Wednesday :: Dec 24, 2008

The State Department and Transformative Foreign Policy

by eriposte

In the New Year I had planned to write a bit about what it means to say that we need an enlightened and transformative foreign policy starting in 2009. In my readings, I have found that, by and large, experts, commentators and bloggers have written about the need to exit Iraq as soon as possible in the best manner possible, complete the job in Afghanistan and address the Pakistan problem, do a better job of listening to and talking with our friends and enemies, and craft path-breaking solutions to long-standing problems like the Israel-Palestine issue and Iran, among other things. In promoting these foreign policy goals, various people have provided specific proposals or ideas (see for example, Richard Haass and Martin Indyk's piece "Beyond Iraq: A New U.S. Strategy for the Middle East" in the latest issue of Foreign Affairs). Clearly, a focus on all the aforementioned areas is very much desired and should undoubtedly be part of the new administration's foreign policy vision. Yet, I am a bit concerned that in doing all this, we will continue to approach the notion of foreign policy in piecemeal fashion - issue by issue - without a common transformative thread that guides our vision. Don't get me wrong - there will be specific transformative ideas on particular issues, however, I don't yet see a fundamental transformative principle of foreign policy articulated that would signify that we are talking about a truly enlightened and transformative vision that has not really been adopted in the past, even under the best administrations. (Talking to enemies may be transformative compared to what we faced in much of the Bush II era, but it is not truly transformative in a historical sense).

As if to pre-empt my writing, there is a New York Times article by Mark Landler and Helene Cooper asserting that Sen. Clinton, if she is confirmed as the incoming Secretary of State, is likely to drive a more expansive role for the U.S. Department of State that includes "a bigger budget, high-profile special envoys to trouble spots and an expanded role in dealing with global economic issues at a time of crisis". It's hard to comment on the significance of this article in any detail since the examples provided are merely anecdotal in nature. The article's use of anonymous sources - "people close to the Obama transition team" and "officials" - is unsurprising given its weak attempt to make Sen. Clinton's apparent vision seem like it could lead to a power struggle of sorts ("Given Mrs. Clinton’s prominence, expanding the department’s portfolio could bring on conflict with other powerful cabinet members"). In response, Charles Lemos at MyDD unfortunately took the bait somewhat and argued as follows (emphasis mine, throughout this post):

It bears pointing out that when it comes to global financial markets, clarity is important. There is little doubt that Senator Clinton will be a formidable Secretary of State, certainly the most powerful since James Baker and perhaps since Henry Kissinger. And there is little doubt that Senator Clinton can and should speak to global development issues where relevant but she should leave the complexities of global financial markets to the professionals at the Treasury Department. Global financial markets spook easily and clarity is paramount. If by an expanded role, Mrs. Clinton means greater coordination, that's fair but there should be no question that when it comes to economic policy it's the Treasury Department that should take the lead.

As president of the New York Federal Reserve Bank, Mr. Geithner worked with Fed Chairman Bernanke and Treasury Secretary Paulson in putting in place a stunning array of emergency measures to prop up the financial system after the collapse of Lehman Brothers. Still, the decision to let Lehman fail was a blunder but that misstep wasn't Mr. Geithner's alone.

Mr. Geithner is talented and capable, but he is certainly no match for Clinton's star power. It's important that she not eclipse him and let him shine on his own. After faltering under the Bush Administration, it is doubly important that we restore the Treasury Department to its previous higher standing in the Cabinet and not further dilute its authority.

Lemos' comments are understandable and have some merit, but they are a bit oversimplified. If taken too literally, his comments could be interpreted as an argument for a 1990s-style status quo - via a restored Treasury Dept. with it's traditional turf and a restored State Dept. with its traditional turf (after all, State was also reduced in importance during the Bush II era). In my opinion, compartmentalizing these departments in a traditional manner while giving Treasury almost total control over global economic policy would be a serious mistake that will likely result in a repeat of some of the terrible messes we've seen globally since the end of the Cold War. To turn up the contrast a bit, I would also be careful not to interchangeably refer to "global financial markets" and "[global] economic policy" as if these are one and the same thing. The argument for a predominantly Treasury Dept. role in managing global financial markets is reasonable, but Treasury-dominated global economic policy is not desirable in my view. Treasury should continue to have a major role in the latter but State has to have a far more significant role than it does today in influencing global economic policy going forward - and this, in my view, would provide the underpinnings of a truly transformative foreign policy for the 21st century. Let me explain why.

Firstly, few things affect the stability and future trajectory of a country more than its economic policies and how those policies benefit the majority of its citizens. National security and economic policy are not independent in most cases - in many countries, national security issues are largely traceable to underlying economic issues in some form or the other. Given that, it makes little sense to treat foreign policy as if it is independent from global economic policy. The latter is an integral part of the former.

Secondly, a fundamental problem I have with giving the Treasury Dept. virtually complete rein over how to shape or influence economic policy globally has to do with the fact that not many people in Treasury necessarily understand the inner workings of foreign countries and relevant aspects of their history, culture and demographics - some or all of which could have significant ramifications depending on the economic policies each country pursues. This is not the fault of Treasury per se because that kind of knowledge or working experience is not usually part of traditional Treasury job requirements. However, in today's highly interconnected world, depth of international knowledge and even in-country exposure should be an integral part of the requirements for being involved in economic policy decisions that significantly impact those countries. This is the kind of knowledge and experience best found in the State Dept.

You might legitimately ask, aside from my generalities above, what is the compelling need to link foreign policy to global economic policy? The modern history of the world provides the answer. I happen to be a proponent of free, but fair, markets and of intelligent globalization, but there is one thing that I agree with anti-globalization activists on, namely, that the U.S. (and the World Bank/IMF/other Western countries) should not be forcing pre-determined and sometimes untested economic ideologies on other countries without understanding the likely longer-term ramifications of those policies and other policy alternatives. After all, we now have an enormous amount of real world data over the last 2 decades that makes it clear that the cost of ideological and poorly thought-out economic demands on foreign countries could be large scale destabilization and, sometimes, foreign policy nightmares that State - and even Defense - will be left to deal with. It would be no exaggeration therefore, to say that an enlightened and truly transformative foreign policy is fundamentally not possible without a very good understanding of the economic and political/demographic factors that are in play in each country.

To understand this further, let us start with what Yale Law Professor Amy Chua wrote several years ago in her excellent book "World on Fire":

The prevailing view among globalization's supporters is that markets and democracy are a kind of universal prescription for the multiple ills of underdevelopment. [In this view] Market capitalism is the most efficient economic system the world has ever known. Democracy is the fairest political system the world has ever known and the one most respectful of individual liberty. Working hand in hand, markets and democracy will gradually transform the world into a community of prosperous, war-shunning nations, and individuals into liberal, civic-minded citizens and consumers. In the process, ethnic hatred, religious zealotry, and other "backward" aspects of underdevelopment will be swept away.

Thomas Friedman has been a brilliant proponent of this dominant view....


By contrast, the sobering thesis of this book is that the global spread of markets and democracy is a principal, aggravating cause of group hatred and ethnic violence throughout the non-Western world. In the numerous societies around the world that have a market-dominant minority, markets and democracy are not mutually reinforcing. Because markets and democracy benefit different ethnic groups in such societies, the pursuit of free market democracy produces highly unstable and combustible conditions. Markets concentrate enormous wealth in the hands of an "outsider" minority, fomenting ethnic envy and hatred among often chronically poor majorities.... (pages 8-9)


When free market democracy is pursued in the presence of a market-dominant minority, the almost invariable result is backlash. This backlash typically takes one of three forms. The first is a backlash against markets, targeting the market-dominant minority's wealth. The second is a backlash against democracy by forces favorable to the market-dominant minority. The third is violence, sometimes genocidal, directed against the market-dominant minority itself. (page 10)

Chua is actually a supporter of free markets and globalization - so her book does not advocate against it ideologically. However, she believes, as I do, that "free" markets and globalization are concepts that have to be tuned to the history, demographics, culture and economic conditions in each country. Her book discusses compelling data from country after country to show how the notion of "free markets" and "globalization", without an adequate social safety net for the poor, played out across the globe since the end of the Cold War - pitting market-dominant minorities against poorer ethnic majorities. Examples include the dynamics surrounding the ethnic Chinese minority in South-East Asia (e.g., Burma/Myanmar, Philippines, Malaysia, Indonesia, Thailand, etc.), the "whites" (locals with European ancestry) in parts of Latin America (e.g., Venezuela, Bolivia, Peru, Ecuador, Guatemala), Jews in Russia and some of its former republics (Ukraine, Belarus), various market-dominant minorities in sub-Saharan Africa (e.g., Whites in South Africa, Zimbabwe, and Namibia, Tutsis in Rwanda, Indians in Kenya, Lebanese in several countries of West Africa including Sierra Leone, etc.), Croats and Slovenes in the former Yugoslavia, and others. Alert readers would have noticed at least a few major global trouble spots in that list - where genocide occurred. [NOTE: For those who have followed the horrible genocide in Darfur (Sudan) over the years, we have a not dissimilar situation there with the market-dominant (large) Afro-Arab minority that is concentrated in northern Sudan and the poorer native African majority which is concentrated more in rural Southern Sudan - not to mention the history of Arab-African slavery that preceded the current conflict. No doubt, the Darfur conflict, like in all the other cases above, is not just because of ethnic minority-majority discord ignited by deep economic distress from ill-thought out policies - there are other convoluting factors - but it is interesting to me that the dimension of economic and ethnic disparity between minorities and majorities failed to figure in the discussion of "5 Truths About Darfur" in the Washington Post - where Emily Wax essentially ruled out religion and skin color, barely mentioned ethnicity and then astonishingly and naively attributed the source of the conflict to "politics".]

There's a second critical aspect highlighted by Chua - how the non-Western world often views Western-style globalization - that is often overlooked by Western observers or experts. As she says:

...there are important links between colonialism and the phenomenon of market-dominant minorities. Not only were the colonialists themselves market-dominant minorities, but colonial divide-and-conquer policies favored certain groups over others, exacerbating ethnic wealth imbalances and fomenting group tensions. (pages 120-121)

It is hard to overstate this issue because colonial history is not easily forgotten in the large number of countries across the world that were formerly parts of the worldwide empires of European states. This is not a new phenomenon and it generally traces back to the post-WWII era. For instance, after independence from British rule in 1947, political leaders in India were positively disposed to American or British style constitutional democracy, but harbored widespread suspicions for a long time about American-style capitalism largely because capitalist policies were associated in people's minds with imperialism-era economic policies thrust on India by the former British rulers. Leaders like Indian Prime Minister Jawaharlal Nehru never really favored Communism as an economic model (and actually fought Communist insurgencies by force and Communist parties in India at the polls) but leaned heavily towards a socialistic economic model to build the Indian economy, from the mess that was left behind by the British. As Indian historian R. Guha points out in his splendid book "India After Gandhi: The History of the World's Largest Democracy":

The [British] Raj was frequently (and for the most part, justly) accused of deliberately discouraging [indigenous] Indian enterprise, and of distorting the tariff and trade structure to favor British firms. While some Indian capitalists were studiously apolitical, others had been vigorous supporters of [India's] Congress [Party]. They naturally hoped that when freedom came, the biases would be reversed, placing foreign capitalists at a disadvantage. [5] (pages 203-204)

Guha goes on to quote influential economist John Kenneth Galbraith's "Rival Economic Theories in India" published in Foreign Affairs in 1958, to add:

If India had to be industrialized, which model should it follow? To the leaders of the national movement, 'imperialism' and 'capitalism' were both dirty words. As John Kenneth Galbraith pointed out, 'until recent times a good deal of capitalist enterprise in India was an extension of the arm of the imperial power - indeed, in part its confessed raison d'etre. As a result, free enterprise in Asia bears the added stigmata of colonialism, and this is a formidable burden.' [6] (page 204) 

It should therefore be no surprise that it wasn't just the political class in India (from the far Left to the far Right) that was skeptical about free enterprise and capitalism back in 1947, but concerns were shared even by India's economics and business elite. As Guha points out, a National Planning Commission (NPC) was set up in 1938 by the Indian Congress party and:

From Japan and Russia the NPC took the lesson that countries that industrialized late had to depend crucially on state intervention. This applied with even more force to India, whose economy had been distorted by two centuries of colonial rule. [...] There were large areas of the economy where the private sector could not be trusted, where the aims of planning could be realized only 'if the matter is handled as a collective Public Enterprise.' [10]

Notably, the private sector concurred. In 1944 a group of leading industrialists issued what they called A Plan of Economic Development for India (more commonly known as The Bombay Plan). This conceded that 'the existing economic organization, based on private enterprise and ownership, has failed to bring about a satisfactory distribution of the national income.' Only the state could help 'diminish inequalities in income.' [...] In the early stages of industrialization, they argued, it was necessary that 'the State should exercise in the interests of the community a considerable measure of intervention and control.' Indeed, 'an enlargement of the positive as well as preventative functions of the State is essential to any large-scale economic planning'. [11]  (pages 204-205)

In part due to India's reluctance to open its markets and embrace American-style capitalism and due to India's move towards socialism, the U.S. State Departments under Dean Acheson (1949-1953 during Democratic President Harry Truman's regime) and John Foster Dulles (1953-1959 under Republican President Dwight David Eisenhower's regime) never really warmed up to India or to then Indian Prime Minister Jawaharlal Nehru (who didn't help matters with this). In effect, the U.S. failed to understand some of India's deep-seated concerns that in reality had less to do with America specifically and more to do with what was perceived as imperialist (colonialist) economic policy - which led in turn to the perception that the United States was "soft" on colonialism. In not comprehending the unique economic issues driving post-independence India, the United States presumed India to be "soft" on Communism and lost an opportunity to build stronger bridges with India prior to the end of the Cold War, despite India's strong desire to be a constitutional democracy. Instead, the U.S. forged closer ties with and funded autocratic dictatorships in a self-described Islamic state - Pakistan - a country that has arguably become the most dangerous place in the world today. The drift away from the U.S. led India to form a closer bond with the U.S.S.R. for geopolitical reasons, despite India's discomfort with Communism as an economic model for the country and India's general distaste for an authoritarian or fascist model of Government. This unfortunate sequence of events might have been preventable if we had truly visionary foreign policy. (Eventually, after the end of the Cold War, U.S.-India relations thawed and improved in no small part due to President Bill Clinton and in part due to President George W. Bush.)

A lot has changed in India in the last decade and for good reasons. I certainly don't want to turn this post into a discussion of Indian economic policy - there will be other occasions to do that since it is an important subject in its own right, given the emergence of India as a future economic powerhouse. However, the main reason for the excerpts above is to highlight the fact that for the United States to successfully drive sound global policy, there needs to be significant effort made to understand the country-specific (and sometimes region-specific) history, culture, demographics and economic experience before trying to force or persuade any country to adopt a particular set of economic policies. This is particularly true given the current, systemic, economic meltdown in the U.S. that has made even capitalism-friendly countries across the world skeptical about America's claimed leadership in economic ideology. Based on its track record in the last 2 decades, I don't have very high confidence that the U.S. Treasury Department has the extensive knowledge-base, expertise or perhaps even the time, to develop this type of understanding on its own.

My skepticism is also founded on the work of Nobel Prize winning economist and one-time Chairman of President Clinton's Council of Economic Advisors - Joseph Stiglitz - who wrote trenchantly in his book "The Roaring Nineties: Seeds of Destruction" about American global economic policy and the problems that ensued, some of which eventually became headaches or crises for our State Department. To make matters worse, the U.S. pushed policies abroad that were not really followed diligently at home, exposing America to charges of hypocrisy, thereby making it very difficult for foreign countries to consider us credible. Stiglitz discusses how America told developing nations to cut subsidies and open their markets while we maintained stiff barriers or subsidies in some key sectors, how we used deficit spending to get out of downturns while pressing struggling economies worldwide to balance their budgets, how we pushed to secure our Government funded safety nets like Social Security while urging foreign countries to privatize as much as possible, how we focused not merely on inflation but also growth and unemployment but forced foreign aid recipients to focus largely on reducing inflation, and so on. He also adds:

Some of our problems abroad were caused by how we interacted with other countries, especially weaker developing nations. Acting as if we had come up with a unique, guaranteed formula for prosperity, we - sometimes with the assistance of other advanced industrial countries - bullied other nations into doing things our way. [...] Cut that budget. Lower that trade barrier. Privatize that utility.  Like some physicians, we were too busy - and too sure of ourselves - to listen to patients with their own ideas. Too busy, sometimes, even to look at individual countries and their circumstances. The economists and development experts of the Third World, many of them brilliant and highly educated, were sometimes treated like children. Our bedside manner was dreadful; and, as one patient after another couldn't help noticing, the medicine we dispensed abroad was, in important respects, not really the same stuff we drank at home.


The policy framework we pushed abroad was the one that would help our businesses do well abroad. At home, there was a check on these policies, caused by our concern for consumers and workers. Abroad, there was none. (pages 23-24)


But, again under the influence of finance, abroad we pushed a market fundamentalist set of reforms, in any way we could, paying little attention to how what we did undermined democratic processes. [8] (page 25)

The key phrase is "under the influence of finance". Global economic policy has can be managed by the Treasury but it should be under the influence of State.

During the Bush II era many of these problems with the U.S. approach to the rest of the globe never really got addressed - and the situation got worse. The Bush era was marked by an astonishing amount of arrogance from the President on down and often a reluctance to really listen to America's critics abroad to understand the internal challenges they face and how we could more effectively spread capitalism and constitutional democracy in the long run. This attitude, coupled with the Bush administration's unprovoked invasion of Iraq, worsened America's relationship with the world dramatically. This is at the root of the foreign affairs mess that President-Elect Barack Obama and his Secretary-of-State-nominee Hillary Clinton are inheriting.

Fixing this mess is going to take a lot more than a return to a traditional, 1990s-era, largely decoupled, global economic and security policy framework (even though that would be a major improvement from where we are today). It requires something truly transformative - an effort that uses the learning from the Bush I and Clinton years to put our foreign policy on much more solid footing by integrating global economic policy more intelligently and coherently with our broader foreign policy vision. Therefore, specifically as it pertains to the State Dept., in addition to superior negotiating and diplomatic skills that are a basic ingredient in driving successful foreign policy:

  • The State Dept. should be led and staffed by people who have a good working knowledge of foreign affairs and a strong desire not just to learn more about other countries we are dealing with but also to listen to them even if we disagree with them strongly from time to time (something that Sen. Obama has championed and which I wholeheartedly support him on). A key goal of listening, though, is to make sure we develop a deeper understanding of country-specific or region-specific issues that are otherwise easily overlooked or glossed over, so that our overall foreign policy is far more informed and judicious in the future. We should listen not just to heads of state and their representatives, but where possible, to leaders of other legitimate political parties in each country who might provide additional perspective about local conditions and historical trends.
  • The State Dept. should have an expanded role and adequate say in Treasury Department (and World Bank/IMF) decisions involving other countries - decisions that are likely to materially impact those countries and their political or economic stability. I don't have a specific suggestion yet on how this role should be implemented, but it cannot just be through a toothless liaison office that has no real power or influence. Additionally, some level of in-country experience for Treasury Department officials - including expanded exposure to local economists of all ideologies - should be mandated.

Let me close by urging President-Elect Sen. Obama to make it his mission to empower the State Dept. as a significant stakeholder in any major decisions with international scope, especially economic policy decisions. I would urge Treasury Secretary nominee Timothy Geithner to view the State Dept. not as an adversary when it comes to global economic policy but as a key partner. And finally, I would like to encourage Secretary-of-State nominee Sen. Clinton to push forward with a truly enlightened and transformative foreign policy strategy that goes beyond the traditional model and pushes the envelope in terms of deeper engagement with countries across the world. Successful execution of foreign affairs requires not just reactive diplomacy and negotiation. Proactive management of our relationships is critical and will yield far more returns in the years to come. Proactivity requires an enlightened foreign and truly transformative policy where intelligent global economic policy is tightly coupled with the traditional instruments of foreign policy. This might very well be the reason for Sen. Clinton's interest in expanding the role of State into "global economic issues", if that is indeed the case.

eriposte :: 8:12 AM :: Comments (4) :: Digg It!