As a simple example, when I want to illustrate the need to seek diversity in order to create innovation, I’m usually putting an image such as the following when talking. It makes diversity much more concrete and rememberable.

With so many people spending time to find the best pics, the idea is simple: share them. I have started to tweet the one I’m finding with the link, the tags I would put for them, and the hashtag #prezpic. So please, try to do the same when researching pictures for presentations, it will take you an added 10 secs per picture, and could make a huge difference in the quality of illustrations. I’ve started by sharing some of mine, do a twitter search on #prezpic to see them.

And if you wonder why putting images in your presentations is so effective, then start by reading these 3 blogs and following their advice :)

• Presentation Zen
• Slides that Stick
• Nancy Duarte’s blog

PS: If this gains traction, the best way to collect links will probably be to subscribe to the RSS feed for the search :)

Photo credit: Flick user oberazzi

I’m beginning to smell a black, black Christmas on Wall Street. Furthermore, I don’t think we’re going to see any babies born on the Upper East Side, in Greenwich, Connecticut, or in Mayfair next August, September, or October, either.

Source: This Can’t Be Good

Why Can’t We Admit That…

…Citigroup, parent of the once-proud Citibank and Salomon Brothers, is bankrupt?

…Berkshire Hathaway is genuinely threatened by a potential run on its credit, due to contractual provisions in its derivatives agreements that could compel it to post more collateral at exactly the worst time?

…if we are even talking about Berkshire Hathaway being at risk, then ANY company is at risk of a run on its credit?

…as well-intentioned as those in our Government might be, that most have no idea of how to address the issues that threaten our national prosperity and well-being?

…any institution for which buying a bank is even remotely logical will do so to gain access to TARP funds, whether necessary or not?

…spending on infrastructure to get people back to work while re-building and upgrading essential services is a useful expenditure of taxpayer funds?

…everyone is scared, from the top 1% of the wealth pyramid down to those doing everything in their power simply to get by?

Read it all, well worth it.

Here are a few must-read if you want to follow what’s going on, but be warned, this will elevate your blood pressure quite drastically:

Andrew Lahde, recently famous hedgie, closed its fund with a 866% return. Here’s an extract from his last letter to investors:

The low hanging fruit, i.e. idiots whose parents paid for prep school, Yale, and then the Harvard MBA, was there for the taking. These people who were (often) truly not worthy of the education they received (or supposedly received) rose to the top of companies such as AIG, Bear Stearns and Lehman Brothers and all levels of our government. All of this behavior supporting the Aristocracy, only ended up making it easier for me to find people stupid enough to take the other side of my trades. God bless America.

Go read the Epicurian Dealmaker’s pov. An insider take on what’s happening here. Extract of the finesse piece:

With both Congress and the New York Attorney General’s office crawling up the asses of major Wall Street firms with flashlights, Roto-rooters, and cattle prods looking for juicy little sound bites on excessive compensation for the Senate floor and the nightly news, it will be a long time indeed before investment bankers regain control of their compensation processes. If ever.

But something much more serious is at stake here. Here’s Barry on the $140B handed out illegally by the Treasury to banks under the form of tax breaks. Steve Randy Waldman follows suit:

But, today I am white-hot mad over AIG, and I need to vent. Yves Smith has done a beautiful job of describing the ridiculous awfulness of today’s “restructuring”. More importantly, she uses words with the appropriate intensity and valence: “banana republic”, “looting”, “Mussolini-Style Corporatism”.

Barry closes the loop today with this post. Are we witnessing the end of Wall Street as we know it, as Michael Lewis suggests? I still doubt it, but I would be happy to be wrong.

http://jeffmatthewsisnotmakingthisup.blogspot.com/2008/09/nothing-to-fear-but-irresponsible-words.html">

This great Nation will endure as it has endured, will revive and will prosper. So, first of all, let me assert my firm belief that the only thing we have to fear is fear itself—nameless, unreasoning, unjustified terror which paralyzes needed efforts to convert retreat into advance.

—FDR Inaugural Address

We shall fight on the beaches, we shall fight on the landing grounds, we shall fight in the fields and in the streets, we shall fight in the hills; we shall never surrender…

—Winston Churchill

This sucker could go down.

—George Bush

Source: Nothing to Fear but Irresponsible Words
Update: Indeed, it went in the most unexpected way. Paul summarizes my feelings.

• Barry Ritholtz: CEO and director of research at FusionIQ, former Chief Strategist, etc. (full bio)
• Roger Ehrenberg: 17 years on Wall St, former hedge fund manager, angel investor, etc. (full bio)
• Howard Lindzon: Hedge fund manager, early-stage investor, etc. (full bio)

Subscribe to their RSS feeds, get updates and be part of both excellent information flows and robust communities. If you want more, follow their pointers. I’ve been reading them for a couple of years, and I feel grateful each time I read one of their posts.

THE MEDVEDEV DOCTRINE AND AMERICAN STRATEGY

By George Friedman

The United States has been fighting a war in the Islamic world since 2001. Its main theaters of operation are in Afghanistan and Iraq, but its politico-military focus spreads throughout the Islamic world, from Mindanao to Morocco. The situation on Aug. 7, 2008, was as follows:

The war in Iraq was moving toward an acceptable but not optimal solution. The government in Baghdad was not pro-American, but neither was it an Iranian puppet, and that was the best that could be hoped for. The United States anticipated pulling out troops, but not in a disorderly fashion.

The war in Afghanistan was deteriorating for the United States and NATO forces. The Taliban was increasingly effective, and large areas of the country were falling to its control. Force in Afghanistan was insufficient, and any troops withdrawn from Iraq would have to be deployed to Afghanistan to stabilize the situation. Political conditions in neighboring Pakistan were deteriorating, and that deterioration inevitably affected Afghanistan.

The United States had been locked in a confrontation with Iran over its nuclear program, demanding that Tehran halt enrichment of uranium or face U.S. action. The United States had assembled a group of six countries (the permanent members of the U.N. Security Council plus Germany) that agreed with the U.S. goal, was engaged in negotiations with Iran, and had agreed at some point to impose sanctions on Iran if Tehran failed to comply. The United States was also leaking stories about impending air attacks on Iran by Israel or the United States if Tehran didn’t abandon its enrichment program. The United States had the implicit agreement of the group of six not to sell arms to Tehran, creating a real sense of isolation in Iran.

In short, the United States remained heavily committed to a region stretching from Iraq to Pakistan, with main force committed to Iraq and Afghanistan, and the possibility of commitments to Pakistan (and above all to Iran) on the table. U.S. ground forces were stretched to the limit, and U.S. airpower, naval and land-based forces had to stand by for the possibility of an air campaign in Iran — regardless of whether the U.S. planned an attack, since the credibility of a bluff depended on the availability of force.

The situation in this region actually was improving, but the United States had to remain committed there. It was therefore no accident that the Russians invaded Georgia on Aug. 8 following a Georgian attack on South Ossetia. Forgetting the details of who did what to whom, the United States had created a massive window of opportunity for the Russians: For the foreseeable future, the United States had no significant forces to spare to deploy elsewhere in the world, nor the ability to sustain them in extended combat. Moreover, the United States was relying on Russian cooperation both against Iran and potentially in Afghanistan, where Moscow’s influence with some factions remains substantial. The United States needed the Russians and couldn’t block the Russians. Therefore, the Russians inevitably chose this moment to strike.

On Sunday, Russian Prime Minister Dmitri Medvedev in effect ran up the Jolly Roger. Whatever the United States thought it was dealing with in Russia, Medvedev made the Russian position very clear. He stated Russian foreign policy in five succinct points, which we can think of as the Medvedev Doctrine (and which we see fit to quote here):

First, Russia recognizes the primacy of the fundamental principles of international law, which define the relations between civilized peoples. We will build our relations with other countries within the framework of these principles and this concept of international law.

Second, the world should be multipolar. A single-pole world is unacceptable. Domination is something we cannot allow. We cannot accept a world order in which one country makes all the decisions, even as serious and influential a country as the United States of America. Such a world is unstable and threatened by conflict.

Third, Russia does not want confrontation with any other country. Russia has no intention of isolating itself. We will develop friendly relations with Europe, the United States, and other countries, as much as is possible.

Fourth, protecting the lives and dignity of our citizens, wherever they may be, is an unquestionable priority for our country. Our foreign policy decisions will be based on this need. We will also protect the interests of our business community abroad. It should be clear to all that we will respond to any aggressive acts committed against us.

Finally, fifth, as is the case of other countries, there are regions in which Russia has privileged interests. These regions are home to countries with which we share special historical relations and are bound together as friends and good neighbors. We will pay particular attention to our work in these regions and build friendly ties with these countries, our close neighbors.

Medvedev concluded, “These are the principles I will follow in carrying out our foreign policy. As for the future, it depends not only on us but also on our friends and partners in the international community. They have a choice.”

The second point in this doctrine states that Russia does not accept the primacy of the United States in the international system. According to the third point, while Russia wants good relations with the United States and Europe, this depends on their behavior toward Russia and not just on Russia’s behavior. The fourth point states that Russia will protect the interests of Russians wherever they are — even if they live in the Baltic states or in Georgia, for example. This provides a doctrinal basis for intervention in such countries if Russia finds it necessary.

The fifth point is the critical one: “As is the case of other countries, there are regions in which Russia has privileged interests.” In other words, the Russians have special interests in the former Soviet Union and in friendly relations with these states. Intrusions by others into these regions that undermine pro-Russian regimes will be regarded as a threat to Russia’s “special interests.”

Thus, the Georgian conflict was not an isolated event — rather, Medvedev is saying that Russia is engaged in a general redefinition of the regional and global system. Locally, it would not be correct to say that Russia is trying to resurrect the Soviet Union or the Russian empire. It would be correct to say that Russia is creating a new structure of relations in the geography of its predecessors, with a new institutional structure with Moscow at its center. Globally, the Russians want to use this new regional power — and substantial Russian nuclear assets — to be part of a global system in which the United States loses its primacy.

These are ambitious goals, to say the least. But the Russians believe that the United States is off balance in the Islamic world and that there is an opportunity here, if they move quickly, to create a new reality before the United States is ready to respond. Europe has neither the military weight nor the will to actively resist Russia. Moreover, the Europeans are heavily dependent on Russian natural gas supplies over the coming years, and Russia can survive without selling it to them far better than the Europeans can survive without buying it. The Europeans are not a substantial factor in the equation, nor are they likely to become substantial.

This leaves the United States in an extremely difficult strategic position. The United States opposed the Soviet Union after 1945 not only for ideological reasons but also for geopolitical ones. If the Soviet Union had broken out of its encirclement and dominated all of Europe, the total economic power at its disposal, coupled with its population, would have allowed the Soviets to construct a navy that could challenge U.S. maritime hegemony and put the continental United States in jeopardy. It was U.S. policy during World Wars I and II and the Cold War to act militarily to prevent any power from dominating the Eurasian landmass. For the United States, this was the most important task throughout the 20th century.

The U.S.-jihadist war was waged in a strategic framework that assumed that the question of hegemony over Eurasia was closed. Germany’s defeat in World War II and the Soviet Union’s defeat in the Cold War meant that there was no claimant to Eurasia, and the United States was free to focus on what appeared to be the current priority — the defeat of radical Islamism. It appeared that the main threat to this strategy was the patience of the American public, not an attempt to resurrect a major Eurasian power.

The United States now faces a massive strategic dilemma, and it has limited military options against the Russians. It could choose a naval option, in which it would block the four Russian maritime outlets, the Sea of Japan and the Black, Baltic and Barents seas. The United States has ample military force with which to do this and could potentially do so without allied cooperation, which it would lack. It is extremely unlikely that the NATO council would unanimously support a blockade of Russia, which would be an act of war.

But while a blockade like this would certainly hurt the Russians, Russia is ultimately a land power. It is also capable of shipping and importing through third parties, meaning it could potentially acquire and ship key goods through European or Turkish ports (or Iranian ports, for that matter). The blockade option is thus more attractive on first glance than on deeper analysis.

More important, any overt U.S. action against Russia would result in counteractions. During the Cold War, the Soviets attacked American global interest not by sending Soviet troops, but by supporting regimes and factions with weapons and economic aid. Vietnam was the classic example: The Russians tied down 500,000 U.S. troops without placing major Russian forces at risk. Throughout the world, the Soviets implemented programs of subversion and aid to friendly regimes, forcing the United States either to accept pro-Soviet regimes, as with Cuba, or fight them at disproportionate cost.

In the present situation, the Russian response would strike at the heart of American strategy in the Islamic world. In the long run, the Russians have little interest in strengthening the Islamic world — but for the moment, they have substantial interest in maintaining American imbalance and sapping U.S. forces. The Russians have a long history of supporting Middle Eastern regimes with weapons shipments, and it is no accident that the first world leader they met with after invading Georgia was Syrian President Bashar al Assad. This was a clear signal that if the U.S. responded aggressively to Russia’s actions in Georgia, Moscow would ship a range of weapons to Syria — and far worse, to Iran. Indeed, Russia could conceivably send weapons to factions in Iraq that do not support the current regime, as well as to groups like Hezbollah. Moscow also could encourage the Iranians to withdraw their support for the Iraqi government and plunge Iraq back into conflict. Finally, Russia could ship weapons to the Taliban and work to further destabilize Pakistan.

At the moment, the United States faces the strategic problem that the Russians have options while the United States does not. Not only does the U.S. commitment of ground forces in the Islamic world leave the United States without strategic reserve, but the political arrangements under which these troops operate make them highly vulnerable to Russian manipulation — with few satisfactory U.S. counters.

The U.S. government is trying to think through how it can maintain its commitment in the Islamic world and resist the Russian reassertion of hegemony in the former Soviet Union. If the United States could very rapidly win its wars in the region, this would be possible. But the Russians are in a position to prolong these wars, and even without such agitation, the American ability to close off the conflicts is severely limited. The United States could massively increase the size of its army and make deployments into the Baltics, Ukraine and Central Asia to thwart Russian plans, but it would take years to build up these forces and the active cooperation of Europe to deploy them. Logistically, European support would be essential — but the Europeans in general, and the Germans in particular, have no appetite for this war. Expanding the U.S. Army is necessary, but it does not affect the current strategic reality.

This logistical issue might be manageable, but the real heart of this problem is not merely the deployment of U.S. forces in the Islamic world — it is the Russians’ ability to use weapons sales and covert means to deteriorate conditions dramatically. With active Russian hostility added to the current reality, the strategic situation in the Islamic world could rapidly spin out of control.

The United States is therefore trapped by its commitment to the Islamic world. It does not have sufficient forces to block Russian hegemony in the former Soviet Union, and if it tries to block the Russians with naval or air forces, it faces a dangerous riposte from the Russians in the Islamic world. If it does nothing, it creates a strategic threat that potentially towers over the threat in the Islamic world.

The United States now has to make a fundamental strategic decision. If it remains committed to its current strategy, it cannot respond to the Russians. If it does not respond to the Russians for five or 10 years, the world will look very much like it did from 1945 to 1992. There will be another Cold War at the very least, with a peer power much poorer than the United States but prepared to devote huge amounts of money to national defense.

There are four broad U.S. options:

Attempt to make a settlement with Iran that would guarantee the neutral stability of Iraq and permit the rapid withdrawal of U.S. forces there. Iran is the key here. The Iranians might also mistrust a re-emergent Russia, and while Tehran might be tempted to work with the Russians against the Americans, Iran might consider an arrangement with the United States — particularly if the United States refocuses its attentions elsewhere. On the upside, this would free the U.S. from Iraq. On the downside, the Iranians might not want –or honor — such a deal.

Enter into negotiations with the Russians, granting them the sphere of influence they want in the former Soviet Union in return for guarantees not to project Russian power into Europe proper. The Russians will be busy consolidating their position for years, giving the U.S. time to re-energize NATO. On the upside, this would free the United States to continue its war in the Islamic world. On the downside, it would create a framework for the re-emergence of a powerful Russian empire that would be as difficult to contain as the Soviet Union.

Refuse to engage the Russians and leave the problem to the Europeans. On the upside, this would allow the United States to continue war in the Islamic world and force the Europeans to act. On the downside, the Europeans are too divided, dependent on Russia and dispirited to resist the Russians. This strategy could speed up Russia’s re-emergence.

Rapidly disengage from Iraq, leaving a residual force there and in Afghanistan. The upside is that this creates a reserve force to reinforce the Baltics and Ukraine that might restrain Russia in the former Soviet Union. The downside is that it would create chaos in the Islamic world, threatening regimes that have sided with the United States and potentially reviving effective intercontinental terrorism. The trade-off is between a hegemonic threat from Eurasia and instability and a terror threat from the Islamic world.

We are pointing to very stark strategic choices. Continuing the war in the Islamic world has a much higher cost now than it did when it began, and Russia potentially poses a far greater threat to the United States than the Islamic world does. What might have been a rational policy in 2001 or 2003 has now turned into a very dangerous enterprise, because a hostile major power now has the option of making the U.S. position in the Middle East enormously more difficult.

If a U.S. settlement with Iran is impossible, and a diplomatic solution with the Russians that would keep them from taking a hegemonic position in the former Soviet Union cannot be reached, then the United States must consider rapidly abandoning its wars in Iraq and Afghanistan and redeploying its forces to block Russian expansion. The threat posed by the Soviet Union during the Cold War was far graver than the threat posed now by the fragmented Islamic world. In the end, the nations there will cancel each other out, and militant organizations will be something the United States simply has to deal with. This is not an ideal solution by any means, but the clock appears to have run out on the American war in the Islamic world.

We do not expect the United States to take this option. It is difficult to abandon a conflict that has gone on this long when it is not yet crystal clear that the Russians will actually be a threat later. (It is far easier for an analyst to make such suggestions than it is for a president to act on them.) Instead, the United States will attempt to bridge the Russian situation with gestures and half measures.

Nevertheless, American national strategy is in crisis. The United States has insufficient power to cope with two threats and must choose between the two. Continuing the current strategy means choosing to deal with the Islamic threat rather than the Russian one, and that is reasonable only if the Islamic threat represents a greater danger to American interests than the Russian threat does. It is difficult to see how the chaos of the Islamic world will cohere to form a global threat. But it is not difficult to imagine a Russia guided by the Medvedev Doctrine rapidly becoming a global threat and a direct danger to American interests.

We expect no immediate change in American strategic deployments — and we expect this to be regretted later. However, given U.S. Vice President Dick Cheney’s trip to the Caucasus region, now would be the time to see some movement in U.S. foreign policy. If Cheney isn’t going to be talking to the Russians, he needs to be talking to the Iranians. Otherwise, he will be writing checks in the region that the U.S. is in no position to cash.

This report may be forwarded or republished on your website with attribution to www.stratfor.com

Bottom line is this: the Russians need to reaffirm now their power, seize the “window of opportunity” of US military engagements, and demonstrate its willingness to crush its periphery. Basically this or slip as a major world player.

Actually, I find Stratfor a bit optimistic, as they seem to underestimate the situation on the ground (Russians are clearly settling in) and the timetables of the very start of the conflict. They tip towards Russian provocations, Georgian start, Russian reaction based on pre-deployment in North Ossetia. What transpires now is that the Russians had actually pre-positioned a major build-up of forces in South Ossetia.

What this means: we will certainly see a major escalation at least verbally, but also probably on the ground through the theaters on the globe. Add to this the Beijing olympics aftermath, which will probably be difficult domestically, the predictable disruption (route cuts, bankruptcies and mergers) in the airline industry, etc… The outlook for the global business environment isn’t particularly good and we should start to feel these effects from Q4 this year.

The consequences of the whole shebang added to the financing tightening and exit opportunities scarcity for entreprise 2.0 start-ups ? The answer is in the question.

THE REAL WORLD ORDER

By George Friedman

On Sept. 11, 1990, U.S. President George H. W. Bush addressed Congress.

He spoke in the wake of the end of Communism in Eastern Europe, the weakening of the Soviet Union, and the invasion of Kuwait by Saddam Hussein. He argued that a New World Order was emerging: “A hundred generations have searched for this elusive path to peace, while a thousand wars raged across the span of human endeavor, and today that new world is struggling to be born. A world quite different from the one we’ve known. A world where the rule of law supplants the rule of the jungle. A world in which nations recognize the shared responsibility for freedom and justice. A world where the strong respect the rights of the weak.”

After every major, systemic war, there is the hope that this will be the war to end all wars. The idea driving it is simple. Wars are usually won by grand coalitions. The idea is that the coalition that won the war by working together will continue to work together to make the peace. Indeed, the idea is that the defeated will join the coalition and work with them to ensure the peace. This was the dream behind the Congress of Vienna, the League of Nations, the United Nations and, after the Cold War, NATO. The idea was that there would be no major issues that couldn’t be handled by the victors, now joined with the defeated. That was the idea that drove George H. W. Bush as the Cold War was coming to its end.

Those with the dream are always disappointed. The victorious coalition breaks apart. The defeated refuse to play the role assigned to them. New powers emerge that were not part of the coalition. Anyone may have ideals and visions. The reality of the world order is that there are profound divergences of interest in a world where distrust is a natural and reasonable response to reality. In the end, ideals and visions vanish in a new round of geopolitical conflict.

The post-Cold War world, the New World Order, ended with authority on Aug. 8, 2008, when Russia and Georgia went to war. Certainly, this war was not in itself of major significance, and a very good case can be made that the New World Order actually started coming apart on Sept. 11, 2001. But it was on Aug. 8 that a nation-state, Russia, attacked another nation-state, Georgia, out of fear of the intentions of a third nation-state, the United States. This causes us to begin thinking about the Real World Order.

The global system is suffering from two imbalances. First, one nation-state, the United States, remains overwhelmingly powerful, and no combination of powers are in a position to control its behavior. We are aware of all the economic problems besetting the United States, but the reality is that the American economy is larger than the next three economies combined (Japan, Germany and China). The U.S. military controls all the world’s oceans and effectively dominates space. Because of these factors, the United States remains politically powerful — not liked and perhaps not admired, but enormously powerful.

The second imbalance is within the United States itself. Its ground forces and the bulk of its logistical capability are committed to the Middle East, particularly Iraq and Afghanistan. The United States also is threatening on occasion to go to war with Iran, which would tie down most of its air power, and it is facing a destabilizing Pakistan. Therefore, there is this paradox: The United States is so powerful that, in the long run, it has created an imbalance in the global system. In the short run, however, it is so off balance that it has few, if any, military resources to deal with challenges elsewhere. That means that the United States remains the dominant power in the long run but it cannot exercise that power in the short run. This creates a window of opportunity for other countries to act.

The outcome of the Iraq war can be seen emerging. The United States has succeeded in creating the foundations for a political settlement among the main Iraqi factions that will create a relatively stable government. In that sense, U.S. policy has succeeded. But the problem the United States has is the length of time it took to achieve this success. Had it occurred in 2003, the United States would not suffer its current imbalance. But this is 2008, more than five years after the invasion. The United States never expected a war of this duration, nor did it plan for it. In order to fight the war, it had to inject a major portion of its ground fighting capability into it. The length of the war was the problem. U.S. ground forces are either in Iraq, recovering from a tour or preparing for a deployment. What strategic reserves are available are tasked into Afghanistan. Little is left over.

As Iraq pulled in the bulk of available forces, the United States did not shift its foreign policy elsewhere. For example, it remained committed to the expansion of democracy in the former Soviet Union and the expansion of NATO, to include Ukraine and Georgia. From the fall of the former Soviet Union, the United States saw itself as having a dominant role in reshaping post-Soviet social and political orders, including influencing the emergence of democratic institutions and free markets. The United States saw this almost in the same light as it saw the democratization of Germany and Japan after World War II. Having defeated the Soviet Union, it now fell to the United States to reshape the societies of the successor states.

Through the 1990s, the successor states, particularly Russia, were inert. Undergoing painful internal upheaval — which foreigners saw as reform but which many Russians viewed as a foreign-inspired national catastrophe — Russia could not resist American and European involvement in regional and internal affairs. From the American point of view, the reshaping of the region — from the Kosovo war to the expansion of NATO to the deployment of U.S. Air Force bases to Central Asia — was simply a logical expansion of the collapse of the Soviet Union. It was a benign attempt to stabilize the region, enhance its prosperity and security and integrate it into the global system.

As Russia regained its balance from the chaos of the 1990s, it began to see the American and European presence in a less benign light. It was not clear to the Russians that the United States was trying to stabilize the region. Rather, it appeared to the Russians that the United States was trying to take advantage of Russian weakness to impose a new politico-military reality in which Russia was to be surrounded with nations controlled by the United States and its military system, NATO. In spite of the promise made by Bill Clinton that NATO would not expand into the former Soviet Union, the three Baltic states were admitted. The promise was not addressed. NATO was expanded because it could and Russia could do nothing about it.

From the Russian point of view, the strategic break point was Ukraine. When the Orange Revolution came to Ukraine, the American and European impression was that this was a spontaneous democratic rising. The Russian perception was that it was a well-financed CIA operation to foment an anti-Russian and pro-American uprising in Ukraine. When the United States quickly began discussing the inclusion of Ukraine in NATO, the Russians came to the conclusion that the United States intended to surround and crush the Russian Federation. In their view, if NATO expanded into Ukraine, the Western military alliance would place Russia in a strategically untenable position. Russia would be indefensible. The American response was that it had no intention of threatening Russia. The Russian question was returned: Then why are you trying to take control of Ukraine? What other purpose would you have? The United States dismissed these Russian concerns as absurd. The Russians, not regarding them as

absurd at all, began planning on the assumption of a hostile United States.

If the United States had intended to break the Russian Federation once and for all, the time for that was in the 1990s, before Yeltsin was replaced by Putin and before 9/11. There was, however, no clear policy on this, because the United States felt it had all the time in the world. Superficially this was true, but only superficially. First, the United States did not understand that the Yeltsin years were a temporary aberration and that a new government intending to stabilize Russia was inevitable. If not Putin, it would have been someone else. Second, the United States did not appreciate that it did not control the international agenda. Sept. 11, 2001, took away American options in the former Soviet Union. No only did it need Russian help in Afghanistan, but it was going to spend the next decade tied up in the Middle East. The United States had lost its room for maneuver and therefore had run out of time.

And now we come to the key point. In spite of diminishing military options outside of the Middle East, the United States did not modify its policy in the former Soviet Union. It continued to aggressively attempt to influence countries in the region, and it became particularly committed to integrating Ukraine and Georgia into NATO, in spite of the fact that both were of overwhelming strategic interest to the Russians. Ukraine dominated Russia’s southwestern flank, without any natural boundaries protecting them. Georgia was seen as a constant irritant in Chechnya as well as a barrier to Russian interests in the Caucasus.

Moving rapidly to consolidate U.S. control over these and other countries in the former Soviet Union made strategic sense. Russia was weak, divided and poorly governed. It could make no response. Continuing this policy in the 2000s, when the Russians were getting stronger, more united and better governed and while U.S. forces were no longer available, made much less sense. The United States continued to irritate the Russians without having, in the short run, the forces needed to act decisively.

The American calculation was that the Russian government would not confront American interests in the region. The Russian calculation was that it could not wait to confront these interests because the United States was concluding the Iraq war and would return to its pre-eminent position in a few short years. Therefore, it made no sense for Russia to wait and it made every sense for Russia to act as quickly as possible.

The Russians were partly influenced in their timing by the success of the American surge in Iraq. If the United States continued its policy and had force to back it up, the Russians would lose their window of opportunity. Moreover, the Russians had an additional lever for use on the Americans: Iran.

The United States had been playing a complex game with Iran for years, threatening to attack while trying to negotiate. The Americans needed the Russians. Sanctions against Iran would have no meaning if the Russians did not participate, and the United States did not want Russia selling advance air defense systems to Iran. (Such systems, which American analysts had warned were quite capable, were not present in Syria on Sept. 6, 2007, when the Israelis struck a nuclear facility there.) As the United States re-evaluates the Russian military, it does not want to be surprised by Russian technology. Therefore, the more aggressive the United States becomes toward Russia, the greater the difficulties it will have in Iran. This further encouraged the Russians to act sooner rather than later.

The Russians have now proven two things. First, contrary to the reality of the 1990s, they can execute a competent military operation. Second, contrary to regional perception, the United States cannot intervene. The Russian message was directed against Ukraine most of all, but the Baltics, Central Asia and Belarus are all listening. The Russians will not act precipitously. They expect all of these countries to adjust their foreign policies away from the United States and toward Russia. They are looking to see if the lesson is absorbed. At first, there will be mighty speeches and resistance. But the reality on the ground is the reality on the ground.

We would expect the Russians to get traction. But if they don’t, the Russians are aware that they are, in the long run, much weaker than the Americans, and that they will retain their regional position of strength only while the United States is off balance in Iraq. If the lesson isn’t absorbed, the Russians are capable of more direct action, and they will not let this chance slip away. This is their chance to redefine their sphere of influence. They will not get another.

The other country that is watching and thinking is Iran. Iran had accepted the idea that it had lost the chance to dominate Iraq. It had also accepted the idea that it would have to bargain away its nuclear capability or lose it. The Iranians are now wondering if this is still true and are undoubtedly pinging the Russians about the situation. Meanwhile, the Russians are waiting for the Americans to calm down and get serious. If the Americans plan to take meaningful action against them, they will respond in Iran. But the Americans have no meaningful actions they can take; they need to get out of Iraq and they need help against Iran. The quid pro quo here is obvious. The United States acquiesces to Russian actions (which it can’t do anything about), while the Russians cooperate with the United States against Iran getting nuclear weapons (something Russia does not want to see).

One of the interesting concepts of the New World Order was that all serious countries would want to participate in it and that the only threat would come from rogue states and nonstate actors such as North Korea and al Qaeda. Serious analysts argued that conflict between nation-states would not be important in the 21st century. There will certainly be rogue states and nonstate actors, but the 21st century will be no different than any other century. On Aug. 8, the Russians invited us all to the Real World Order.

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http://www.ft.com/cms/s/0/a2499aa6-5d9b-11dd-8129-000077b07658.html">

Andrew Gould is quietly becoming one of the most powerful men in the oil industry, so much so that he feels compelled to reassure the world’s biggest energy groups that he has no intention of making them redundant. “We do not, cannot and would not replace what oil companies do with things we can’t do,” says the chief executive of Schlumberger, the world’s largest oil services group, in a rare interview.

Yet the list of things Schlumberger cannot do has shrunk so dramatically that many national oil companies (NOCs) can now forgo the costly and politically tricky step of forming partnerships with international oil companies to tap their own oilfields. For the likes of ExxonMobil, BP and Royal Dutch Shell, that means losing the most lucrative part of their business – the part they have relied on to achieve growth in production, revenue and reserves for much of their existence.

Source: FT.com / Comment & analysis / Analysis — Nationals’ champion: How the energy-rich rely on Schlumberger

Stratfor is one of the best source for high-quality intelligence. A bit pricey, but no more than your usual newspaper subscription, and much more valuable as an investment. The following piece is both sharable and of something that’s of interest for everyone: the future attitude of China.

By Rodger Baker

Something extraordinary is happening in China, and we are not talking about the Olympics. Rather, Chinese officials have been clamping down on visa applications and implementing bureaucratic impediments to new and renewed visa applications under the guise of pre-Olympic security.

In some ways, Beijing’s plan for a safe and secure Olympics appears based on the premise that if no one shows up, there can be no trouble. But placing restrictions on the movement of managers and employees of foreign businesses operating in China, even if for a limited time as Chinese officials have been at pains to reassure, makes little sense from the standpoint of gaining political and economic benefits from hosting the Olympics. Something just isn’t right.

The Post-‘70s Economic Framework

Since China’s economic reform and opening in the late 1970s, China’s economic policy — and thus the basis for the overall development of the nation — has been based on a simple two-part framework. First, draw in as much foreign investment as possible and use the money and technology to strengthen China while using the subsequent economic leverage to secure China. And second, encourage growth for growth’s sake to ensure an ever-increasing flow of money through the system to provide employment and social services to a massive and urbanizing population.

Key to this policy has been creating a very open environment for foreign businesses, which bring money, technology and expertise and use their influence with their own governments to keep stable international relations with China — hence reducing international and economic frictions and increasing the efficiency of the supply chain. For more than two decades, Chinese national strategy has thus revolved around the principle of encouraging investment, joint ventures and wholly-owned foreign enterprises in China. There have been two foundations for this strategy: the evolution of financial facilities for transferring and controlling foreign money with a level of transparency nearing international standards, and the ease of movement of personnel in and out of China.

It is this latter point that recently has been hit the hardest. Over the past several months as the Beijing Olympics drew nearer, the Chinese government has effectively frozen up most financial reform plans. It also has issued a raft of new security measures not entirely unlike other host cities in the post 9/11 security environment. But China has gone several steps further than its predecessor hosts, placing official and bureaucratic impediments on visa applications. This not only has targeted potential “troublemaking” rights advocates, it has also impacted foreign businesses ranging from invited guests to the Olympic games to managers and employees of foreign companies in China.

Business and the New Visa Hassles

The visa restrictions in particular have been a source of angst for foreign businesses and business associations. Many smaller operations may circumvent Chinese regulations and travel on tourist visas (provided they can still obtain them). And there are ways around the tighter regulations or bureaucratic hurdles if one has the right connections or the willingness to apply several times or from different locations. But multinational corporations are less willing to jeopardize their operations by skirting the laws. Instead, they are making their concerns known to Beijing and hoping that restrictions are eased in September, as Beijing has rumored and hinted will occur.

In general, these visa restrictions have been brushed aside by foreign observers as simply paranoia on China’s part regarding protests or terrorist attacks during the Olympics. In many ways, however, this makes little sense. First and most obvious, the Olympics were supposed to highlight the opening of China — not restrict the very people who have made China a key part of the global economy. Second, imposing tight restrictions in Shanghai, the center of the Chinese foreign-domestic economic nexus, makes little sense on grounds of Olympic security since Shanghai is playing only a minor role in the games compared to Beijing and Qingdao. (Think shutting down visas to New York during the Atlanta games in the name of security, though Shanghai admittedly is hosting some soccer matches.)

Shutting down business visas to keep terrorists out makes little sense anyway — it is hard to imagine Uighur militants traveling on business visas as representatives of foreign multinationals. Furthermore, by restricting business visas — even if not across the board in a coherent fashion — China is putting a massive strain not only on the ability of businesses to trust Chinese regulations and business relations with the government, but also on the fluidity of the global supply chain. Shutting down or impeding visas affects much more than delaying the movement of a single individual into China; it impacts the ability of multinational corporations to move, replace or supplement managers and dealmakers in China. A delayed visa applications of just three months still represents an entire quarter that multinational corporations cannot reliably manage their businesses operations in China, and that doesn’t take into account the visa backlog when restrictions are loosened or lifte

d.

Disrupting an integral part of the global economy for a full quarter because of an international exposition makes little sense. The Germans in 1936 didn’t do it, the Russians in 1980 didn’t — no one has. One doesn’t simply shut down international business transactions for three months or more to stop a terrorist — and particularly not China, which depends on foreign direct investment. This is not simply an inconvenience for some people: It is the imposition of friction on a part of the system that is supposed to be frictionless. And it is not merely individuals who are affected, but the relations between mammoth companies.

A Period of Erratic Policies

China’s behavior has been erratic for several months now, if not for the past few years, with the implementation of new and often contradictory security and economic policies. These have all been brushed aside as somehow related to preparation for the Olympics. But they are in fact anomalous. China’s behavior is not that of a country trying to show its best side for the international community, nor that of a nation simply concerned about potential terrorist or public relations threats to the Olympic games. In another two months, after the Olympics and Paralympics have ended, it will become clearer whether this was a spate of excessive paranoia or a reflection of a much more significant crisis facing the Chinese leadership — and the evidence increasingly points toward the latter.

As mentioned, China’s economic policies in the reform and opening era have been based on the idea of growth. This in many ways simply reflects the Asian economic model of maintaining cheap lending policies at home, subsidizing exports, flowing money through the system and focusing on revenue rather than profits. In essence, it is growth for the sake of growth. This was the policy of Japan, South Korea, Indonesia, Malaysia and Thailand. And it led each of those countries to a final crisis point, striking Japan first in the early 1990s and the rest of the Asian tigers a few years later. But China managed to avoid each of the previous Asian economic crises points, as it was on the lagging end of growth and investment curves.

Following the Asian economic crisis, China fully recovered from the international stigma of Tiananmen Square and became the global economic darling. By the time the 21st century rolled around, China was already taking on the mantle of the Japanese and other Asians. It began to be labeled both an economic miracle and a rising power; a future challenge to U.S. economic dominance with all the political ramifications that brought. Were it not for 9/11, Washington would have squared off with Beijing to prevent the so-called China rise. The reprieve of international pressure that came when U.S. attention turned squarely toward Afghanistan and then Iraq freed China’s leaders from an external stress that could have brought about a very different set of economic and political decisions.

With the United States preoccupied, and no other major power really challenging China, Beijing shifted its attention to domestic issues, and its review quickly revealed the stresses to the system. These did not primarily come from “splittist” forces like the Tibetans or the Falun Gong, but rather from the economic policies that had brought China from the Third World to the center of the global economic system. Beijing is well-aware that should it continue with its current economic policies, it will face the same risk of crisis as Japan, South Korea and the rest of Asia. It is also aware that growing internal challenges — from the spread and invasiveness of corruption to geographic economic imbalances, from rising social unrest to massive dislocation of populations — are causing immediate problems.

Economics from Mao to Hu

Mao Zedong built a China designed to be self-sufficient and massively redundant. Every province, every city, every factory was supposed to be a self-contained unit, making the country capable of weathering nearly any military attack. Deng Xiaoping didn’t get rid of these redundancies when he opened the economy to foreign investment. Instead, he and his successors encouraged local officials to work to attract foreign investment and technology so as to raise China’s economic standard more rapidly. By the time Jiang Zemin was in power it had become clear that the regionally and locally driven economic policies threatened to throw China back into its old cycle of decentralization — and, ultimately, competing centers of power. Attempts by Jiang to correct this through the Go West program, for example, came to naught after meeting massive resistance in the wealthy coastal provinces. The central government accordingly backed off, shifting its attention to reclaiming centralized aut

hority over the military.

Hu Jintao has sought once again to try to address the problem of the concentration of economic power in China’s coastal provinces and cities through his Harmonious Society initiative. The idea is to redistribute wealth and economic power, regain central authority over the economy, and at the same time reduce redundancies and inefficiencies in the Chinese economy. With minimal external interference, Hu was able to test policies that by their very nature were going to sacrifice short-term social stability in the name of long-term economic stability. Growth was replaced by sustainability as the target; longer-term redistribution of economic growth engines would replace short-term employment and social stability.

This was a risky proposition, and one that met strong resistance in China. But the alternative was to sit back and wait for the inevitable economic crisis and the social repercussions thereto. In some ways, Hu was suggesting that China risk stability in the short term to preserve stability in the long run. But Hu didn’t anticipate the massive surge in global commodity prices, particularly of food and oil. This was compounded by increased international scrutiny over China’s human rights record ahead of the Olympics, natural disasters hitting at the availability and distribution of goods, a rise in domestic social unrest triggered by local government policies and economic corruption, several attempted and successful attacks against China’s transportation infrastructure, and the uprising in Tibet. Thus, the already-risky policies the central government was pursuing suddenly looked more destructive than constructive from the point of view of continued rule by the Communist Party

of China (CPC).

The global economic slowdown was the external impetus China feared — something that could undermine the flow of capital and leave Beijing unable to control the outcome of a reduction in the inflow of capital. At the same time, the internal social tensions triggered both by Hu’s attempts to reshape the Chinese economy and by the slow pace of those changes created a crisis for the Chinese leadership. It was hard enough internally to control a measured economic slowdown to reshape the economic structure of China, but quite another thing altogether to have such a slowdown imposed on China from outside at the very moment social stability was in a critical state at home.

A Government in Crisis

China’s rapid and contradictory economic and security policies, rising social tensions, and seemingly counterproductive visa regulations appear to be signs of a government in crisis. They are the reactionary policies of a central leadership trying to preserve its authority, stabilize social stability and postpone an economic crisis. At the same time, we see signs that the local governments, and even organs of the central government, are putting up steady resistance to the announcements coming from Beijing. Slapping restrictions on foreign businessmen may make little sense from a broader business continuity sense, but if the point is to begin breaking the backs of the local governments — whose strength lies in their relations with foreign businesses — then the moves may make more sense.

If the central government has reached the point that it is willing to risk its international business role to rein in wayward local officials, however, then the Chinese leadership sees a major crisis looming or already under way. It is one thing to toss out a few local leaders and replace them, quite another to undermine the structure of the Chinese economy for the sake of regaining control over local officials. But if Chinese history since 1949 (and really quite a ways before) is any guide, the core of the CPC leadership is willing to sacrifice social and economic stability to preserve power. One need only look at the Great Leap Forward, the Cultural Revolution or the crackdown at Tiananmen Square for evidence of this. Revolution is not, after all, a dinner party, and maintaining CPC control is paramount to the government.

After each major revolution or crisis, China eventually has recovered. The Cultural Revolution was followed by diplomatic relations with the United States, Tiananmen Square was put aside as China joined the World Trade Organization and surged ahead in gross domestic product (GDP). Certainly, there was change among the leadership and in the way the party dealt with policies at home and abroad. But if there is the likelihood of loss of control due to an impending economic crisis, better to have some role in shaping the crisis to preserve the chance of maintaining a role in the future political structure than to sit by and try to clean up as things fall apart. The Party in fact has a long history of taking a self-generated crisis/revolution over an externally or domestically initiated one.

It may be that the contradictory policies Beijing is tossing around these days will simply fade away after September and things will get back to “normal.” But already, Chinese officials are downplaying the previously hyped political and economic benefits of the Olympic games. They are now warning that economic conditions may not be so strong in the future, and at least internally discussing the distinct possibility that at least certain regions of China are facing the same economic crises faced by their mentors Japan, South Korea and the Asian tigers.

Internal Crises vs. the Economy

A recent article in the Global Times, a paper that addresses myriad topics of domestic and international significance and is read among China’s leaders, discussed how economics is not the best measure of strength. It referred to the overall comparative GDP and the size of China’s military in the late 1800s. Then, China was considered at its weakest, but from an economic or military perspective it could have been considered comparable to the global powers of the day. This hints at the deeper internal debate in Beijing, where true national strength and the role of the economy is under discussion. Assumptions that China is only focused on continued good economic ties with the world shouldn’t be taken as gospel — China has a track record of shutting down external connections when internal crises brew.

Numerous polices are being thrown around in firefighting fashion, including blocking or at least hindering foreign business movement in and out of the country and tightening the flow of foreign capital in both directions. They are coming in reaction to flare-ups in economic, environmental, public relations and social arenas. Energy policies are making less sense, imbalances in supply and demand are growing and seemingly contradictory policies are being issued. Social unrest, or at least local media coverage of such unrest, seems to be increasing; either is a sign of weakening control. Local officials are still failing to fall in line with central government edicts. Strategic state enterprises like China National Petroleum Corp., China Petroleum & Chemical Corp. and the China Development Bank are all defying state-council orders — and the State Council itself is apparently going head-to-head with major policy bodies long given control over economic policies.

Something extraordinary is happening in China. And while not everyone may want that to be the case, and so have sought to use the Olympics to explain things away, the easy explanation simply doesn’t make enough sense.

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Copyright 2008 Strategic Forecasting, Inc.