. So, reached what seemed to be an impasse
in 1947, the newly created CIA was brought on agreeing that he would provide essential
into the picture, and by 1948 the agency information, I closed my briefcase and
was Gehlen's sole sponsor, with Critchfield threatened to terminate my visit. Gehlen
in charge as the man on the ground. backed off and reverted to a compromise
Heusinger ran Gehlen's postwar analyt- on these issues that was acceptable, under
ical branch and was more pro-U.S. than the circumstances. However, the issue was
his colleague. From 1948 on, he believed never entirely resolved." At the end of
that Western Europe could not defend the book, Critchfield reveals that one
itself alone and that any future West of the costs of leaving this issue open was
German military would have to be closely that the CIA could not force Gehlen to
tied to NATO. (He would go on to become improve his group's operational security.

FOREIGN AFFAIRS .July/August2004 [127]

 Timothy Naftali
As a result, the Soviets found the Gehlen
organization easy to penetrate, and
Gehlen's own chief of counterespionage
against the Soviet bloc, Heinz Felfe,
eventually proved to be a KGB agent.
Only this year, in fact, has the public
learned the full extent of the moral and
operational costs of the U.S. govern-
ment's marriage of convenience with
these former Nazi intelligence officers,
and the Felfe case turns out to have
been merely the tip of the iceberg.
In accordance with the 1998 Nazi War
Crimes Disclosure Act, the CIA and the
U.S. Army have had to declassify thou-
sands of documents on their relationships
with Nazi war criminals. Gehlen himself
may never have been indicted for war
crimes, but we now know that at least
ioo of his employees were former
members of the ss.
To his credit, Critchfield assisted
the interagency working group (IWG)
supervising these declassifications and
made himself available to the historians
(including this reviewer) tasked with
providing initial assessments of what
the newly public documents revealed.
But he did not live to see the IwG's interim
report, which paints a significantly less
flattering picture of the bargain he and
the Germans struck.
A ONE-SIDED AFFAIR
Although Partnersat the Creationhints at
how difficult Gehlen could be, the book
sanitizes what was essentially a one-sided
relationship in favor of the Germans.
Gehlen was insubordinate, deceptive, and
incompetent, yet he continued to receive
rations for his employees and a large
monthly stipend of $175,ooo. In 195o-51,
the CIA seriously considered firing him,
[12 81 FOREIGN AFFAIRS' Volume83 No. 4
and it was only support from the incoming
German government of Konrad Adenauer
that got him off the hook. After 1951, there
was less controversy-but only because
the CIA stopped asking for background
information on the West German intel-
ligence agents it was funding.
The consequence of this "don't ask,
don't tell" policy was that for eleven years
U.S. taxpayers subsidized a foreign orga-
nization that employed war criminals.
Among the dozens of murderers and thugs
working for Gehlen was Konrad Fiebig,
hired in 1948, who had served with Ein-
satzgruppe B (a mobile killing unit) in
Belorussia and was later charged with
shooting u,ooo Jews. Erich Deppner,
who ran Gehlen's operations out of West
Berlin, had been deputy to Wilhelm
Harster, an ss brigadier general who
was Heinrich Himmler's representative
in the occupied Netherlands. Deppner
helped his boss supervise the deportation
of ioo,ooo Dutch Jews to the death
camps and was personally responsible
for executing Soviet prisoners of war
interned there. And Gehlen's chief Soviet
expert, Emil Augsburg, had been de-
tailed in 1939-40 to the special ss units
that executed Jews and communists in
Poland and later did the same thing
in the western Soviet Union.
The CIA turned a blind eye to Gehlen's
protection of these people because it was
doing something similar itself. In its drive
to acquire human intelligence on the
Soviet Union, the agency allowed its field
officers to recruit former members of
Hitler's ss and excluded war criminals
only if their war crimes were a matter
of public record. As a result, it relied on
men such as Otto von Bolschwing, who
in the 193os had helped design the system
 AP/ WIDE WORLD PHOTOS

A dealwith the Devil: GeneralReinhardGehlen, 1943

for expropriating Jewish property in Aus-
tria and then, as Himmler's representative
in Bucharest, had instigated the brutal
1941 pogrom there. In 1953, the CIA
rewarded Bolschwing for his help by
pressuring the Immigration and Natural-
ization Service into allowing him into
the United States, and he subsequently
became a U.S. citizen.
These same policies led the CIA in
1959 to try to recruit Erich Rajakowitsch, a
resident of Italy then engaged in East-West
trade. During the war Rajakowitsch had
served as Adolf Eichmann's representative
in The Hague and personally supervised
the deportation of Dutch Jews from France
to the death camps in 1942. The only reason
Rajakowitsch did not become a U.S. asset
was because he refused the CIA's offer.
WHO WILL GUARD THE GUARDS?
In the aftermath of the September ii,
2oo1, attacks, there has been a lot of talk
about the importance of "unleashing"
the CIA. As one former national security
"principal" put it to me, Americans
should be prepared "to recruit people they
would not want to have dinner with."
It is true that the intelligence commu-
nity needs a more energetic and sustained

FOREIGN AFFAIRS .July/August2004 [129]

 Timothy Naftali
recruitment campaign. And it is equally
true that contacts with unsavory characters
sometimes prove beneficial. From the late
196os through 1978, for example, the CIA
had an apparently useful relationship with
Ali Hassan Salameh, Yasir Arafat's in-
telligence chief-and the mastermind
of the attack on Israeli athletes at the
1972 Munich Olympics.
But abandoning one's principles in
the quest for better intelligence can be
an expensive proposition. In occupied
Germany, the unregulated recruitment
of former enemies brought dishonor
to the country and operational failures to
the intelligence community. For those
seeking to reconstruct the Iraqi national
security system and to expand the CIA's
stable of useful Middle Eastern contacts,
the West German case ought to be a
cautionary tale.
One problem was the absence of real
checks and balances. On paper, Wash-
ington had to approve all recruitments,
but there is no evidence that Richard
Helms, who supervised the agency's
activities in Austria and West Germany
throughout the early Cold War, ever
turned down an operative because of
his past. CIA headquarters established a
climate that discouraged field officers
from digging too hard. Not until Israel
captured Eichmann in 196o, in fact, would
the CIA bother to look at the records of
captured Gestapo members to see how
many of these killers it had recruited.
The motivations of individual CIA
recruiters appear to have been generally
honorable. They feared the Soviets and
believed that all measures were permissible
in learning about this new enemy. The
problem was that no one at headquarters
or in the field had time to do a cost-benefit
[130] FOREIGN AFFAIRS" Volume83No.4
analysis of hiring the worst elements of
Hitler's regime. If they had, they might
well have paused.
Initially, former Nazi intelligence
officers were employed as "bird dogs"-
pointing out their former colleagues for
arrest by U.S. authorities. For the most
part, the Nazis did this very well, and had
the relationship ended there, the United
States would have gotten the better end
of the deal. But U.S. field officers found
it hard to let their agents go, and the
agents had an interest in keeping their
case officers happy.
Case officers are rewarded for the num-
ber of agents they recruit and the amount
of material they send home. Former enemy
intelligence officers understand this very
well and are adept at inventing networks
to meet the needs of their new bosses.
Former Nazis played this game, taking
the Americans to the cleaners and getting
nicely paid for work of no significance.
Former enemy intelligence officers also
understand how little their new bosses
usually know or want to know about their
backgrounds. The Allies captured the
personnel files of the ss, for example, but
the CIA did not always bother to check
those files before hiring agents. The re-
cruits complicated matters by lying about
their own participation in "resistance"
movements against the fallen tyrant. By
the time the U.S. government figured
out that its new friends were frauds, it was
stuck with a massive disposal problem.
Hiring former enemy intelligence
officers, even those not directly responsible
for war crimes, also opened the U.S. in-
telligence community and its local client
to penetration. Some ss men went over to
the Soviets and helped the KGB identify
people for recruitment. The KGB then
blackmailed these individuals into work- iZ11.1 WORLDTRADE
' & ORGANIZATION
ing as penetration agents by threatening
to reveal their crimes. WORLD TRADE REPORT
Finally, providing haven to former
instruments of a vicious dictatorship
plunged the United States into moral
and political corruption. Gehlen was
7204
not the only German allowed to protect PeaToic: e
oto
former members of the ss, and fascist I oC u
elements were permitted to poison
-00 fin es between
West German life for years.
domestic ,R4and
International
The United States, incidentally, was
hardly the only occupying power to A va'ffteternSber 2004
follow such a course. The Bundesamt
far Verfassungsschutz, the West German
domestic security service led after the
war by the British client Otto John,
systematically hired former Gestapo
officers, many of whom had served on * a *
the brutal eastern front. These men SZMM

were kept on a secret list so that they

could be paid without being formally
de-Nazified. (Neither Washington
nor London moved to shut down this
operation for fear of discomforting the
Adenauer administration.)
In the end, the rot spread far. The Soviet
Union and East Germany reaped benefits
from being able to sow doubt in West
Germany by suggesting that Nazi killers
were being protected by the Allies and
the Adenauer government. In the United
States, the need to cover up the protection
of Nazi war criminals led to the perversion
of the immigration process, stonewalling of
Congress, and a decision by the CIA not
to share with the U.S. Department of
Justice information on war criminals
residing in the United States.
LESSONS LEARNED
The CIA'S work with Gehlen, of course,
was not a complete failure. The Bundes-
THE WAR AFTER THE WAR
STRATEGIC LESSONS OF IRAQ & AFGHANISTAN
Anthony H. Cordesman
"The most incisive analysis of U.S. strategic
blunders in Iraq. "-Zbigniew Brzezinski
No one can predict how the combination of
nation building, low-intensity combat, and
Iraqi and Afghan efforts to recreate their na-
tions will play out over the short term. Re-
gardless, the United States must reshape much
of its approach to both countries if it is to win
even a limited form of victory. More generally,
it must react to the strategic and grand strate-
gic lessons of both conflicts to reshape its de-
fense and foreign policy, as well as the way the
U.S. government isorganized to deal with ter-
rorism and asymmetric warfare.
The CSIS Press 96 pp. June 2004
ISBN 0-89206-450-1 $15.95 (pb)
www.csisbookstore.com

[131]
 Timothy Naftali
nachrichtensdienst, the German foreign personnel, local commanders do not
intelligence service that emerged from seem to have access to it. Salih's down-
the Gehlen organization, has indeed fall was that he was given a high-profile
proven itself a staunch ally. But at what assignment; one can only guess at how
cost? The West German organization the many Salihs there are in less visible
United States sponsored was thoroughly jobs. The Abu Ghraib prisoner-abuse
penetrated by the Soviets, and its ability tragedy has awakened congressional
to collect useful intelligence for NATO interest in providing effective oversight
questionable. Meanwhile, the West in Iraq. Before the United States turns
German government paid pensions to sovereignty over the country to the
Nazi killers into the late 198os. The Iraqis and washes its hands of the in-
cost of this Faustian bargain for West stitutions it has created there-as the
German society is hard to calculate. CIA did with the Gehlen organization
As U.S. forces scramble for help in in 1951-someone in Congress or the
setting up new police, military, and security executive branch should ask, Whom
services in Iraq, the temptation to rely have we hired in Iraq, and why?0
on tainted personnel from the former
regime will be great. But the costs of
doing so too casually should be kept in
mind. After all, the situation in Iraq
today is even more dangerous than that
of postwar Germany, not least because
Supreme Allied Commander Dwight
Eisenhower's decision to rely on over-
whelming force broke the spirit of even
the most dedicated Nazis and left little
option for regime loyalists to surface
openly. Moreover, in Iraq, the lack of
any real cohesion means that relying on
compromised individuals from one or
another ethnic group could inflame
sectional passions.
The mistakes made by the CIA and
the U.S. Army in West Germany need
not be repeated in Iraq. The sorry case
of General Jasim Muhammad Salih and
his 24-hour command in Falluja suggests,
however, that U.S. recruitment is in dis-
array. Salih appears to have been tapped
by Washington even though no one knew
what he had done for Saddam. If coali-
tion forces have a central registry of
information on the backgrounds of Iraqi

11321 FOREIGN AFFAIRS' Volume83No. 4

 Review Essay

First Principals
Alexander Hamilton and the American Founders

Walter Russell Mead

Alexander Hamilton. BY RON CHERNOW. only immigrant in the first ranks of the
New York: Penguin Press, 2004, Founders, was the illegitimate son of a
6o8 pp. $35.00. downwardly mobile Scottish father and
a free-living and free-thinking woman of
Readers' interest in American history the West Indies. These difficult origins
tends to oscillate between two periods: marked Hamilton for life as he struggled
the Civil War and the Revolution. We are to integrate himself into the highest circles
currently well into a Revolutionary period. of American public life.
A slew of best-selling historical works Hamilton seems to have searched all
has been published in recent years on the his life for a father. One patron after
American Founders-including studies another helped him-to move from St.
of Thomas Jefferson, George Washington, Croix to New York, to attend university,
Benjamin Franklin, and John Adams. Now, and to mix in increasingly exalted circles,
Ron Chernow has produced an original, until he finally met the ultimate father
illuminating, and highly readable study figure: George Washington. The partner-
of Alexander Hamilton that admirably in- ship between these two men was of great
troduces readers to Hamilton's personality historical significance. As Washington's
and accomplishments. chief aide-de-camp during the Revolu-
Chernow penetrates more deeply into tionary War, and as his closest political
the mysteries of Hamilton's origins and partner during Washington's presidency,
family life than any previous biographer. Hamilton had the trust of the father of
And what a family it was. Hamilton, the his country as no one else did. Their

WALTER RusSELL MEAD is HenryA. Kissinger Senior Fellowin U.S. For-

eign Policy at the Council on Foreign Relations and the author of Power, Terror,
Peace, and War.

[133]
 Walter RussellMead
relationship was stormy at times: Hamilton
knew Washington's flaws perhaps better
than anyone except Martha, and his own
subordinate status bothered him at times.
Nevertheless, if the two had never met, it
is likely that the reputation of both indi-
viduals would be much lower today.
POLITICAL ECONOMIST
Hamilton yearned for military glory,
and he led a gallant charge at the Battle
of Yorktown in 1781. But his reputation
today rests primarily on civilian achieve-
ments. As co-author of the Federalist
Papers (with James Madison and John
Jay), he played a major role in persuading
the country to adopt the Constitution and
in expounding the distinctively American
theories of politics that the document
reflects. As one of the leading lights of
the New York Bar, his clear grasp of legal
principle helped shape American law. As
secretary of the Treasury under Washing-
ton, a position that he held from 1789 to
1795, he set the United States on the eco-
nomic path that would bring it in time
to the pinnacle of economic and military
power. And as the leader of an emerging
political movement-the Federalists-
Hamilton helped shape the two-party
system that still dominates American
political life.
Chernow's accounts of Hamilton's
contributions to political theory, politics,
and the law are compelling. His study
of Hamilton's role in the Treasury is
particularly effective. Steeped in the
nineteenth- and twentieth-century history
of American finance, Chemow is far better
equipped than most biographers to under-
stand just what Hamilton accomplished.
He understands the relationship Hamilton
sought to establish between the federal
[134] FOREIGN AFFAIRS
government and the financial markets and
argues that today's capital markets still
bear the imprint of Hamilton's genius.
Chernow is also a much more eloquent
advocate for the ethical and moral values
behind Hamiltonian political economy
than most writers. Both during his life-
time and after his death, Hamilton has
been routinely attacked as an enemy of
equality and liberty. From Jefferson on-
wards, enemies have seen the urban and
commercial society Hamilton advocated as
a danger to the sturdy yeoman democracy
of the rural American heartland.
Noting that many of Hamilton's harsh-
est critics on this score were slave-owning
Virginia aristocrats, Chernow argues that
Hamilton's advocacy of a commercial,
enterprise-oriented society reflected his
commitment to liberty and opportunity.
It was this society, after all, that had allowed
Hamilton to rise to the higher echelons
of his country's leadership. Chernow also
traces Hamilton's lifelong hatred of slav-
ery, which contrasts with other Founders'
indifference to it. Having witnessed the
terrible scenes of the West Indian slave
trade in boyhood, Hamilton had no
illusions about this great evil; he was a
founding member of the antislavery society,
based in New York, which spearheaded
the cause of abolition.
Chernow contrasts the antislavery
bias of the commercial and industrial
development favored by Hamilton with
the agricultural, anticommercial, and
(almost inevitably) proslavery course
favored by his Southern opponents. The
economic triumph of the Hamiltonian
North over the Jeffersonian South, in this
view, is what made abolition inevitable in
the long run: Abraham Lincoln's victory
over Jefferson Davis in the Civil War
Volume83No. 4
 FirstPrincipals
symbolized Alexander Hamilton's ulti-
mate victory over Thomas Jefferson. The
importance of a strong federal government
to the civil rights movement underscores
the progressive, antiracist dynamic that
Hamilton helped introduce into American
public life.
Chernow is frank and unsparing when it
comes to errors in judgment that ulti-
mately frustrated Hamilton's career.
Unreasonable hatreds, unbalanced con-
clusions, devastating misjudgments, an
excitable tendency to assume and expect
the worst-these traits recurred through
Hamilton's life and ensured that he would
never succeed Washington as president.
Chernow's treatment of Hamilton's occa-
sionally tumultuous (and public) private
life is sensitive and thorough; the biogra- they were all frustrated by their fondest
pher's affectionate regard for Hamilton's hopes and ambitions. Hamilton established
long-suffering wife, for example, is one the strong federal government and com-
of the most charming features of this book. mercial republic that Jefferson so dreaded.
In later life, Hamilton returned to the Jefferson thwarted Hamiltons attempt to
religious faith of his youth. Initially, he secure the political leadership of the country
was refused Holy Communion on his for the Federalist elite. Washington opposed,
deathbed by the rector of Trinity Church, but was powerless against, the rise of a
New York, because he was a duelist. party-political system that he believed
But Hamilton's last exercise in the art of was the bane of republican government.
persuasion was to convince the hesitant And Adams lived in a perpetual frenzy
priest that he had genuinely repented of envious disappointment.
and was willing to reconcile his differ- Much as one admires the Founders,
ences with all men-including his bitter it is impossible to escape the reflection
opponent Aaron Burr. that their political failures were ultimately
their most important legacy to the republic.
STRENGTH IN DISAGREEMENT Had any of these powerful men managed
Ultimately, Alexander Hamilton illustrates to stamp a single vision on the institutions
one of the most important truths of the and politics of the emerging government,
revolutionary and federalist periods. The the subsequent course of American history
luminous galaxy of political superstars who would almost certainly have been less
dominated the early years of the republic happy. That the American political system
continually blocked each other's designs. is one in which opposed visions can
Franklin, Adams, Jefferson, Hamilton, struggle peacefully for dominance is
even Washington--to a surprising degree one of its greatest blessings.0

FOREIGN AFFAIRS July/August 2004 11351

 Review Essay

The Unsettled West

China's Long War on Xinjiang

7osbua Kurlantzick

Xinjiang.-China'sMuslim Borderland. and with the region largely closed to

EDITED BY S. FREDERICK STARR. New
YorLk M. E. Sharpe, 2004,528 pp. $89.95.
Xinjiang-China'Muslim FarNorthwest.
BY MICHAEL DILLON. London:
Routledge Curzon, 2003, 201 pp. $95.00.
Wild West China: The Taming ofXinjiang.
BY CHRISTIAN TYLER. London:
John Murray, 2003, 320 pp. £20.00
(paper, £8.99).
After 1949, Beijing's brutal pacification
of Xinjiang-a vast province in western
China--was almost completely ignored
in the West for the next 40 years. Unlike
other groups persecuted by China (such as
the Tibetans), Xinjiang's Muslim inhabi-
tants, the Uighurs, have had no charismatic,
English-speaking spokesperson or unified
exile organization; the Uighurs' few promi-
nent exiles lived in Turkey, and they spent
most of their time squabbling among
themselves. Xinjiang thus rarely made it
onto the agenda of foreign governments,
foreigners, few academics or human rights
groups could study it.
Within the past decade, however, news
from Xinjiang has started to seep out.
With the collapse of the Soviet Union,
China was suddenly confronted with
newly independent neighbors in Central
Asia-states with close ethnic ties to the
Turkic Uighurs. Uighurs began traveling
to these Central Asian states, Pakistan, the
Middle East, and even the United States,
often returning to Xinjiang more deter-
mined than ever to fight for independence.
Worried about growing Uighur separatism,
Beijing tightened its control of Xinjiang,
turning the region into the death-penalty
capital of the world.
But unlike during past repressions, this
time foreign governments and human
rights organizations began to take no-
tice--partly because of China's greater
openness, and partly because Central Asia
had suddenly become an important energy

JOSHUA KURLANTZICK is Foreign Editor of The New Republic.

[136]
 AP/WIDE WORLD PHOTOS

Radicalized? Uighurmen leavingFridayprayers,Kashgar,Xinjiang,September28,2001

producer. Massive oil deposits were Xinjiang suddenly found itself at the center
found in the region-Xinjiang itself is of a battle between China, Russia, and the
now known to have China's biggest petro- United States for control of Central Asia.
leum reserves-and foreign oil companies, Into this tumultuous mix now come
with the backing of their respective three important new books on Xinjiang.
nations, arrived in Central Asia en masse. The most accessible, Wild West China, is
Germany, Iran, Turkey, the United King- a general history of the region by Christ-
dom, and other new players began to ian Tyler, a former correspondent for the
increase their involvement in the region. FinancialTimes. The other two, Xinjiang.
Beijing, worried about losing its influence China'sMuslim Borderland,edited by
there, ramped up its own plans to develop S. Frederick Starr, head of Johns Hopkins
western China as a bridge to Central University's Central Asia studies program,
Asia; these plans included increasing and Xinjiang-China'sMuslim FarNorth-
the movement of ethnic Han migrants west, by Michael Dillon of the University
into Xinjiang. of Durham, are more academic attempts
Then came September u, 20ol. Follow- to draw a three-dimensional portrait of
ing-the attacks on New York City and modern Xinjiang's people, economy,
Washington, D.C., the United States religion, culture, and dangerously tense
entered Central Asia in force, establishing politics. Because western China was
military bases throughout the region to largely closed to foreign writers until the
fight the Taliban and al Qaeda-bases early 199os, and Beijing has once more
that have put U.S. troops within several restricted journalists' access to the region
hundred miles of the Chinese border. since September 11, all three books are

FOREIGN AFFAIRS -July/August2004 [137]

 JoshuaKurlantzick
valuable additions to the little that is captures, from the premodern era until
known about Xinjiang in the West. the mid-eighteenth century, Xinjiang
Dillon and Starr do a good job of was either ruled from afar by Central
putting China's current involvement in Asian empires or not ruled at all. Its vast,
Xinjiang into historical context. Foreign barren deserts made it difficult to conquer:
rulers have always viewed the region as a in the early twentieth century, the well-
wild place needing to be tamed and have traveled British archaeologist Aural Stein
frequently treated the Uighurs as second- visited Xinjiang and was overwhelmed by
class citizens. Only the Chinese Commu- its inhospitality, marveling at its "desolate
nist Party (ccp), however, has gone so far as wilderness, bearing everywhere the impress
to try to destroy the Uighurs altogether, in a of death." When Chinese rulers did
process of demographic suppression. manage to conquer Xinjiang, they found
Unfortunately, as Central Asia has maintaining large armies there nearly
recently grown more important, Wash- impossible. In 104 BC, Emperor Wudi
ington and key actors in the region have sent 6o,ooo men to conquer the West;
essentially sacrificed the Uighurs to geo- only io,ooo came back alive.
politics. The United States has largely Tyler brings the region's premodern
accepted Chinas attempt to link Uighur history to life, skillfully employing indi-
separatists to international Islamic terror vidual anecdotes to illustrate its wild past,
networks, glossing over the Uighurs' legit- including the introduction of Sufi Islam
imate concerns in the process. Washington in the tenth century and the later devel-
has even abetted this linkage and Beijing's opment of the Silk Road trade route, which
crackdown on various Uighur groups. passed through Xinjiang. The other two
The United States, however, need not books, which are drier but fact-filled, fill
choose between Xinjiang and China. It in Tyler's overly broad narrative with rich
could simultaneously defend the Uighurs' detail and more nuanced assessment.
rights and fight the war on terror. Unfor- Although the reader has to dig through
tunately, none of these three books offers the sprawl of details in these books to
much help in this regard, since they present find central themes, the implications of
only facile, familiar suggestions for how history for modern Xinjiang are clear.
the West can minimize Beijing's repression Tyler has titled his book Wild West China
and keep the Uighurs from becoming because the Uighurs' relationship with
radicalized. They fail to mention what Beijing resembles that of the Native
would be a far better approach: foreigners Americans with Washington: as China
should use Chinas own weaknesses-its began to develop into a state with a dis-
dependence on foreign oil and its need to tinct national identity in the eighteenth
keep opening its economy-as leverage and nineteenth centuries, the Chinese,
to force Beijing to temper its repressive with their own version of manifest destiny,
Xinjiang policies. began to see Xinjiang as a place inhabited
by barbarians ready for civilizing. As a
THE BAD OLD DAYS result of what Tyler calls "Chinese orien-
The idea ofXinjiang as a contiguous entity talism," Beijing even convinced itself
is relatively new. As Tyler's book colorfully that untamed Xinjiang would welcome

[138] FOREIGN AFFAIRS" Volume83No.4

 The Unsettled West
China's intervention-conveniently
ignoring the region's historical and cultural
links to the Caucasus and Central Asia.
The Chinese thus underestimated the
resistance Xinjiang would mount to
Han culture.
By the late eighteenth and the nine-
teenth centuries, as the Qing dynasty
consolidated its power, it began to expand
its borders, nearly doubling China's size
in an effort to, among other things, protect
it from the Great Game machinations of
Russia and the United Kingdom. This
time, when China conquered Xinjiang it
came to stay, securing its annexation of
the region with brutal tactics. Tyler
describes the slaughter of more than a
million people during this period, and
James Miliward and Peter Perdue, two
contributors to the Starr book, detail
the Qing dynasty's creation of small,
self-sustaining military colonies in Xin-
jiang-the precursors of China's massive
modern-day military structure there.
Over the next zoo years, interactions
between Beijing and the Uighurs set the
stage for the worse confrontations to
come. Here again, all three books are
better at relating details than broader
themes, but a few constants still manage
to emerge. The Chinese government,
unable to see Uighurs as equal to the
Han, never offered them autonomy.
Instead, Beijing forced the natives to do
unpaid labor and barred them from local
political positions. Misrule stoked local
anger, and a series of uprisings resulted.
In one blood-drenched revolt in 1825,
tribespeople massacred 8,ooo Chinese
soldiers, prompting a harsh response from
the central government.
As the twentieth century dawned,
China's pacification of Xinjiang remained
FOREIGN AFFAIRS .July /August 2004
incomplete. With its central government
weakened by rebellions, the overthrow of
the monarchy, and general chaos, China
could not completely consolidate its rule
over the west. Wily local warlords took
advantage of Beijing's distraction, and
three times before 1949, Uighur leaders
founded short-lived independent states,
which remain important symbols for
Uighurs today; as Dillon writes, the bank
notes of the last free Xinjiang republic,
crushed in 1949, are still revered by many
Uighurs as symbols "of a once and future
state." The last Xinjiang republic even
included a relatively democratic constitu-
tion that promised freedom of speech,
religion, and assembly.
THE RISE OF THE RADICALS
Although the Qng and Nationalist gov-
ernments managed to conquer Xinjiang,
they never attempted to colonize the vast
region. After the communists took over,
however, everything changed. Although
some scholars see the last few hundred
years of Chinese repression in Xinjiang
as a continuum, the authors of these
books are correct to point out that ccp
rule has been drastically different from
its predecessors' and has succeeded in rad-
icalizing some Uighurs as never before.
Although it initially promised Xinjiang
significant autonomy, once the ccp con-
solidated its hold over the country in the
195os, it began to adopt much stricter
policies toward the Uighurs. For the first
time ever, Beijing had a radical ideology to
spread and secure borders within which
to spread it. But communist ideology, when
combined with the traditional Chinese
view of the Uighurs as barbarians (Mao
Zedong's wife famously hated ethnic mi-
norities) and a fear of concentrated ethnic
[1139]
 JoshuaKurlantzick
groups, wreaked locust-like devastation in
Xinjiang. Across China, the ccv targeted
the wealthy, the educated, and the devout,
but in Xinjiang the terror was worse. As
Millward writes in the Starr book, "only
in Xinjiang did the party face a majority,
non-Chinese-speaking Islamic population
with a well-established clerical organ-
ization." Thousands of mosques were
shuttered, imams were jailed, Uighurs
who wore headscarves or other Muslim
clothing were arrested, and during the
Cultural Revolution, the ccP purposely
defiled mosques with pigs. Many Muslim
leaders were simply shot. The Uighur
language was purged from school curricula,
and thousands of Uighur writers were
arrested for "advocating separatism"-
which often meant nothing more than
writing in Uighur. Meanwhile, Beijing
forced Xinjiang's nomadic farmers into
collectives, which, thanks to the region's
limited arable land, were even less pro-
ductive than those in other parts of the
country. The scars left by such misguided
policies remain today, and many of Xin-
jiang's greener parts are turning into desert.
During the postwar period, the ccP
also began a campaign to change the
demographics of Xinjiang while also
exploiting its natural resources to feed
eastern China's growing cities. Beijing
forced birth control on the Uighurs and
simultaneously encouraged massive Han
migration into the region, using economic
incentives or simply forcing Chinese to
move west. The results of these policies
were devastating: whereas in 1941 Uighurs
made up more than 8o percent ofXinjiang's
population, by 1998, they made up less
than 50 percent. Urumqi, Xinjiang's largest
city, is now a Han metropolis, with the
few Uighurs confined to small ghetto-like
[140] FOREIGN AFFAIRS- Volume 8J No. 4
areas where they pose for pictures and
desperately hawk cheap carpets to visitors.
Starr and Dillon argue that such poli-
cies have had two contradictory effects
on Xinjiang. Some Uighurs have simply
given up. Nearly 5oo,ooo crossed into
the Soviet Union in the early 196os or
turned to drugs; Xinjiang now has a serious
heroin problem, and hence a major HIV
problem as well. Others, however, have
rebelled. Starr argues that by targeting
Uighurs for their ethnicity and religion,
Mao was the first Chinese leader to
"nourish one of the most serious cen-
tripetal movements in Xinjiang's long
history: the rise of pan-Uighur identity."
Indeed, thanks to Beijing's policies, instead
of fighting among themselves, as the
Uighurs had done for centuries, after
1949 many began to settle their intra-
ethnic differences and build a sense of
Uighur solidarity. By 1954,Uighur uprisings
began breaking out in the city of Khotan,
and in the 196os, Xinjiang resisted the
Cultural Revolution more forcefully
than most other parts of China.
After the collapse of the Soviet Union,
Uighurs saw their cousins in Central Asia
found sovereign states, and resistance to
Chinese rule exploded. Throughout the
199os, large numbers of Uighurs rallied
in the streets of Xinjiang's cities. Dillon
writes that, like underground fires, these
protests were difficult to predict: "smolder-
ing, impossible to extinguish, and flaring
up from time to time in unexpected
places." Sometimes they turned violent:
in one particularly bloody clash in the town
of Baran in 199o, nearly 3,000 Uighurs
were killed in a battle with Chinese police.
Many new separatist organizations-
most, but not all, of which advocated
nonviolence-sprang up. One such
group, the East Turkestan National
Congress, has advocated creating a secular,
democratic government in Xinjiang. But
other groups have targeted Chinese in-
stallations in Xinjiang, and occasionally
in Beijing, with bombing campaigns.
Meanwhile, interest in Islam surged,
thanks to state intolerance and the Uighurs'
greater exposure to other Muslim societies.
Although Xinjiang has no real tradition
of strict orthodoxy or Islamist radicalism,
Islam began to seem one of the best means
to resist Beijing's control. Young Uighur
men began holding clandestine maxrap
meetings to discuss current religious and
political issues, and attendance at mosques
has soared.
Beijing has responded to this latest surge
in Uighur nationalism with a campaign
titled, with typical Chinese understate-
ment, "Strike Hard, Severe Repression."
Thousands of Uighurs were arrested in
the 199os and many were executed at
public rallies. After September n, the
number of arrests increased sharply, and
Beijing embarked on a massive propa-
ganda campaign to tie the Uighurs to al
Qaeda. The Chinese government, with
little apparent evidence, claimed that
more than i,ooo Uighurs had traveled
to Afghanistan to train with al Qaeda
and other Islamist groups, and charged
that Osama bin Laden himself had
offered large sums of money to Uighurs
to create an Islamist terrorist campaign
in Xinjiang. Although the East Turkestan
National Congress has explicitly con-
demned al Qaeda and there are few
signs that the Uighurs have links with
international Islamist terror groups,
Beijing announced early this year that
the "Strike Hard" campaign would be
extended indefinitely.
Council on
Foreign Relations
FRANKLIN WILLIAMS INTERNSHIP
The Council on Foreign Relations is seeking
talented individuals for the Franklin Williams
Internship.
The Franklin Williams Internship, named after the
late Ambassador Franklin H. Williams, was estab-
lished for undergraduate and graduate students
who have a serious interest in international
relations.
Ambassador Williams had a long career of public
service, including serving as the American Ambas-
sador to Ghana, as well as the Chairman of the
Board of Trustees of Lincoln University, one of
the country's historically black colleges. He was also
a Director of the Council on Foreign Relations,
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[141]
 JoshuaKurlantzick
Unfortunately, all three books shy
(MIS)CALCULATED INDIFFERENCE away from predicting how the Uighurs
Unfortunately, outside countries, including will respond to this latest crackdown.
the United States, have facilitated China's Starr correctly recognizes that the
harsh repression of the Uighurs. Tyler's Uighurs-thanks to rising Hiv rates,
and Starr's volumes too often ignore this the environmental and social destruc-
complicity. For one thing, countries in tion caused by mass migration, a new
Central Asia and the West have been far influx of Han Chinese, the most sophis-
too credulous in accepting that the battle ticated anti-Uighur propaganda yet from
in Xinjiang is part of the larger war on ter- Beijing, and the perceived loss of their
ror. This result can be explained, in part, by greatest ally, the United States-are
China's growing economic clout, which now more desperate than they have
has allowed it, for example, to convince been since 1949. Although none of the
the Shanghai Cooperation Organization authors spells it out, this pressure could
(composed of China, Russia, and several lead the Uighurs to become even more
Central Asian states) to focus on counter- radicalized and to turn to the very
terrorism. Beijing has also convinced Islamist groups with which Beijing has
Central Asian countries to deport Uighur accused them of cooperating.
"terrorists"-often simply members of Moreover, as transportation improves
nonviolent Uighur separatist groups-to within China, increasing numbers of
China for prosecution, and to ban exile Uighurs will make common cause with
Uighur groups from operating on their soil. other disgruntled groups in the People's
Even Washington has played along. Republic. Already, some Uighur leaders
By refusing to define the opponents in have made contact with Tibetan exiles
its war on terror, the Bush administration and Chinese labor leaders, and Uighur
has allowed China to lump its separatists exile groups have begun to emulate the
into the same group as al Qaeda. The Tibetan model, using the Internet to
United States has even directly aided court international human rights groups.
Beijing's crackdown at times-by placing None of the books, however, offers
one obscure Uighur separatist group, the realistic prescriptions for how the inter-
East Turkestan Islamic Movement, on national community can help prevent
the State Department's list of global Xinjiang from radicalizing. The authors
terrorist organizations, for example. As devote a few brief pages to calling on
Graham Fuller and Jonathan Lippman, foreign actors to push Beijing to restore
two contributors to the Starr book, argue, freedoms in Xinjiang but do not discuss
this "U.S. declaration [was] catastrophic" the best way to do so. Certainly, Washing-
for the Uighurs. The United States, ton should not abet Beijing's crackdown
previously the main defender of Uighur by placing Uighur groups on global ter-
rights (Radio Free Asia is a primary source ror lists, and President George W. Bush
of information in the Uighur language), could take a page from the playbook
had now given Beijing "carte blanche of Ronald Reagan, who maintained
to designate all Uighur nationalist... relations with a communist adversary
movements as 'terrorist."' (in that case, the Soviet Union) while

[142] FOREIGN AFFAIRS' Volume83No. 4

 The Unsettled West
simultaneously giving major speeches they have the best links to traders in
about the need to protect human rights. Central Asia. Indeed, in the few parts
But simply suggesting that China of Xinjiang where the state has a lesser
should stop its repression, without laying role in the economy-the bazaars of
out how or why it might, is not very Kashgar and other southern cities-
useful. Washington is not powerless. Uighur traders already dominate these
It could, for example, convince the few sectors of the economy. Relaxing economic
nations that actually have leverage over restrictions would thus be the best way
China-namely, the oil producers in to limit Xinjiang's crisis. A Uighur mid-
the Persian Gulf-to help protect the dle class, with some economic freedom
Uighurs from further marginalization. and limited autonomy, would be less
Over the next two decades, as China's prone to radicalism. That is an outcome
economy expands, it will become the in everyone's interest, including Beijing's-
largest oil importer in the world. Al- whether it recognizes it or not.0
ready, eastern China has suffered from
significant energy shortages, and the
U.S. Department of Energy estimates
that China's petroleum imports will rise
by nearly i,ooo percent over the next
20 years. China has accordingly begun
to court Saudi Arabia and other Persian
Gulf oil producers. In the past, when gulf
states have expressed concern about the
plight of fellow Muslims in Xinjiang,
Beijing has responded favorably; these
gulf nations might now push China to
allow the Uighurs more autonomy, as
even some in the ccp have considered.
More important, the United States
could push China to open up Xinjiang's
economy, as it has opened the economy
of coastal China. Xinjiang is one of the
few places left in China where the state
still dominates economic activity. The
military, state petroleum companies,
and state-run construction companies
together represent more than 8o per-
cent of the province's industrial assets
and favor ethnic Han workers and in-
vestors. If Beijing were to reduce state
control, making it easier for private
entrepreneurs in Xinjiang to flourish,
the Uighurs likely would benefit, since

FOREIGN AFFAIRS .July/August2004 [1-43]

 Review Essay

The Fire Last Time

Lessons From the Last Korean Nuclear Crisis

Scott Snyder

Going Criticak The FirstNorth Korean riched uranium bomb program in violation
NuclearCrisis. BY JOEL S. WIT, of the Agreed Framework. The North
DANIEL B. PONEMAN, AND ROBERT Koreans responded angrily to Kelly's
L. GALLUCCI. Washington: Brookings charge but, in the process, admitted that
Institution Press, 2004, 448 pp. $32.95. he was right, thereby igniting the second
North Korean nuclear crisis.
This October marks the tenth anniver- Today, many of the events often years
sary of the Geneva Agreed Framework, ago seem to be repeating themselves.
which was signed by Washington and Although this crisis has several striking
Pyongyang on October 21,1994, ending differences from the last one, the Bush
the first nuclear standoff with North administration would do well to study
Korea. There will be no champagne toast, carefully the drama of 1993-94 and reflect
however, to celebrate the occasion. The on President Bill Clinton's choices before
Agreed Framework, sharply contested by making its own. Fortunately, Washington
Republican critics at its inception and never has a powerful new tool to aid it in this
fully implemented, has been effectively task: Going Critical-The FirstNorth Korean
dead since October 2002, when Assistant Nuclear Crisis,a comprehensive insider's
Secretary of State James Kelly visited guide to the first North Korean nuclear
Pyongyang. On that trip, the Bush admin- standoff and an essential tool for com-
istration's first high-level contact with the paring today's events to the last round.
North Korean government, Kelly asked As the book makes clear, the stakes and
his North Korean counterparts about their the confusion of the original crisis could
covert attempts to develop a highly en- not have been greater; during its climax

SCOTT SNYDER is Senior Associate at the Asia Foundation.

[144]
 The FireLast Time
in 1994, Clinton even compared it to the when it was finally able to gain essential
Cuban missile crisis. Going Criticalalso concessions from its tough North Korean
underscores the changing risks of nuclear counterparts-even though these conces-
proliferation in what Yale's Paul Bracken sions were nowhere near enough to satisfy
has called the "second nuclear age" and Seoul, Tokyo, and critics in Washington
expands on earlier accounts to offer an who opposed all concessions to Pyongyang.
authoritative discussion of the events of Indeed, the Agreed Framework was
the first crisis as viewed from Washington. unpopular from the start and contested
Written with the rare benefit of special at every stage of its implementation. But
access to U.S. government documents as the authors point out, it also managed
and incorporating the personal experi- to keep North Korea from immediately
ences of its three authors, all of whom going nuclear and it avoided a war-one
played significant roles in the events of that would have been costly for all sides.
1993-94, Going Criticalrecounts in detail There were two critical flaws with
the options that the Clinton administration the American approach in 1993 and 1994,
considered at every stage of the story- however, as the book-not to mention
and thus should prove invaluable to the the intervening years-makes clear. First,
Bush administration today. although U.S. officials did convince the
North Koreans to "can" and store their
LEAST BAD spent nuclear fuel, they were unable to
Although Going Criticalseems to have persuade them to give up their nuclear
been written with an eye toward justifying components entirely, as they did with
the Agreed Framework as serving the U.S. Kazakhstan and Ukraine. This failure
national interest, its authors do not spin gave the North Koreans easy access to
the story so as to defend the administration spent nuclear fuel that could be repro-
they served. Instead, Wit, Poneman, and cessed, which has proved to be their
Gallucci methodically recount every stage most significant source of leverage in
of their deliberations. Going Criticaloffers the current standoff.
a detailed examination of the workings The Clinton administration also erred
(and limitations) of the interagency process by allowing North Korea to delay its return
involved with trying to resolve a nuclear to the nuclear Nonproliferation Treaty
dispute and highlights challenges inher- (NPT) by more than five years. This am-
ent in merging often radically different biguity in Pyongyang's status under the
priorities into an integrated policy. NPT made it much easier for North Korea
To their credit, the authors straight- to later declare, in January 2003, that it
forwardly reveal the biases and problems was no longer a party to that treaty and
in the Clinton administration's approach, to exclude the International Atomic
even while they aggressively defend the Energy Agency (which administers the
logic that led to the final deal, which NPT) from any role in the standoff. Wit,
they describe as the least bad option. Poneman, and Gallucci assert that North
Keenly aware of the stakes, including the Korea would not have accepted a return
real possibility of military escalation, to full compliance with the NPT in 1994,
the Clinton team felt profound relief but subsequent events have shown that

FOREIGN AFFAIRS .July/August2oo4

004 114S]
 Scott Snyder
these concessions were nonetheless a The establishment of the six-party talks
mistake; the Clinton administration in August of 2003, which included China,
should have pushed harder for subse- Japan, Russia, and South Korea as well
quent revisions. Instead, within a year as North Korea and the United States,
of the signing of the Agreed Framework, was thus a positive improvement on the
Washington had put the Korean Penin- bilateral approach used by the Clinton
sula Energy Development Organization administration. Going Criticalclearly
(KEDO), which administered the deal, on illustrates the risks and burdens inherent
autopilot, and KEDO officials were left in the Clinton approach, under which
complaining that it was harder to get the United States sought to carry alone the
sign-offs from the United States than full weight of negotiations with North
from Japan or South Korea. By 1998, under Korea, indirectly representing the inter-
pressure from Congress, the Clinton national community and allies such as
administration reluctantly named former Japan and South Korea-allies whose
Defense Secretary William Perry as a security interests were directly at stake.
special coordinator for policy toward A decade ago, China was also still too
North Korea in an attempt to salvage the closely tied to North Korea to play the kind
process. But Perry's efforts only deferred of active mediating role it has this time.
the collapse of the framework until the Although the Bush administration
end of the Clinton administration. has persuaded the other outside partici-
pants in the six-party talks to back CVID
TOUGH TALK rhetorically, however, it has not been
Republican critics such as Senator John able to secure a working consensus on
McCain (R-Ariz.) have charged that "the exactly what cviD would require North
[Clinton] administration could have given Korea to do, or how to get there. China,
less and received more" in 1994. The same Russia, and South Korea favor signing
thinking informs the Bush administration's a second agreed framework based on
current approach to North Korea, em- negotiations with North Korea. But the
bodied in its call for "complete, verifiable, Bush administration seems uninterested
irreversible dismantlement" (known as in such an approach, convinced as it is that
CVID) as the only long-term solution to Pyongyang will dishonor its promises at
North Korea's nuclear weapons threat. every opportunity. If Washington truly
According to Washington, anything short opposes negotiation with North Korea,
of CVID would leave open the possibility of however, it needs to offer an alternative,
a third North Korean nuclear crisis in the such as coercive diplomacy. But so far,
future. It is far from dear, however, whether it has done little on that front either.
the Bush administration has the tools, the The recently announced Proliferation
attention span, or the temperament neces- Security Initiative and Illicit Activities
sary to assemble the kind of regional Initiative may help limit North Korea's
consensus needed to achieve this goal. money counterfeiting, missile sales,
To be fair, the Bush administration and drug trafficking activities. But
has learned from the last Korean crisis any successful coercive approach will
that a region-wide approach is necessary. require active Chinese and South Korean

[146] FOREIGN AFFAIRS " Volume83 No. 4

cooperation-something Washington
has yet to secure.
The Bush administration apparently
would rather that North Korea follow
the example of Libya, which announced
its intention in December 2003 to vol-
untarily give up its unconventional
weapons and allow outside verification.
(If Colonel Muammar al-Qaddafi can take
such a bold step, some in Washington
have reasoned, it should be even easier
for a "general" such as Kim Jong I1.)
The Libyan model is particularly attrac-
tive to Washington because it is the only
way to guarantee sufficiently intrusive
access to ensure real disarmament. It
should also appeal to North Korea, since
it is the only case of nuclear disarmament
that has not also involved regime change.
In addition, the Libyan path seems to
offer serious economic benefits (in the
form of a lifting of sanctions and increased
trade), which Pyongyang covets. So far,
however, the Bush administration has
pushed for a sort of "Libyan model plus"
with North Korea, the "plus" being re-
quirements that North Korea also give
up its other illicit activities, transform
its economy, end its severe restrictions
on and monitoring of food assistance,
and become a "normal state." Such steps,
however, would so loosen Kim Jong Il's
political control that they would be tan-
tamount to regime change. And North
Korea is so isolated that no third coun-
try can play the honest-broker role that
the United Kingdom played for Libya,
serving as a proxy for the United States
in preliminary disarmament negotiations.
Going Criticalillustrates just how im-
portant it is that any approach toward
North Korea involve Japan and South
Korea; excluding these two countries was
Council on
Foreign Relations
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[147]
 Scott Snyder
perhaps the biggest mistake made by the objective will require full U.S. partici-
Clinton administration, and they remain pation and sustained White House
weak links that North Korea has consis- leadership. As Going Criticalshows,
tently tried to exploit. Much has changed, Washington has been able to muster
however, in ten years. A decade ago Pyong- that kind of focus in the past, narrowly
yang marginalized and insulted the averting a crisis in 1994 through top-
South Korean leadership at every oppor- level attention supported by effective
tunity. Today, however, North Korea interagency coordination. Since then,
reserves its rhetorical blasts for President however, North Korea has benefited from
Bush while it woos South Korea, encour- American neglect and inattention. If this
aging it, for example, to forge new eco- lack of focus persists, the second Korean
nomic ties by establishing an industrial nuclear crisis could reach a disastrous cli-
zone in the border city of Kaesong. In max. Simply waiting for regime change-
return, South Korea has started cajoling in Pyongyang, or in Washington-is not
the United States to take negotiations a sufficient strategy.0
with North Korea seriously If the six-party
talks are to make progress, Washington
and Seoul will have to repair their alliance,
narrow their differences, and make a firm
and unified stand to ensure that Pyongyang
does not exploit their differences over
whether to risk a military confrontation.
Although U.S. allies are important, the
authors of Going Criticalargue convincingly
that Washington cannot contract out its
foreign policy on an interest as vital as
assuring nuclear nonproliferation. Given
the alternatives-containment, military
action, and regime change-the authors
argue that negotiation remains the most
effective way to secure U.S. interests in
the region. The Bush administration's
failure thus far to take such talks seriously
enough has allowed the steady expansion
of North Korea's nuclear program-a
striking lapse, especially given new intel-
ligence showing that North Korea poses
a much greater threat to the United States
than Iraq ever did. The only feasible ap-
proach to North Korea today is one that
effectively integrates a range of threats and
incentives and involves all the participants
in the six-party talks. Achieving that

11481 FOREIGN AFFAIRS- Volume83No. 4

 Letters to the Editor
Kimberly Zisk Marten on Afghanistan;
Mark Lawrence Schrad on Russia'spopulationimplosion;
andJohn Mueller on Saddams evasiveness

WARLORDS AS STAKEHOLDERS
To the Editor:
Kathy Gannon accurately describes
the threat to human rights and security
posed by the warlords in Afghanistan
("Afghanistan Unbound," May/June
2004). But she fails to recognize the reason
why both Washington and the Canadian-
led NATO security assistance force current-
ly in Afghanistan are cooperating with
them: both parties realize that it is vital
that the warlords not become spoilers of
the peace process.
Some of the warlords have already
been cajoled or coerced by Kabul and
its supporters into throwing their lot in
with the central government. Their co-
operation helps give Hamid Karzai what-
ever legitimacy he has in the provinces.
If the new central government leaders
and their international supporters
were to refuse to work with recalcitrant
regional and ethnic leaders-who
command private armies and in many
cases large economic fiefdoms-these
warlords would lose any remaining
incentive to cooperate with Kabul. At
that point, the stage could be set for a
Taliban (and al Qaeda) resurgence.
There is no question that it is dan-
gerous to buy warlord support with
weapons or other questionable favors.
Instead, the United States needs to
permanently co-opt them, so their
long-term interests are tied to the
success of a stable central government.
That means finding some ways of
generalizing the reward structure, to
overcome the current pattern of tailored
deals with each individual warlord.
The NATO peace mission, along with
the United States, is working with
Karzai to figure out how best to do
this. Promising initiatives already under
way include attempts to persuade war-
lords that entering electoral politics is a
legitimate way of maintaining their
power base. Efforts have also been
made to convince warlords to go into
legitimate business, by giving them the
necessary training and start-up funds.
The most important thing is to allow
these former leaders to save face among
their supporters. An additional way of
doing this might be to turn the warlords
into partners in a national infrastructure
development plan, encouraging them
to trade their cooperation for shares in
projects designed to boost nationwide
and cross-border trade. If the ability to
hand out attractive local favors becomes
dependent on the smooth functioning
of national highways, electrical grid

FOREIGN AFFAIRS .July/August2004 1149]

 systems, or even a railroad (something
FORIG AFIR Afghanistan currently lacks), then the
warlords will have every reason to coop-
erate with each other and support the
central authorities.
KIMBERLY ZISK MARTEN
Compile a quality paperback Associate Professor,BarnardCollege,
textbook using articles from Columbia University
FOREIGN AFFAIRS and other ABNORMAL DEMOGRAPHICS
leading journals. To the Editor.
Andrei Shleifer and Daniel Treisman
('A Normal Country," March/April 2004)
argue that much of the enduring pessimism
READINGS ON
THE UNITED STATES
over Russia is the result of sensationalism.
IN WORLD AFFAIRS Russia's demographic indicators, however,
suggest that concern is warranted.
Since 1998 (when most analysts
agree Russia's economic rebound began)
$C1o00L F soF f
the Russian population decline has ap-
uNrsros1tu
_
proached one million people per year-
INTERNATIONAL
Pt.o-av- Ge-u SECURITY 935,000 in 2002, for example, as opposed
OF EAST ASIA to a loss of 697,000 in 1998 and a robust
gain of 58o,ooo in 1989. These dramatic
figures represent the largest peacetime rate
of population loss in Europe since the
V.D3 plagues. And the trend has no discernible
PaorrssoR ViewO. 0. C,.,
end in sight. Goskomstat (Russia's state
statistical agency) projects the Russian
population to shrink to between 77 and
126 million by 2050, and Murray Feshbach,
An excellent service that
the United States' foremost demographer
produced a fine product
of Russia, estimates that it will drop by
exactly on time." more than a third, to a mere loo million.
- J. Bryan Hehir Declining populations, in turn, are
Georgetown University expected to cause enormous problems
for conscripting a healthy military and
phone: 800.716.0002 sustaining a productive (and taxable)
fax: 212.434.9807 working population.
e-mail: LHammes@cfr.org Male life expectancy has also continued
to decline significantly since 1998. Whereas
w.fo 3 0ignff0rso *gar
an average Russian man could expect to
live 61.3 years in1998, that number dropped

[150]
 Letters to the Editor
to 58.5 by 2002. This is in comparison to
a life expectancy of 74 years in the United
States and nearly 78 in Japan. Even when
compared to the countries in the same
macroeconomic bracket, as suggested by
Shleifer and Treisman, Russian men fare
considerably worse: on average, they die
almost 13 years sooner than South Korean
men (71.4 years), 11 years sooner than
their counterparts in Mexico (70.1 years),
and almost io years sooner than men in
poverty-ridden Uzbekistan (68.2 years).
In fact, Russians have the lowest life
expectancy of any postcommunist nation.
This demographic implosion continues
at both ends: not only are Russians dying at
an increasing rate, but fewer Russians are
being born every year, and even fewer
are being born healthy. Since the early
199os, Russia has had one of the world's
lowest birth rates, as fewer prospective
parents are willing to bring children into
an uncertain future. The percentage of chil-
dren born healthy in Russia today is lower
than before the discovery of penicillin.
Considering these demographic
indicators, Russia looks like anything
but a "normal country."
MARK LAWRENCE SCHRAD
University of Wisconsin, Madison
UNDERSTANDING SADDAM
To the Editor:
In "The New Politics of Intelligence"
(May/June 2004), Richard K. Betts
argues that "Saddam's record in obstruct-
ing UN inspectors and lying throughout
the cat-and-mouse inspection game of the
199os made no apparent sense unless
the Iraqis were continuing to hide the
weapons." This misses the fact that the
security system for Iraq's weaponry and
that for Saddam's personal safety were
the same. Saddam saw the inspections,
at least in part, as something the United
States could use to calculate his where-
abouts, thus making an assassination
by, say, a cruise missile entirely feasible.
Consequently, his wariness and duplicity-
especially when inspectors demanded to
visit such sensitive places as his palaces
and Baath Party headquarters-are
quite understandable.
JOHN MUELLER
Woody Hayes ChairofNationalSecurity
Policy andProfessorof PoliticalScience, Ohio
State University

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FOREIGN AFFAIRS July /August 2004 [151]

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