Privatization

Blackwater is Perfect for Dark Duties

Cecille Isidro — Thu, 11 Oct 2007 11:53:00 -0400

So what’s good to be said about Blackwater, the private security contractor -- critics say "rogue mercenary force" -- that has been operating in Iraq? You know, the company involved in the Sept. 16 lethal shooting incident in Baghdad, whose founder, Erik Prince, was kicked around at a Capitol Hill hearing last week?

Only this: Blackwater is what America wanted. Even if few Americans had ever heard of the company until recently, most voters have generally supported the decades-long bipartisan trend toward governmental downsizing, "reinvention" and outright privatization. Founded in 1997 and first funded by the Clinton administration, Blackwater, for better or worse, is a perfect emblem for entrepreneurial America.

President George W. Bush likes this policy direction, even if he fails to understand its implications. On the one hand, he speaks of the "global war on terror" as "the work of generations." Yet on the other, there’s little evidence of genuine mobilization for such an extended struggle; even the hawkiest politicians shy away from advocating a draft. Indeed, fewer active-duty Americans wear the uniform today than in 1950.

So are we serious about fighting our wars, and managing our "low intensity conflicts," or not? The answer is: "Yes, but..." That is, yes, we want to be able to project force, but we want to do so in a "modern" way. And these days, "modern" means "businesslike." The old language of civic sacrifice has been displaced by a new utilitarian lingo of cost-benefit analysis.

Of course, that’s increasingly the way the country operates. Pop stars and athletes make millions of dollars a year; fans are in on it, too, following news of big paychecks as closely as they track gigs and games. And who gets more admiring attention nowadays than Wall Streeters and hedge funders, who make tens of millions, even hundreds of millions, a year?

By contrast, a sergeant in the Army with eight years of service, including a few combat tours, might make $30,000. What sort of message does that send to young people sorting out their career options? Happily, plenty of men and women choose to stay in uniform, but many eventually find the private sector irresistible.

Blackwater is one such career option. In a recent session convened by The American Spectator magazine, Prince made a CEO-y pitch for his company. Using modern non-bureaucratic management techniques, such as differential pay for differential skills and performance -- and extra money for, say, working over the Christmas holidays -- Blackwater can, he says, deliver more value for the taxpayers.

And what of those shootings in Iraq? Well, that’s off the record. Suffice it to say that Prince is fully aware of the investigators and litigators circling his company, and yet the onetime Navy SEAL, still ramrod straight in posture and deportment, has no intention of bowing down.

Indeed, Prince is sometimes startling in his independence -- even to those who pay his fees. The "surge" notwithstanding, the Blackwater man sees no decrease in the number of attacks on his teams in Iraq. Yet even more startlingly, he declares that American troops "should not be on the ground for more than 90 days." That is, after that much time, GIs are sure to wear out their welcome.

Some might say it’s good for Prince’s business for even more war-fighting to be privatized. But his suggested "term limiting" of American military occupation is an implicit criticism of the Bush administration, which hopes to see troops in Iraq for decades to come.

In fact, Americans aren’t likely to stay in Iraq too much longer; there aren’t many Muslim places where Christian soldiers are welcomed. And that’s the best argument for using contractors: If we find ourselves in murky situations around the world, it’s probably better to deploy shadowy companies, avoiding the Stars and Stripes bannered overhead.

For missions in a "long twilight struggle," what’s a better name than Blackwater?

Reining in Military Contractors

adminn — Wed, 20 Dec 2006 07:35:00 -0500

It's unlikely that many Americans know Stewart W. Bowen Jr. They should. As the Special Inspector General for Iraq Reconstruction (SIGIR), Mr. Bowen has helped save taxpayers billions of dollars. His audits of reconstruction contracts have turned up waste, mismanagement and fraud; and his investigations led to four criminal convictions and embarrassed excuses from the U.S. government's biggest military contractors.

Yet, for all his good work, some in Congress are not terribly appreciative. On the eve of recent mid-term elections, an amendment, buried deep within a military authorization bill, closed down Bowen's office. After media outrage, congressional leaders scurried to give his job back. But, the symbolism of this surreptitious effort is rich -- after three and half years of abdicating its oversight responsibility of the U.S. military, Congress finally reasserted itself. It's about time, because when it comes to supervising military contracting, there is long overdue work to be done.

Over the past five years, the use of private groups has exploded with an estimated 40 cents out of every discretionary federal dollar going to contractors. While certainly private contractors are sometimes more capable of providing efficient, customized solutions, congressional scrutiny of this growing privatization, particularly in the realm of national security, continues to lag.

In few places is the growth in contracting being felt more acutely than the U.S. military. A recently released Pentagon census of civilians working in Iraq shows that an astounding 100,000 private contractors are supporting the U.S. military effort in Iraq. That's four times greater than the Pentagon's previous working estimate and only 40,000 less than the number of U.S. military troops in Iraq. It's a virtual army of largely unregulated individuals working on behalf of U.S. national interests. To date, more than 650 private contractors have been killed in Iraq -- more than all non-U.S. coalition fatalities combined.

Today private contractors have become an essential element of U.S. military strategy -- with little to no congressional oversight or investigation. Not only are contractors training police, cooking meals, and transporting weapons they are being asked to provide security services that were once the sole purview of the military, including convoy protection and at times, even engaging the enemy. In a 2004 incident, eight Blackwater contractors fought off an attack on the Coalition Provisional Authority headquarters in Najaf. They did so without support from the U.S. military.

And as the situation in Iraq has deteriorated, the cost of this "private security" has skyrocketed. At the start of U.S. involvement, 7 to 10 percent of total project costs were estimated for security expenses. Today, that figure has doubled, making some essential infrastructure projects prohibitively expensive.

There is real question as to the level of savings that taxpayers are receiving from these groups. A recent investigation of a three-year, $1.1 billion police training program in Afghanistan, headed by the private contractor DynCorp, found that the effort had been an abject failure as police trainees were unable to carry out even basic law enforcement functions. Not surprisingly, the report also found serious deficiencies in U.S. government contracting procedures. Without able management and vigilant monitoring, outsourcing can not only waste money, it can actually endanger U.S. national interests.

But the need for oversight goes well beyond the financial.

The privatization of national security blurs the once clear line where public authority ends and private initiative begins. Many firms continue to operate in a legal gray zone. Contractors are not bound by the Uniform Code of Military Justice and while some international human rights conventions apply to armed civilians, enforcement of these rules in Iraq has been virtually non-existent. Civilian contracting also creates operational challenges as private security contractors operate separately from the U.S. military yet are still seen as part of the nation's military force. Finally, without proper congressional oversight contractors can become a political tool of the executive branch, further marginalizing the role of the Congress in national security; these private groups allow policymakers to deploy force without incurring the political costs of sending troops -- or necessarily congressional authorization.

Both the State Departments and Pentagon have been developing ideas for clarifying the role of private contractors. Industry initiatives are also afoot. But Congress needs to engage in this process by not only ensuring that it is gathering input from a wide group of stakeholders, but also confirming that its mandates are being implemented. In the age of an all-volunteer military, the use of private military contractors is likely here to stay. The challenge for legislators and policy-makers is to carve out appropriate spheres of activity for private contractors and military personnel in intelligence gathering, law enforcement, security and criminal justice functions. More than ever, the American public, and their representatives in Congress, must have a say.

Comments Opposing Expansion of Licensing in 900MHz Shared Unlicensed Band

Wireless Future — Tue, 30 May 2006 18:26:00 -0400

NAF, et al. vigorously oppose adoption of the Notice as proposed. The proposed rules virtually replicate the 2002 Petition by Progeny LMS, LLC (Progeny Petition), which attracted considerable opposition from a broad cross-section of industry groups. Other than the continued failure of the L-LMS Band -- a risk reflected in the absurdly low prices the licenses brought at auction -- the NPRM offers no justification for adopting the proposal.

To the contrary, an objective reading of the facts creates the inescapable conclusion that circumstances since 2002 have made the Progeny Petition Proposals even more objectionable and contrary to the public interest. The 900 MHz band has become ever more intensely used by Part 15 "unlicensed" devices ranging from such prosaic but useful and ubiquitous devices as meter readers, to competitive last mile broadband solutions, to critical emergency response equipment. By contrast, the L-LMS licensees have largely failed to complete buildouts and offer service. Further, as the NPRM itself observes, numerous other technologies provide similar, or even superior, service of the kind initially envisioned for L-LMS.

Few licensees, however, seem less worthy of the Commission's sudden charity than the M-LMS licensees. The licensees acquired the licenses for a pittance in 1999, fully aware of all of the rules and limitations of the service. When the licensees failed to meet the specified buildout requirements, the Commission responded by extending their deadlines. Further failure on the part of the licensees has brought only additional rewards in the form of further extensions and proposals to expand the licensees' spectrum rights at the expense of those using the band intensely and efficiently. The Commission appears to have completely abandoned the comprehensive, forwardlooking approach painstakingly arrived at by the Spectrum Policy Task Force in favor of a return to its discredited practice of encouraging licensees to speculate and game the Commission's rules. This undermines the efficiency of the Commission's spectrum management policies and encourages speculation as licensees increasingly treat Commission obligations such as buildout requirements and service limitations as suggested guidelines the Commission will modify on request rather than as rules they must obey.

For the complete document, please see the attached PDF version.

A Katrina Voucher Compromise

Cecille Isidro — Wed, 26 Oct 2005 00:00:00 -0400

"Remember Max Cleland" are three words that should haunt Democrats who want to oppose President Bush's new school voucher plan for children displaced by Hurricane Katrina. Mr. Cleland, a triple amputee from his service in the Vietnam War, was Georgia's junior U.S. senator until defeated for re-election in 2002 amid charges of weakness on national security.

Those charges stemmed from his opposition to Mr. Bush's response to 9/11: creation of a Department of Homeland Security free from civil service union rules. Mr. Cleland stood with the unions against Mr. Bush.

In response to Katrina, Mr. Bush has proposed up to $7,500 private school vouchers for displaced children--an idea that the teachers unions hate as much as the unions hated Mr. Bush's Homeland Security Department proposal.

The Bush school voucher initiative has Democrats in a political bind. Either they say no to their teachers union allies and embrace vouchers or they stick with the unions and risk being punished at the polls as insensitive to the needs of more than 300,000 displaced children, many of whom are now desperately poor.

But there is a way out of the voucher vise for moderate Republicans and nonideological Democrats who want to help displaced Katrina kids attending private and public schools while still rejecting Mr. Bush's plan. To do it, the entire public education community has to support "portable, in-kind education aid" for the Katrina children in private and public schools.

Remember Green Stamps? Thirty years ago, families earned them at the supermarket. Think of portable, in-kind education aid as "school stamps" that can be exchanged for government-approved education items such as books, desks, computers and mobile classrooms. Public and private schools would be able to exchange those stamps for tangible education items that they could choose from a state-approved list. The items would be leased from and distributed by the state without charge.

School districts and private schools with as few as 10 Katrina children would be eligible, and all items would have to be secular, neutral and nonsectarian in nature.

This type of delivery mechanism, similar to one used in a small federal education block grant program known as Title V, is a hassle for private school educators who would rather receive cash to offset costs associated with unexpected Katrina children.

But providing school stamps or their equivalent is the only way the government can be reasonably assured that taxpayer dollars intended to pay for the education of Katrina children are not wasted on administrative expenses for which no one is publicly accountable or, worse, on corruption.

There are two main problems with Mr. Bush's Katrina school voucher proposal.

First, it doesn't limit use of public money to books, desks or school uniforms. It pays for anything at a public or private school's discretion, including teaching religion.

Second, it assumes that Katrina parents exercised genuine school choice when, in fact, they did not because in a moment of crisis they placed their children in whatever schools they could. It's naive to believe that significant numbers of displaced Katrina children will, or even should, be moved again whenever one-year-only voucher money becomes available.

Portable, in-kind education aid avoids excessive entanglement with religious institutions, maintains public accountability over taxpayer dollars and helps the Katrina children. Mr. Bush's proposed short-term voucher plan fails to promote free-market competition and risks direct support of religious instruction.

If adopted, portable, in-kind education aid could be a model for school voucher compromises.

Before Katrina, the unions had enough moderate Republican and Democratic votes to defeat a federal school voucher program. But Katrina changed the voucher vote count, and those opposed ideologically to vouchers must now change as well.

The teachers unions and ideologues on the left still won't want to see taxpayer dollars go to private schools, even derivatively. But they should accept a portable, in-kind school aid compromise because in Katrina's wake, they no longer appear to have the votes to stop a voucher program, absent a viable alternative.

Conditions should be placed on the proffered school stamps alternative, including prohibiting private schools that want to participate from discriminating against children according to their race, religion, English proficiency or disability. But something should be offered to displaced Katrina children attending private schools. In politics, at a time of crisis, something almost always beats nothing.

Public and private schools have filled a desperate void in the Katrina relief effort. Many schools that opened their doors to displaced Katrina children have increased costs ranging from a need for more desks to increased mental health services. The federal government should help pay the bills, but not in a way that exploits the tragedy of Katrina to further an ideological agenda.

Now more than ever, the American people want compassion and competence from their government.

Public Safety at Stake

Communications — Wed, 19 Oct 2005 00:00:00 -0400

A New America Event
10/18/2005 - 12:00pm

From the fire fighters who died on 9/11 to the rescue workers struggling to help victims of Hurricane Katrina, the absence of reliable and interoperable voice and data communications among public safety agencies has become an urgent national dilemma. Within the coming weeks, the Senate Commerce Committee will mark up DTV legislation likely to impose a hard deadline on the clearance of TV channels 52 to 69 -- freeing up precious spectrum for public safety voice interoperability and for… more

Privatizing Foreign Policy

Ron Tang — Wed, 31 Aug 2005 20:00:00 -0400

In August 2000, a motley array of democracy activists, politicians, and fringe nationalists trudged into a hotel in Budapest. The assembled figures constituted the leading members of Serbia’s political opposition movement -- a fractured and increasingly desperate group. Only weeks earlier, Serbian president Slobodan Milosevic, hoping to catch his erstwhile opposition off guard, had announced snap presidential elections. After watching his domestic opponents spend eight years repeatedly snatching defeat from the jaws of victory, Milosevic was confident. But this time, Serbia’s democratic leaders had a secret weapon -- a bespectacled, Harvard-educated political consultant armed with a PowerPoint presentation.

Doug E. Schoen, who had worked for Bill Clinton and numerous foreign political leaders, had spent several years polling the Serbian electorate. The results were always the same: Milosevic was deeply unpopular, but so too were the individuals gathered in Budapest. Their incessant infighting caused many to wonder whether these nascent democrats were truly serious about bringing political change, or simply wanted to further their own narrow political agendas. Zoran Djindjic, the nominal favorite to run against the Serbian strongman, was a highly flawed candidate. He had fled Serbia during the NATO bombing of Kosovo in 1999, and thus many Serbs viewed him as a coward. “I can’t win, can I?” he asked Schoen. “No,” Schoen responded.¹

After a pause, Djindjic asked, “What about Kostunica?” referring to Vojislav Kostunica, the leader of a minor opposition party and a former law professor. Schoen’s polls showed that of all Serbia’s opposition politicians, Kostunica was the best candidate -- combining strong nationalist credibility with low “unfavorability” ratings. With Schoen’s urging, the Serbian opposition united behind Kostunica’s candidacy, and within months a key element of U.S. foreign policy in the Balkans had been realized -- Slobodan Milosevic was out of power and headed to the war crimes tribunal in The Hague.
Was a political pollster single-handedly responsible for toppling Slobodan Milosevic? Not exactly, but after eight years of sanctions, smart bombs, and fervent, often fruitless, diplomacy, a new and unexpected weapon for defeating him had been found -- namely a non-state actor, working in concert with U.S officials but motivated as well by market-driven impulses and personal altruism.

This wasn’t the first time that non-state actors (or NSAs) had played a leading role in the Balkan conflict. In 1995, private military contractors -- with the active support of the Clinton administration -- trained the Croatian army for its military offensive against Serbian rebel-held positions in Croatia and Bosnia, which helped push the region’s warring parties toward peace talks.

This is one small example of what may be the most important yet misunderstood political and social developments of the post-Cold War era: the growing prominence and influence of NSAs in global affairs. Non-state institutions, corporations, and advocacy groups are playing an increasingly prominent role in nearly every aspect of foreign policy, from promoting democracy, providing humanitarian relief, and fighting international terrorism to propelling economic liberalization, curing disease, and even waging war. The international landscape abounds with examples:

•After more than a decade of international sanctions, Libya was finally forced to accept culpability in the 1988 bombing of Pan Am flight 103 over Lockerbie, Scotland, in part due to a civil lawsuit initiated by the families of the victims and a group of enterprising trial lawyers.

•In 1997, a determined activist -- using email as her tool -- brought together an array of human rights advocates to lead a global campaign to ban landmines.

•Stretched thin by multiple conflicts in Afghanistan and Iraq, the U.S. military has increasingly relied on private military contractors. As a result, more than 20,000 unregulated military contractors, equivalent to a U.S. Army division, serve in Iraq alongside coalition forces.

•Contagious diseases that threaten millions are being attacked as never before by philanthropists and corporations with both the will and the pocketbooks to make a difference.

For more than three centuries, the nation-state has served as the foundation of the global political order -- hence the “international” system. Although the nation-state remains dominant, no longer can it necessarily be considered preeminent. With the fading of superpower rivalry, the advent of economic and political globalization, the diminished role of the state in economic affairs, the absence of strong supranational authorities, and the spread of new communication technologies, the role of the nation-state has dramatically eroded.

In 1997, Jessica Matthews, now president of the Carnegie Endowment for International Peace, in a seminal article in Foreign Affairs, noted that the “end of the Cold War has brought about a novel redistribution of power among states, markets, and civil society. National governments are not simply losing autonomy in a globalizing economy. They are sharing powers... with businesses, international organizations, and a multitude of citizen groups known as nongovernmental organizations.”² The “power shift” that Matthews and others discerned has since gained momentum.

Over the past decade, the way we view foreign policy has fundamentally shifted. While the years from the Treaty of Westphalia in 1648 to the fall of the Soviet Union in 1991 was the era of the nation-state, the period since may be viewed in a vastly different light as the era of the non-state actor. The challenge for policymakers is to comprehend the full panoply of NSAs, how states can most effectively engage them, and the partnerships that can be created in furtherance of foreign policy goals.

A New Foreign Policy Market

The role of non-state actors in international affairs is not a recent development. The United Fruit Company and the British East India Company virtually guided foreign policy in Central America and the subcontinent in their day. Organizations like the Red Cross and anti-slavery groups influenced international affairs in the past, as multinational corporations do today. In the waning years of the Cold War, nongovernmental organizations (NGOs) pressed successfully to bring environmental issues and human rights concerns to the world’s attention. However, non-state actors largely operated within the framework of a state-centric system. What is most striking about NSAs today is that while some collaborate intimately with states, others tend to operate by their own rules, and are often guided by their own parochial interests -- interests that may run counter to those of their home governments. Moreover, NSAs are demonstrating a growing ability to project their power and influence across borders, often without regard to formerly sacrosanct notions of state sovereignty.

NSAs cannot function without the regulatory framework that states provide, but that does not mean that they are necessarily beholden to their home governments.³ If anything, there is increasing evidence that states themselves are in fact becoming more dependent on a whole host of non-state actors. Could the United States, for example, fight its war in Iraq without private military contractors? Could it promote democracy around the world without the involvement of NGOs, political consultants, and emerging civil society movements? Could economic liberalization have proceeded so quickly without the leverage of international investment and the prominence of global capital markets? Would efforts at AIDS prevention and education be as effective without the involvement of philanthropists like Bill Gates and private citizens like Bill Clinton? These codependent relationships reflect the new political dynamic of the era of the non-state actor. As NSAs continue to gain influence in global affairs, managing the state/non-state actor relationship will become one of the critical challenges facing policymakers.

To better manage that relationship it is essential to expand the definition of what constitutes a non-state actor. No longer can NSAs simply be characterized as traditional NGOs or civil society groups. A proper definition must be as elastic as possible to incorporate the full array of actors that are now able to make their voices heard, and their actions felt, in global affairs.⁴

Nor is it always accurate to assume that NSAs are motivated by altruism, or what might be considered public-sector concerns. An altogether different impulse is increasingly guiding many non-state actors: “foreign policy for profit.” As the state has retreated -- and the opportunity for non-state actors to flex their muscles has emerged -- a foreign policy “market” has been created, one that individuals and organizations motivated by the prospect of profit and influence have been happy to fill.

As state sovereignty erodes and the barriers to entry for new global actors continue to fall, policymakers are struggling to adjust to this new dynamic. For the most part, the Bush administration remains obstinately focused on a state-centric global model, particularly in its approach to fighting terrorism. As the French Islamic theorist Gilles Kepel points out, the Bush administration could not be dissuaded from waging war on Iraq as a means of countering terrorism because it was “culturally incapable of grasping an actor that was not, in the final analysis, a state.”⁵ Yet with an administration whose senior officials seem determined to “protect” American sovereignty against the United Nations, international institutions, and the amorphous notion of an international community, it seems hardly surprising that Washington would unilaterally pursue a state sponsor of international terrorism, no matter how marginal the link.

Among conservatives, there has been an abiding fear that the decline of state sovereignty would be matched by the rise of supranational institutions or a “world government,” as some have ominously warned. Instead, it may well be that the greatest challenge to state power is not international law or world government but a decentralized, diffuse, and more democratic global system in which even the most powerful actors are discovering significant limitations on their actions.

These limitations on state power are not being imposed from above. Instead, they reflect the dominant themes of political openness, economic integration, and technological change that define the post-Cold War era. In fact, it is these constraints on state power, and the subsequent opportunities provided to NSAs, that are most responsible for the dawn of this new era.

What Has Changed?

Technological advancement has become the one-size-fits-all explanation for myriad social, economic, and political changes. But there is little doubt that the development of communications technology has played a crucial role in diminishing state power. To be sure, the transformative impact of technology is not a new phenomenon. The roots of twentieth-century totalitarian rule derived in part from the ability of leaders to manipulate new forms of mass communication. Today, we are witnessing the reverse.

Information technology is slowly chipping away at the power of states to shape and create public opinion. Today, more than 100 million Chinese are surfing the Web, and China has more than 4 million blogs. As the New York Times columnist Nicholas Kristof argues, “The Chinese Communist Party survived a brutal civil war with the Nationalists, battles with American forces in Korea and massive pro-democracy demonstrations at Tiananmen Square. But now it may finally have met its match -- the Internet.”⁶ In fact, during the SARS epidemic, it was Chinese citizens, over the objections of government officials, who used the Internet to bring the issue to the fore.

More significantly, advances in technological penetration and the decreasing costs of cross-border communication also provide non-state actors with the ability to operate globally. Creating an overseas presence can be as simple nowadays as plugging in a broadband Internet connection or relocating a call center to a foreign locale.

The possibilities are not limited to for-profit institutions. Following the tsunami in the Indian Ocean last December, the Internet became an invaluable tool for raising money, helping families find missing relatives, providing news and information, and even serving as an early-warning tool. Online donations helped humanitarian agencies raise and distribute money, so much so that within ten days of the calamity, online donations almost matched the initial $350 million pledged by the U.S. government.⁷

As the tsunami disaster demonstrated, because non-state actors are generally less hierarchal and bureaucratic than their state counterparts, they are able to utilize new technologies far more efficiently. These technological changes, on their own, would be dramatic, but by combining technological advancements with new-found political and economic openness they appear downright revolutionary.

Over the past decade or so, we have witnessed an era of unprecedented political revolution. Much of the world is today living under elected regimes formally committed to economic liberalization, the rule of law, and respect for human rights. These positive developments have to a large extent fundamentally weakened state power by empowering non-state actors and providing them with the opportunity to operate across borders with relative impunity.

As seamlessly as individuals and networks travel across national boundaries so too do ideas. Earlier this year, the United State Supreme Court, in Roper v. Simmons, cited “international opinion” as a rationale for declaring an end to the death penalty for juveniles. Clearly, the flow in cultural norms is no longer a one-way process.

At the same time, while states must balance the concerns of domestic constituencies in addressing foreign policy challenges, NSAs are responsive to their stakeholders, providing them with needed flexibility for action. The Bush administration, in joining the fight against AIDS in Africa, has earmarked a third of its proposed $15 billion pledge for abstinence education and refuses to fund groups that support abortion, largely to placate its conservative political base. NSAs may or may not be bound by the same “political” constraints, but those that are act out of choice -- not obligation.

While states tend to respond to the current news cycle or latest cause célèbre, NSAs can take proactive positions well ahead of their counterparts in government. For example, in the run-up to the war in Iraq, U.S. war planners already had on their desks plans for removing Iraq’s thousands of deadly landmines. The initiative did not come from a Pentagon functionary but from a private firm in search of a lucrative government contract.⁸

For generations, international economics was a zero-sum game in which rival nations sought either control over territory or the resources crucial to economic superiority. Yet, as the British scholars John Stopford and Susan Strange point out, states “now compete more for wealth as a means to power -- but more for the power to maintain internal order and social cohesion than for the power to conduct foreign conquest or to defend themselves against attack.”⁹ For better or for worse, corporations are increasingly seen as essential providers of capital, technology, management skills, and even access to foreign markets in developing countries.¹⁰ In a sense, the world of global economic policy has become akin to owning a professional sports franchise. The states set the rules, and they may have some input into building and paying the team, but they are not necessarily the ones on the field playing the game.

Even the way we think about international economic policy is changing. On college campuses, students of international relations are being taught that a nation’s economic well-being can be judged in part by the measure of imports versus exports. But when one considers that the value of goods produced overseas by American transnational corporations is more than twice that of American exports, and that sales by foreign-owned companies inside the United States were nearly twice the value of imports, do classical trade measurements really give us a true sense of economic might, or even of the global economic landscape?¹¹

The new scale is not simply macroeconomic. On a day-to-day level, the notion of the “provisory” state has been radically changed. With the privatization of once exclusively governmental services in everything from transportation and financial services to health care and social welfare, coupled with the gradual erosion of respect for government, the state’s preeminence has been dramatically displaced. The concept of the state as the provider of public goods is challenged both by a greater reliance on free markets and by a lack of trust in government institutions.¹²

In poor countries, the shift is even more profound. Nongovernmental organizations, private charities, and even for-profit corporations are increasingly providing education and health care, supplanting governments too strapped or too inefficient to offer such basic services on their own. In the richer nations, too, private enterprise has become the conduit by which some citizens receive health care, retirement benefits, and, in some cases, personal security.

One might assume that national security would be the one sphere in which the state’s power remains unchallenged. But with the diminishing threat of interstate conflict, notions of national solidarity have been severely weakened. While President Kennedy could call upon Americans to “bear any burden” to prevail over the enemies of freedom, today the Bush White House urges Americans to help fight the war on terrorism by “going to the mall.” As the Harvard political scientist Joseph Nye puts it, “the absence of a warrior ethic in modern democracies,” limits the flexibility of nations not only to wage war, but even to justify it.¹³

Fundamentally, it has become more difficult to argue that issues of war and peace are still the primary concerns of international relations. As noted, the threat of interstate conflict has diminished, and intrastate conflict has become the primary cause of death from war. Moreover, since 1991, the number of armed conflicts has steadily declined. From a high of 51 wars in 1991, armed conflicts in the world have fallen by more than half. And although in the year 2000 alone 300,000 people were killed in war -- a grim toll -- this was surely a significant improvement over the twentieth century’s bloody legacy.¹⁴

Nobody could sensibly contend that national identity is no longer relevant -- in fact, in an increasingly globalized and fractured global environment, individuals may identify with the state more closely than ever. But that sense of recognition seems likely to become a symbolic relationship, with a diminished willingness of citizens to sacrifice and die for their country.

Finally, international legal precedents have also propelled the rise of non-state actors. In the mid-1970s, the Helsinki Accords provided a framework for human rights monitoring and gave impetus to NGOs concerned with human rights. Today, with a growing web of international agreements on everything from global warming and landmines to biodiversity and human rights, plus new global bodies like the International Criminal Court and a panoply of U.N.-based transnational organizations, virtual armies of NSAs have assembled to monitor, implement, and advocate. The result is a new mode of international behavior that is transnational in nature and constantly impinging on national sovereignty.

Of itself, the confluence of these factors does not fully explain the growing role of non-state actors. In fact, NSAs are not only filling a vacuum left by the retreat of the state but are also responding to a new set of challenges that seep across borders. It is that capability, bolstered by technology, political openness, and international law, that provides NSAs with an opportunity to influence global behavior.

Consider the issue of child labor, which gained prominence on the international agenda in the mid-1990s. NGOs and human rights advocates identified the problem but went beyond a state-based regulatory solution and directly targeted the source: manufacturers such as Nike. The result was progress on an international problem that scarcely involved traditional methods of statecraft.

Similar approaches can be seen in the international campaign to ban landmines, the debt relief movement (spearheaded by U2’s lead singer, Bono), and growing calls for corporate social responsibility, as well as advocacy efforts directed at creating international codes of conduct. Non-state actors have employed sophisticated public relations tactics to build awareness and put pressure on governments, global institutions, and for-profit companies. More and more, it is NSAs that are setting the global agenda and providing solutions to modern challenges such as terrorism, the AIDS crisis, global warming, environmental degradation, and corruption. In fact, it is hard to imagine a single bilateral relationship that enjoys the same importance as these multinational issues.

In reality, even states as powerful as the United States lack the necessary resources, bureaucratic interest, or even political motivation to address the ever increasing range of crises on the global agenda. As the French foreign policy analyst Dominique Moisi points out, “There is a race between the growing power of America and the growing complexity of the world. But it is a race that America cannot win.”¹⁵

Widespread Influence

In a real sense, the proliferation of non-state actors is hardly surprising, particularly when one considers the defining characteristics of the post-Cold War era: economic globalization and international terrorism. Both have been fundamentally influenced by the behavior of NSAs.

Before September 11, economic integration and trade liberalization defined the international agenda, a process largely driven by private actors. The World Trade Organization, the International Monetary Fund, and the World Bank obviously played a role. The Clinton administration also pressed other countries to open their markets, build transparent regulatory regimes, and protect intellectual property.¹⁶ However, states like China, India, and the former members of the Warsaw Pact undertook the often painful process of economic liberalization not simply to please Washington or international financial institutions, but to gain access to global capital markets, attract foreign direct investment, and thereby achieve robust and sustainable economic growth.

In this process, the efficacy of foreign aid has diminished. Twenty years ago, government assistance was four times greater than that of private capital flows. Today the numbers are reversed: private investment is now six times greater than foreign aid, and charitable giving to international development is three times greater than the amount given by the U.S. government.¹⁷

Few would dispute that competitive markets, the flow of cross-border capital, and investment decisions by huge corporations are driving globalization. These corporate entities have become the most important economic and social actors on the world stage, rivaling and sometimes surpassing the influence of states. More than 50 of the world’s 100 largest economies are publicly owned companies with workforces in the hundreds of thousands and offices in every major region of the world.¹⁸

Mega-sized businesses can be as consequential to the world economy as even some medium-sized countries. To be sure, the influence of multinationals is hardly a new development. The difference is that in the past large conglomerates often operated in tandem with home governments, while today’s corporate behemoths are global actors in their own right.

According to Jeffrey Garten, former dean of the Yale School of Management, “The most important and enduring relationships between the United States and other countries are often based on the trade and investment of American businesses. Today, U.S firms have a significant presence in virtually every large country. They advise foreign governments. They are transmission belts for American culture and values. Indeed, U.S. businesses often surpass the influence of American embassies on the societies in which they have become rooted.”¹⁹

The influence of multinational firms can also be seen in the regulatory framework of international economics. Debt-rating agencies maintain enormous influence over fiscal policy, private arbitration services are supplanting the role of the judiciary, and corporate lobbyists have helped set new global rules on intellectual property rights.²⁰

While these economic players exert a critical and generally positive influence on international affairs, they are singular. On September 11, 2001, nineteen young men with an unwavering ideological fervor changed the course of history. Al-Qaeda and its subsidiary organizations are, tragically, the ultimate example of the ways in which non-state actors are transforming the international landscape. Terrorism previously was largely state-sponsored, or at the least maintained state-centric aspirations. Today, al-Qaeda operates outside the state system, and its “success” is due in large measure to its ability to use the mechanisms of globalization -- cross-border travel, advanced communications technology, and the international media -- to its advantage.

Al-Qaeda is not alone. The profits from global drug trafficking dwarf the economies of many countries. According to one estimate, the value of all the cocaine produced in Latin America in 2001 was approximately $93 billion -- an amount greater than the gross national income of three-quarters of the nations in the world. In the United States alone, the illegal narcotics trade is estimated to be a $60 billion industry.²¹ With their vast profits and global reach, the sophisticated criminal networks that control this narco-traffic are having a profound effect on the ability of some states to govern themselves. President Bush recently classified 22 countries as major drug-transit or major illicit drug-producing countries.²²

These examples illustrate how NSAs are creating new international realities. But the era of the non-state actor is defined as much by what is happening at the bottom of the global food chain as what is happening at the top. The diffusion and limitations of state power are creating new opportunities for private actors -- often in ways that are not readily apparent. Evidence of NSA influence may be seen in the complex and multifarious relationships that develop between states and non-state actors. Scholars have often focused on understanding the particular “typology” of NSAs -- defining them on the basis of their public, private, or civil society roots. But, policymakers must further their understanding of the dynamics of state/NSA relationships if they are to manage them successfully. State/NSA interaction can be broadly defined in five discrete categories: direct engagement between states and non-state actors; selective engagement, or episodic burden sharing; NSAs circumventing states; conflictual relations; and agenda setting.²³

Direct Engagement

In March 2004, Americans were shocked by images of charred and dismembered bodies being dragged through the streets of the Iraqi city of Fallujah and then hung in gruesome display. The scene brought back memories of another tragedy that deeply affected Americans and the conduct of U.S. foreign policy -- the killing of 19 Rangers in Somalia in 1993. But this time the corpses were not those of U.S. soldiers. These men were employees of Blackwater USA, a private military contractor. The U.S. war in Iraq has underscored one of the more profound examples of state/NSA cooperation -- the use of private military companies (PMCs), also known as private security companies. It is a relationship with visible implications for the way the U.S. government plans and manages global security operations.

Among the thousands of private contractors providing logistical support in Iraq, at least 20,000 employees from 60 different PMCs are under contract to the U.S. government to provide security services.²⁴ (Another 50-70,000 unarmed civilians are in Iraq to provide other services, from delivering mail to rebuilding essential infrastructure.) Armed civilians, many of them former Special Forces, handle an estimated 30 percent of essential security services, guarding reconstruction projects, escorting convoys through hostile areas, and defending strategic locations and individuals, among other things.²⁵ Even the president of Afghanistan, Hamid Karzai, is protected by a private contractor, the U.S. firm, DynCorp.

The use of PMCs has grown steadily since the early 1990s. During the Gulf War, the ratio of soldiers to private security contractors was 50 to 1; today, it is closer to 7 to 1. Private military companies are not only supporting a shrinking U.S. force in Iraq; they are also playing critical roles for both state and non-state actors in stabilization, drug interdiction, and humanitarian operations around the world.

Mercenaries have long been a part of war, but as one of the fastest-growing sectors in the defense industry, some PMCs are shedding their “guns for hire” reputation for a more respectable, corporate image. Peter W. Singer, a senior fellow at the Brookings Institution, estimates that “the 1,000 or so companies that define the industry... currently rake in $100 billion per year for active operations in over 50 countries around the world, and the industry is expected to double in size to $200 billion by 2010.”²⁶ Sensing the business potential, large defense contractors have been buying up some of the oldest private firms -- MPRI, DynCorp, and Vinnell Corporation are now subsidiaries of L-3 Communications, Computer Sciences Corporation, and Northrup Grumman, respectively. Private military companies are increasingly part of larger conglomerates that offer a range of services from combat support to post-conflict reconstruction and provide governments with a virtual “one-stop” war-fighting shop.

The privatization of military operations reflects a government-wide emphasis on achieving greater cost-effectiveness and efficiency in public institutions. Testifying before Congress earlier this year, Secretary of Defense Donald Rumsfeld asserted that contracting civilians was “freeing up additional tens of thousands of military personnel for military responsibilities -- [resulting in] an increased usable military end strength without an increase in overall numbers.”²⁷ At the same time, however, the government’s reliance on PMCs has grown faster than its ability to monitor them, particularly since these firms largely operate in a gray zone beyond congressional oversight, military codes of conduct, and even international humanitarian law -- creating a host of legal, financial, and political concerns.

Still, it is exactly these “political” attributes that make PMCs so attractive to policymakers. In an era of the all-volunteer force, contracting can make it possible for policymakers to underplay the costs of war. For example, Singer notes that PMCs in Iraq have suffered more dead and injured than all non-U.S. coalition forces combined.²⁸ Hiring contractors can also give decision-makers the political breathing room to support military operations in response to national security interests that enjoy little public support. For example, in 1998, Nigerian peacekeepers were sent to reinforce Sierra Leonean troops fighting Revolutionary United Front (RUF) rebels. The U.S. contribution to ECOMOG, the West African peacekeeping force, was combat support from a private firm, International Charter Incorporated of Oregon.²⁹

The complexity surrounding the legal status of PMCs also points to the difficulty of defining appropriate state/NSA cooperation. As armed civilians working abroad for private firms, contractors may be governed by their company’s code of conduct, but not by the Uniform Code of Military Justice. The resulting difficulties were painfully exposed in the wake of the Abu Ghraib prison scandal. U.S. Army investigations determined that a third of the incidents there -- ranging from abuse to rape and assault -- involved private contractors (including translators and interrogators).³⁰ Thus far, none have been disciplined. Disturbingly, if a private contractor were to kill an Iraqi civilian, the victim’s family would have practically no legal recourse. In considering the dilemma of PMCs that may violate international humanitarian law while employed on a mission, an executive from Médecins Sans Frontières was prompted to ask, “Who can be held to account? The shareholders?”³¹

In addition to thorny political and legal issues, the increasing reliance on PMCs may also be eroding the capacity of the very states that employ them. If not properly managed, contracting can hamstring a government’s ability to innovate and also retain skilled individuals. An experienced Special Forces operative can earn up to $250,000 annually with a PMC -- two to ten times more than in the military -- plus benefits, vacation, and the choice to opt out of risky operations. The exodus of military personnel to the private sector has significant longterm implications for a military that has spent years and taxpayers’ money preparing highly trained soldiers. To take one example, there are more former members of Britain’s elite Special Air Service (SAS) serving with PMCs in Iraq than there are members of the SAS in the British force there.³²

Mixing public and private warriors in security operations is also affecting the morale of enlisted troops and is leading to practical dilemmas in the field. In Fallujah, the political ramifications of the violent deaths of Blackwater employees forced military planners to engage insurgents sooner than they would have preferred. The subsequent combat operations resulted in significant U.S. casualties and further strained relations between the military ranks and contractors.³³

Relying on PMCs may be militarily and politically expedient, but it challenges policymakers to consider the appropriate balance between public and private authority in foreign policy. In the scheme of state/NSA relations, privatizing military operations requires that governments become vigilant clients while at the same time retaining their role as regulators of the public interest.

Selective Engagement

While PMCs have become a virtual subsidiary of the U.S. military, in most cases the relationship between non-state actors and states is more improvised. A form of tentative, selective engagement in the so-called soft area of democratization provides a model for such cooperation. Since the end of the Cold War, democracy promotion has gained broad acceptance as a foreign policy goal. Larry Diamond, a senior fellow at the Hoover Institution, notes that democracy assistance is a relatively new phenomenon that typically includes “helping to develop the formal political institutions of democracy; assisting the preparation, conduct, and monitoring of elections; and strengthening independent organizations in civil society.”³⁴ For decades, the United States has funded its own official programs and organizations (both covert and overt) and has contributed to a dense network of private NGOs whose philanthropic aim is to foster democratic practices at the grass roots. The explosion of young democracies emerging from the Cold War has only intensified these efforts.

In recent years, however, budget constraints and a disproportionate preoccupation with democracy promotion in Iraq and Afghanistan have constrained U.S. policymakers’ ability to match their rhetoric with adequate resources. At the same time, the growing influence of media and the emphasis on “image-based” elections has changed the business of politics, creating a lucrative market for communications and marketing professionals. American political consultants, working on their own abroad, are having a significant impact on democratization -- not only by changing the style of global electoral politics but also by promoting their own vision of democracy.

The fingerprints of consultants can be found on nearly every major campaign of the past two decades -- South Africa’s first democratic election in 1994, Boris Yeltsin’s defeat of resurgent Communists in 1995, the crucial Israeli plebiscites in 1996 and 1999, in which Benjamin Netanyahu and Ehud Barak were the respective winners, the election of long-time dissident Kim Dae Jung in South Korea in 1997, the end of eight decades of PRI rule in Mexico in 2000, Tony Blair’s successful efforts in Britain, the unsuccessful campaigns to unseat Robert Mugabe in Zimbabwe in 2002 and 2005, and even the defeat of Eduard Shevardnadze in Georgia in 2004. In fact, almost 60 percent of U.S. political consulting firms report working overseas.³⁵

Their influence stretches beyond campaigns. Consultants with corporate experience have shown candidates and democracy movements how to adapt corporate marketing approaches for political ends. The Yugoslav student movement “Otpor” (“Resistance”) built support for its anti-Milosevic movement using a simple slogan, “Gotov Je!” (“It’s time for him to go”), and a compelling logo (a clenched fist in black and white). Both were plastered around the country on 1.8 million bumper stickers (paid for with U.S. help). “Our inspiration came from multinational companies and things like Coca-Cola and -- or Levi’s” said one of Otpor’s student leaders.³⁶ Using other well-established techniques, like door-to-door canvassing and the targeting of key groups, Otpor created momentum for the non-violent ouster of Slobodan Milosevic. With the help of the Internet and well funded NGOs, Otpor’s experience with Western campaign techniques has spread to nascent democratic movements from Ukraine and Zimbabwe to Iran and Egypt.

In addition, Western-style focus groups and public opinion surveys that test the potential effectiveness of campaign strategies and policy initiatives, and find an opponent’s weaknesses, have become de rigueur in developing democracies. In 2002, South Korean presidential candidate Roh Moo Hyun took the advice of consultants and political pollsters in employing anti-American rhetoric to mobilize a critical constituency of voters under the age of 35. The strategy paid off, despite the diplomatic ill-will it created, as Roh won the presidency by a slim 2 percentage points. The power of polling information is not lost even on those who fail to embrace democratic norms. In Nepal, Maoist rebels kidnapped a poll taker who was testing public opinion for an international polling firm. In the ensuing hostage negotiations, the pollster’s captors did not ask for money or the release of political prisoners -- they wanted the group’s survey results.

By taking on some of the most important international campaigns of the past ten years, political consultants have put an indelible stamp on democracy promotion. In fact, political consultants are in some respects running their own foreign policy by deciding who they will work with in the first place. Many say they do not choose clients according to the size of their wallets but look for candidates who embody a positive vision of democracy (and have the skills to realize that vision).

The unique capabilities of political consultants present genuine opportunities for U.S. policymakers to harness this expertise to foreign policy ends. The campaign that ultimately ousted Slobodan Milosevic from power in 2000 was a dramatic example of how the U.S. government can effectively work with private political consultants to advance specific policy objectives. Washington’s aid package to help Serbia’s democrats included funds to hire leading U.S. pollsters and political consultants. The United States also funded some NGOs, including the International Republican Institute and the National Democratic Institute, which organized voter education and political training for activists, citizens, students, and the media. To be sure, it was the courage of the Serbian opposition, and of voters who endured violence and intimidation, that brought Milosevic down. But political consultants provided the strategic insights and polling data that changed the course of the opposition’s flagging campaign and gave Serbians a true political alternative. Eight years earlier, in 1992, Doug Schoen had worked for the Yugoslav prime minister Milan Panic in his campaign to unseat Milosevic. Milosevic’s minions managed to steal that election and, in the absence of support from Washington, Panic’s protestations of electoral theft fell on deaf ears. In 2000, the close coordination between consultants and U.S. policymakers (along with the media spotlight) helped guarantee a different result.

The lesson for U.S. policymakers from the Serbian experience was clear: defeating dictators at the ballot box can often prove cheaper than trying to defeat them militarily. In 2000, Washington spent an estimated $40 million helping the Serbian opposition.³⁷ Conversely, the 78-day Kosovo bombing campaign in 1999 cost the United States between $1.8 and $3 billion.³⁸ Still, America treads carefully when contracting the services of “campaign warriors.” Often the government prefers to work through third parties, offering indirect guidance and coordinating official and private efforts. To be sure, there are critics who say that democracy assistance amounts to funding modern-day coups. The journalist Robert Bridge warns that when elections become an instrument of foreign policy “democracy becomes the unintended victim in this geopolitical game of charades.”³⁹

However, some techniques promoted by political consultants have more to do with enforcing simple respect for the will of people than with pushing a particular democratic model. Exit polls are but one example. Exit polling conducted by consultants in the 2000 Serbian election campaign played a critical role in keeping the election honest. With correct polling information leaked to the media early on Election Day, it became much harder for the governing clique to orchestrate voter fraud. Foreign governments and international organizations have repeatedly used this technique to counter electoral theft, replicating it with similarly positive results in Mexico (2000) and Ukraine (2004) where government efforts to steal elections were thwarted by savvy pollsters.

As American political consultants continue to work abroad, the ripple effects of their influence on the development of democracy will be felt globally. And, as knowledge about campaign techniques spreads, Western methods of electioneering are evolving to suit diverse historical and cultural contexts. Granted, in the wrong hands, modern political campaign techniques can be manipulated to consolidate an autocrat’s power and work against democratic forces. Nevertheless, as governments continue to foster democratization elsewhere, they should look for ways to harness the expertise of political consultants and other non-state actors through selective engagement and coordination of effort. Focusing expertise that is already in demand in the marketplace is one way of achieving foreign policy goals through private means.

Circumventing the State

Ministers gathering in May for the fifty-eighth annual World Health Assembly in Geneva anxiously awaited the conference’s keynote speaker -- a man whose efforts were radically changing how states grappled with health crises. But the headliner wasn’t a doctor or a politician. He was an American businessman whose personal billions were turning the global health community on its head.

Microsoft founder Bill Gates explained that his commitment to global health began after he learned that diseases that had largely been eradicated from the developed world -- tuberculosis, malaria, diphtheria, measles -- were still killing millions in the developing world. Vaccines existed, but the funds to buy them and the political will to distribute them were lacking. Moreover, there was no market incentive that would entice pharmaceutical firms to step forward. Millions were dying while life-saving vaccines sat on the shelves unused. Gates, among the world’s wealthiest men, decided to put his vast personal fortune to work to address an issue that states were unable to fully address on their own.

Ensuring public health is among the obvious ways that states safeguard their citizens. However, the ease of cross-border travel has helped to transform health care from a public good into a foreign policy issue. With epidemics like mad cow disease, SARS, and avian flu reaching beyond borders, states are compelled to reshuffle spending priorities. Fighting HIV/AIDS, particularly in the world’s least-developed nations, has become a U.S. priority, not simply for health reasons, but also because of the disease’s potential for undermining democracy and economic development, and its crippling effect on already meager national budgets.

Entities like the World Health Organization (WHO) play a critical role in setting priorities and coordinating policy at the global level. But follow-through is dependent on the stretched resources and uncertain will of states. As a result, non-state actors are starting to put their own money to work addressing problems that governments are barely able to tackle. For example, even though the U.S. Agency for International Development devotes approximately half of its annual budget to health issues, from 1985 to 2000, USAID spending on global health totaled only $13.8 billion.⁴⁰ In comparison, the Bill and Melinda Gates Foundation has given more than $4 billion to global health programs in the past five years alone.

That private funds can sometimes overmatch public resources is not new. What is new is that individuals are organizing to raise the profile of issues far down the list of state priorities. For instance, in January 2005 the Gates Foundation pledged $10 million to develop a vaccine that would eradicate the last pockets of polio from the globe. The pledge revived a WHO mission that states had largely left unfunded.

Bill Gates is not only giving money, he is also helping governments leverage their resources to tap into the power of the global capital markets. In 2000, he put up $750 million to kick off the Global Alliance for Vaccines and Immunization (GAVI) -- a project to help low-income countries buy and deliver vaccines for children. Several nations followed with their own pledges. In just two years, GAVI’s efforts saved an estimated 670,000 children and strengthened poor countries’ ability to deliver vaccines on their own.

Gates pledged another $750 million in January 2005, and governments again followed suit. But this time Gates challenged the underlying economics that prevented vaccines from being made by urging states, corporations, and philanthropists to create an innovative partnership and raise $5 billion. With an investment of this size, he reckoned, basic economics would take over. A market that is large would signal to pharmaceutical firms that there would be stable demand for their products. The resulting competition among firms would, in turn, drive down drug prices and also spark renewed investment in the development of new vaccines. By leveraging the resources of non-state actors with those of states, Gates helped create a market incentive for providing a previously unprofitable social good.⁴¹

Not all global health problems can be made sufficiently attractive to the market, but such models of public-private partnership demonstrate that even the most difficult ones can be successfully addressed when NSAs and states collaborate creatively and use their respective advantages. For example, onchocerciasis, also known as “river blindness,” is the leading cause of blindness in the developing world. The parasitic disease afflicts an estimated 18 million people across sub-Saharan Africa and in Latin America, and another 90-120 million people are at risk. Merck, the New Jersey-based pharmaceutical giant, had been on the cutting edge of parasitic research since 1975, with the discovery of the veterinary drug Ivermectin. In 1980, Dr. Mohammed Aziz, a Merck scientist who had worked for the WHO, wondered if Ivermectin could be adapted to treat the river blindness he had seen devastating African communities. His trials produced astounding results. Not only did the drug attack the parasite in sick patients, it prevented healthy persons from becoming infected.

With one dose per year, at the cost of $1.50 per tablet, Mectizan (the human form of Ivermectin) had the power to save lives. But most affected patients lived in places where public health spending per person is about $1 a year.⁴² Even at pennies per tablet, the medicine would be too expensive. When Merck approached Washington and governments in Africa and Europe to buy the drug at cost and distribute it for free, it was rebuffed. Faced with the prospect of shelving a drug that could cure millions, Merck decided to donate Mectizan free of charge. The announcement of this socially responsible corporate act generated millions in free publicity for Merck and helped burnish the company’s corporate image.

In partnership with other non-state actors (NGOs, local community groups) and international organizations (WHO, the World Bank), Merck undertook the daunting task of getting the drug to some of the most destitute parts of the world. In 1988, the program treated 255,000 people. By 2002, the number had grown to 50 million, and it is projected to reach 90 million by 2010.⁴³ Merck’s 15-year public-private partnership is considered one of the leading models for corporate initiatives on global health.

As states find themselves challenged by the scope of transnational problems, NSAs are stepping in to contribute resources. While they are motivated by self-interest as well as altruism, it is clear that they are often freer than states to craft innovative approaches to global problems. The ability of NSAs to work outside the state apparatus and foster conditions for change can be a tremendous asset to resource-limited states. The challenge for states is to ensure the maintenance and continuation of public-private collaborations that benefit the public when some of their partners may be more accountable to shareholders than to those in need.

Conflictual Relations

While some NSAs are providing services, expertise, and resources to address global issues, others are challenging the very structure that underpins relations between states. For example, as globalization has advanced, U.S. courts are finding themselves increasingly involved in foreign policy issues as they adjudicate international commercial, environmental, and even human rights cases. Trial lawyers and their clients have been at the forefront of these changes, advancing cases that have ultimately challenged the authority of states as the sole determiners of foreign policy. Not surprisingly, it is a development that governments resist. The relationship between trial lawyers and Washington in cases involving human rights abuses highlights the tensions that can develop.

After the 1988 bombing of Pan Am flight 103 over Lockerbie, Scotland, families of 270 victims filed suit against Libya in a U.S. civil court. A team of trial lawyers represented the families in their effort to punish a state sponsor of terrorism. It was a bold move. Historically, sovereign nations were legally immune from prosecution in U.S. courts without their consent under the doctrine of “sovereign immunity.” Congress reaffirmed this principle in 1976 by passing the Foreign Sovereign Immunities Act (FSIA), though the act did include an exception for matters related to international trade. (The rapid growth in global commerce had given rise to a number of international trade disputes between companies and countries requiring adjudication in U.S. courts.) In the 1990s, however, U.S. courts began ruling in favor of victims of international terrorism, challenging the notion that state sponsors of terrorism were immune from prosecution in civil suits. In 1992, the courts found that victims of terrorism could sue for civil damages. By 1994, they had concluded that helping terrorists -- whether by providing housing, money, or other material support -- constituted a punishable offense.

In 1995, Alisa Flatow, a 20-year-old New Jersey student, was traveling in the Gaza Strip when she was killed by a suicide bomber, a member of the Iranian-backed Islamic Jihad. Her family sued the government of Iran, and a U.S. court awarded it $247.5 million. As the plaintiffs quickly realized, however, collecting damages in such cases can prove virtually impossible. Not only was it difficult to “attach” assets belonging to foreign countries, there was an even more powerful barrier -- the State Department, which took sharp notice when the Flatow family asked the U.S. government to seize the former Iranian Embassy in Washington as a means of receiving its judicial award. In effect, the plaintiffs were trying to bend foreign policy to their personal interest. The State Department took a dim view of a practice derided by some as “U.S. diplomacy by contingency-fee lawyer.”⁴⁴

The department continues to argue vigorously that suing foreign countries severely complicates its ability to carry out an effective foreign policy. The power to freeze and release assets such as embassy property and bank accounts has long been a critical diplomatic lever.⁴⁵ The Iranian hostage crisis and the Vietnam POW/MIA issue were both resolved, in part, with the powerful stick of blocked financial assets. Second, resolving disputes with foreign countries through the courts, rather than embassies, will inevitably trigger a dangerous “tit-for-tat” against the United States. More importantly, however, the State Department worries about such suits as a frontal assault on the bedrock principle of sovereign immunity. Trial lawyers retort that governments must focus more on protecting victims of terrorism than on defending governments that promote international violence. Too often, commercial, economic, and political interests override the U.S. disapproval of bad behavior, as in the case of Saudi Arabia’s lack of forthrightness regarding the 15 out of 19 September 11 hijackers of Saudi origin.⁴⁶

The families of the Lockerbie victims ultimately took their case to Congress where, in 1996, the “Flatow Amendment” to the FSIA was passed, allowing civil suits against countries named on the State Department’s terrorism list. Still, in a last-minute effort to avoid a presidential veto of this bill, parties agreed to a provision allowing the president to waive a plaintiffs’ right to recovery on the grounds of “national interest.”⁴⁷ The Lockerbie plaintiffs had not only successfully challenged the principle of sovereign immunity but in doing so had opened a means of blending individual and national interests. Libya, eager to make the most of a diplomatic opportunity and wanting badly to regain its standing in the international community, negotiated a settlement of up to $10 million for each victim killed. But the negotiation was a unique, tripartite deal. Libya conditioned the payment on ending its pariah status. Each family would receive the first allotment of the settlement, $4 million, when the United Nations lifted its air and arms embargo against Libya, another $4 million when the United States lifted its sanctions against investment in the country, and the final $2 million when the United States removed Libya from its list of “state sponsors of terrorism.”⁴⁸ For about $3 billion, Libya was able to buy its way back into the global community. The unique bonds established over the years among the parties to the negotiations -- government officials, lawyers, and plaintiffs -- had created the possibility for a historic diplomatic and legal settlement.

The State Department still has sufficient power to delay and dismiss cases that threaten national security. In cases where the state sponsors of terrorism are U.S. allies, plaintiffs and lawyers have adopted a more nuanced approach. Since, for example, the families of the 9/11 victims cannot sue the Kingdom of Saudi Arabia directly (only countries named on the U.S. “state sponsors of terrorism” list are excepted from the sovereign immunity act, allies are not), they have adopted the strategy of naming various individuals (including members of the Saudi royal family), banks, and charitable organizations suspected of financing Islamic terrorist organizations. Their efforts thus far have been repeatedly thwarted by the courts on the basis of national security.

Yet states are not the only targets of trial lawyers and plaintiffs. U.S. multinationals are now on notice that they will be held directly responsible for business practices abroad that violate international human rights codes. An important legal precedent was set by a group of Burmese villagers suing the California energy giant, Unocal. Under the Alien Tort Claims Act of 1789, victims of violations of international law may seek damages against U.S.based defendants in the U.S. civil courts. The 1996 suit, brought in Los Angeles County Superior Court, alleged that some of the soldiers Unocal hired to guard the construction of its Yadana pipeline project raped, tortured, and even murdered villagers. The brutal tactics of Myanmar’s military junta were amply documented, and the court found that Unocal, as a major investor, could be held responsible for the human rights violations of its contractors.⁴⁹

In March 2005, Unocal decided to settle a suit it felt it was likely to lose in the court of public opinion. The settlement was not disclosed publicly, but the outcome was not lost on other multinationals (Coca-Cola, Exxon Mobil, and Chevron Texaco) with similar pending cases. As the Unocal case affirmed, U.S. companies can now be held accountable in U.S. courts for human rights abuses that occur on their watch abroad.

The Lockerbie and Unocal cases are compelling examples of how NSAs are challenging states and forcing them to respond to powerful grass-roots constituencies. For now, the U.S. government has taken a wary, case-by-case approach to the legal advances of NSAs, often trying to repel and delay their efforts. Meanwhile, non-state actors remain undeterred in their pursuit of justice, despite the serious problems this may create for diplomats. Litigants and trial lawyers will likely continue to chip away at the legal and political obstacles in their path, and by so doing redefine the rules of global relations.

Agenda Setting

Non-state actors have often influenced the domestic policy agendas of states. Increasingly, however, their influence is being felt internationally. Through the use of the Internet, civil society groups are evolving into transnational coalitions whose shared vision and collective resources have mobilized citizens to force states to focus on a host of global issues. One of the clearest signs of this trend is that the organizers of nearly every major intergovernmental meeting now expect and prepare for protests. However, NSAs are going beyond mounting protests at the barricades and are infiltrating the policymaking process as well.

They are doing so by leveraging the will of the global public -- as exemplified by the work of the International Campaign to Ban Landmines. In awarding the 1997 Peace Prize, the Nobel Committee praised Jody Williams and the International Campaign to Ban Landmines (ICBL) for creating a “process which in the space of a few years changed a ban on anti-personnel mines from a vision to a feasible reality.” Nongovernmental organizations had long protested the grievous humanitarian cost of landmines, but armed forces (and manufacturers) had staunchly defended these weapons as both efficient and cost-effective. In 1991, ICBL brought together a handful of dedicated NGOs to eradicate landmines globally. Using the Internet and gruesome images of landmine victims, Jody Williams and her team developed a powerful network of more than 1,400 groups in 90 countries.

Advocacy was only part of the network’s mission. It knew that if it could change international law, it could change global behavior. Public pressure encouraged the first group of states to support a treaty banning landmines. By December 1997, 122 governments had signed on. Fifteen months later, after the fortieth country had formally ratified the Mine Ban Treaty, it became international law.

In just six years, ICBL had accomplished what the United Nations had struggled to achieve for decades. The ICBL had formed its own “coalition of the willing,” whose efforts have resulted in a decrease in the number of landmine-producing countries to 14 today from 54 in the early 1990s.⁵⁰ Jody Williams noted that ICBL’s success pointed to “a whole new way of conducting diplomacy.”⁵¹ As the French ambassador in Oslo commented at the Nobel ceremony, “This is historic not just because of the treaty. This is historic because, for the first time, the leaders of states have come together to answer the will of civil society.”⁵²

As of December 2004, 152 countries had signed the Mine Ban Treaty. Still, 42 countries have yet to sign, including the United States. In Washington, successive administrations have refused to endorse the treaty, claiming that the United States is the biggest donor to landmine clearance programs, even as it possesses the third-largest stockpile of these weapons and reserves the right to use and manufacture them.

However, by raising public awareness, NGOs have put the landmines issue on the agenda, raising millions in private funds for eradication programs, and forcing governments to respond to public pressure. By mobilizing a transnational social movement, individuals and groups successfully pressured democratically elected governments to change their policies and comply with international law.

The Test Ahead

The examples cited above highlight the breadth and influence of non-state actors on foreign policy. Across the globe, NSAs are fundamentally changing state-to-state relations. Their ability to do so is a result of the deliberate and unintended weakening of state power in an international system buffeted by technological and political change.

In this new world, individuals and organizations can use communications technology to create powerful transnational networks, global commerce and investment trumps the fiscal and monetary levers of the past, and the removal of trade barriers is making it harder for nations to protect domestic industries. The challenge of adaptation applies to non-state actors as well. They are operating in a virtually unregulated political vacuum in which the constraints on their behavior are increasingly inadequate for coping with the challenge they pose to existing global norms.

But the greater burden is on states, which continue to lag in adjusting to the new NSA reality. This is scarcely surprising -- the doctrine of sovereign immunity has long served as the basis of legitimacy. It would be foolhardy to expect states willingly to surrender the power and influence conferred by the principle. However, the influence of non-state actors is only going to intensify, and finding the proper balance between the responsibilities and accountability of public and private actors may well become the foremost policy challenge of the twenty-first century.

Notes

1. Both of the authors of this article have worked for Doug Schoen at Penn, Schoen & Berland, Assoc., a polling and consulting firm: Michael A. Cohen, 2002-05, and Maria Figueroa Küpçü, 2000-03.

2. Jessica T. Matthews, “Power Shift,” Foreign Affairs, vol. 76 (January/February 1997), p. 50.

3. Daphne Josselin and William Wallace, eds., Non-State Actors in World Politics (New York: Palgrave Macmillan, 2002), p. 4.

4. Ibid., p. 5.

5. As quoted in Peter Bienart, “Backfire,” Atlantic Monthly, March 2005, p. 126.

6. Nicholas D. Kristof, “Death by a Thousand Blogs,” New York Times, May 24, 2005.

7. “Tsunami and the Web Special Report Update: v2.0,” January 13, 2005, http://www. politicsonline.com/content/main/specialreports/ 2005/tsunami2.

8. Author interview with Peter W. Singer, Washington, DC, June 2005.

9. John M. Stopford and Susan Strange, Rival States, Rival Firms: Competition for World Market Shares (Cambridge: Cambridge University Press, 1991), p. 1.

10. Ann Florini, The Coming Democracy: New Rules for Running a New World (Washington, DC: Brookings Institution Press, 2005), p. 99.

11. Joseph S. Nye, Jr., The Paradox of American Power: Why the World’s Only Superpower Can’t Go It Alone (New York: Oxford University Press, 2003), p. 56.

12. Josselin and Wallace, Non-State Actors in World Politics, p. 9.

13. Nye, Paradox of American Power, p. 6.

14. Gregg Easterbrook, “The End of War,” New Republic, May 30, 2005, pp. 18-19.

15. As quoted in Jeffrey E. Garten, The Politics of Fortune: A New Agenda for Business Leaders (Boston: Harvard Business School Press, 2002), p. 154.

16. Ibid., p. 156.

17. Ibid., p. 108.

18. Florini, Coming Democracy, p. 99.

19. Garten, Politics of Fortune, p. 154.

20. A. Claire Cutler, Virginia Haufler, and Tony Porter, eds., Private Authority and International Affairs (New York: SUNY Press, 1999), p. 16. For more information on intellectual property rights and the WTO, see Susan Sell, “Multinational Corporations as Agents of Change: The Globalization of Intellectual Property Rights,” in this volume.

21. Lee Rensselaer and Raphael Perl, “Drug Control: International Policy and Options,” Congressional Research Service, Washington, DC, October 16, 2002.

22. U.S. Department of State, International Narcotics Control Strategy Report, March 1, 2004.

23. This analysis is undertaken with particular emphasis on the implications of NSA/state cooperation for U.S. foreign policy.

24. Peter W. Singer, “Outsourcing War,” Foreign Affairs, vol. 84 (March/April 2005), p. 122.

25. Anthony Bianco and Stephanie Anderson Forest, “Outsourcing War,” Business Week International, September 15, 2003, p. 68.

26. Peter W. Singer, Corporate Warriors: The Rise of the Privatized Military Industry (Ithaca, NY: Cornell University Press, 2003).

27. Secretary of Defense Donald H. Rumsfeld, Budget testimony before the Senate-House Armed Services Committee, Washington, DC, February 17, 2005.

28. Singer, “Outsourcing War,” p. 122.

29. Linda Robinson, “America’s Secret Armies,” U.S. News & World Report, November 4, 2002, p. 38.

30. Renae Merle and Ellen McCarthy. “6 Employees from CACI International, Titan Referred for Prosecution,” Washington Post, August 26, 2004.

31. Kenny Gluck, director of operations for MSF, Holland, as quoted in Paul Keilthy, “Private Security Firms in War Zones Worry NGOs,” Reuters/AlertNet, August 11, 2004.

32. Peter W. Singer, “Warriors for Hire in Iraq,” Salon.com, April 15, 2004.

33. “Private Warriors,” Frontline, PBS, June 2005.

34. Larry Diamond, “Promoting Democracy in the 1990s: Actors and Instruments, Issues and Imperatives,” Report to the Carnegie Commission on Preventing Deadly Conflict, Carnegie Corporation of New York, December 1995, p. 40.

35. For the results of the Global Political Consultancy Survey, see Fritz Plasser and Gunda Plasser, Global Political Campaigning: A Worldwide Analysis of Campaign Professionals and Their Practices (Westport, CT: Praeger , 2002).

36. “Revolution Inc,” On the Media, National Public Radio, December 3, 2004.

37. Ibid.

38. “Total Cost of Allied Force Air Campaign: Preliminary Estimate,” Center for Strategic and Budgetary Assessments, Washington, DC, June 1999, p. 1.

39. Robert Bridge, “Ukraine: Check or Checkmate?” Russia in Global Affairs, vol. 3 (JanuaryMarch 2005), p. 45.

40. Http://www.usaid.gov/our_work/global_ health/home/Funding/index.html.

41. Marilyn Chase, “Malaria Trial Could Set a Model for Financing of Costly Vaccines,” Wall Street Journal, April 26, 2005.

42. P. Roy Vagelos “Social Benefits of a Successful Biomedical Research Company: Merck,” Proceedings of the American Philosophical Society, vol. 145 (December 2001), p. 577.

43. Gilbert Burnham and T. Mebrahtu, “The Delivery of Ivermectin Mectizan,” Tropical Medicine and International Health, vol. 9 (April 2004), p. A27.

44. Jennifer Senior, “A Nation Unto Himself,” New York Times Magazine, March 14, 2004.

45. Anthony J. Sebok, “Libya, Lockerbie, and the Long-Delayed Settlement Relating to Pan Am Flight 103,” FindLaw, September 8, 2003.

46. Interview with Allan Gerson, chairman, Gerson International Law Group, and one of the lawyers responsible for having brought the first suit against Libya on behalf of the families of the victims of Pan Am flight 103, Washington, DC, March 31, 2005.

47. Sebok, “Libya, Lockerbie, and the Long-Delayed Settlement Relating to Pan Am Flight 103.”

48. Anthony J. Sebok, “Libya, Lockerbie, and the Lawyers,” FindLaw, June 25, 2002.

49. Joanne Mariner, “Ashcroft's Justice, Burma's Crimes, and Bork’s Revenge,” FindLaw, May 26, 2003.

50. US Campaign to Ban Landmines, www.banminesusa.org.

51. Newshour, PBS, October 10, 1997.

52. Jody Williams, Nobel Lecture, Oslo, December 10, 1997.

Insurance Policy

Cecille Isidro — Mon, 04 Jul 2005 00:00:00 -0400

Nearly a year ago, voters following the presidential race heard a stirring call for social reform: "The times in which we work and live are changing dramatically. The workers of our parents' generation typically had one job, one skill, one career. ... And most of those workers were men. Today, workers change jobs, even careers, many times during their lives, and ... two-thirds of all moms also work outside the home." As a result, "many of our most fundamental systems--the tax code, health coverage, pension plans, worker training--were created for the world of yesterday, not tomorrow." These systems must now be transformed, the speaker concluded, so that "all citizens are equipped, prepared, and thus truly free" in the twenty-first century.

The orator was not John Kerry or John Edwards. It was George W. Bush, accepting the Republican nomination. And Bush was not calling for universal health insurance or expanded pension coverage--the seemingly obvious ways to repair "systems" built for the "world of yesterday." He was introducing his proposals for an "ownership society," the centerpiece of which, then and now, is overhauling Social Security to shift risks and costs onto the very workers most disadvantaged by the social and economic shifts of the last generation.

The contradiction is no accident. Bush and his allies recognize that the major domestic challenge of the twenty-first century is to give workers economic security in a transformed world. Just listen to conservative message guru Frank Luntz: "Every day, more Americans are concerned about their personal job security and their individual financial situation." Even as the president's drive to overhaul Social Security sinks into the political abyss, Bush has denounced critics of the effort for denying younger workers "the same sense of security that previous generations had when it came time for them to retire."

Yet, across the board, current Republican plans to tackle rising insecurity--from private accounts in Social Security to medical savings accounts to tax reform--promise one thing and do another. They promise to protect workers and their families against economic risk. What they will do is shift more risk onto Americans' already burdened shoulders. The conservative response to rising insecurity is equivalent to tossing a lead weight to a drowning man on the assumption that, now, he will really have an incentive to swim. It gets the problem right but the policies all wrong.

By contrast, Democrats are fighting the good fight on Social Security, successfully beating back the most vigorous assault the program has ever faced. Yet they find themselves completely unable to articulate a larger role for government that both justifies their opposition to the president's agenda and grounds a coherent alternative philosophy. Polls show that voters trust Democrats over Republicans on almost every domestic policy topic. But polls also show that most Americans don't think Democrats know what they stand for, while Republicans--even if their ideas aren't that popular--do.

The members of the party that brought us the nation's most popular and successful domestic program shouldn't be in this fix. The philosophy they need to respond to the new world of work and family lies just under their noses--in the now-almost-forgotten genesis of Social Security and the ideal of economic security that animated it.

As Peter Beinart has written in these pages ("A Fighting Faith," December 13, 2004), liberalism's "vital center" on foreign policy was forged in the crucible of the cold war. A similar--and just as intellectually important--story can be told with regard to liberalism on the domestic front. Yet the catalyst for this vital center was not the cold war. It was the Great Depression.

Although the Depression was a watershed in liberal thinking about the economy, there was nothing automatic about the reforms eventually embraced. Nor did the New Dealers simply dream up a coherent program once the scope of the disaster became clear. Instead, they drew on a wide range of often well-established ideas and precedents, guided by an abiding conviction: Capitalism needed to be "made good."

Making capitalism good implied many things: public employment, the taming of monopolies, relief for the destitute. Yet the most important ideal--and certainly the most enduring--was insurance. The word is familiar today, but, in the 1930s, it had a radical air. Insurance was an affirmation of free will over fate. If not an effort to stay the hand of God, it was an attempt to soften His blow. And it rested on modern actuarial science. The genius of insurance, especially when coupled with the power of the state to require participation, was that it could transform individual misfortunes into social costs distributed broadly across the citizenry. "Social insurance," as it came to be called, transformed the dislocations of modern capitalism into risks that could be managed and redistributed, rather than blows of fate that could only be feared and suffered.

Though radical in its assertion of human control, the insurance ideal was otherwise quite conservative. Insurance was about stabilizing capitalism, not stabbing it. It was about giving workers "a floor of protection," not a luxurious carpet of wealth. The executive director of Franklin Roosevelt's Committee on Economic Security noted proudly that "only to a very minor degree does [the Social Security Act] modify the distribution of wealth, and it does not alter at all the fundamentals of our capitalistic and individualist economy."

The insurance ideal calls for neither tight economic regulation nor massive redistribution, and, in that sense, it is conservative. Yet it is also eminently progressive. Economic security, after all, is something the affluent take for granted. Social insurance extends such guarantees to those least capable of obtaining them on their own--namely, those with limited means or a high probability of needing assistance. FDR put it best in 1938: "We must face the fact that, in this country, we have a rich man's security and a poor man's security, and that the government owes equal obligations to both. National security is not a half-and-half matter: It is all or none."

As Roosevelt's words suggest, national security was always seen by New Dealers as having both a domestic and a foreign component. Indeed, foreign threats made security at home even more vital. War meant shared sacrifice and shared fate. There could be no "rich man's security" when poor and rich were fighting beside each other, no "rich man's security" when the fates of all citizens were so intertwined.

Today, the ideal of economic security seems dated to many. But the exact opposite is true. The big economic trends of the past 30 years--deregulation, deindustrialization, increased foreign competition, the decline of unions, the transformation of the family from single breadwinners into two-earners balancing work and kids--have all created powerful new forces pushing toward increased insecurity. Americans are richer than they were a generation ago. But they are also facing much more dramatic swings in their income, as I have argued before in these pages ("False Positive," August 16, 2004). Over the past decade, moreover, insecurity has moved up the economic ladder. Increasingly, educated middle-class Americans are riding the economic roller coaster once reserved for the working poor.

The signs of this transformation are hard to miss. Forty-five million Americans lack health insurance, up more than six million from 2000. One and a half million file for bankruptcy each year, roughly half of them because of medical crises. Traditional guaranteed pensions are all but gone. Now, workers lucky enough to get a pension rely on so-called defined-contribution plans that place the investment risk on them. And, while unemployment is low, the job market is more uncertain.

Government and corporate policies have mostly exacerbated, rather than countered, this great risk shift. Employment-based benefits have been in steep decline for more than two decades, particularly for low-wage workers. Meanwhile, public social programs leave growing gaps. Overwhelmingly focused on the aged, they leave out key protections for the long-term unemployed and medically uninsured, as well as those who suffer permanent income loss after their skills become obsolete. They are not always friendly to part-time and contingent workers or the selfemployed. And they do little to help families balance work and child-rearing. All of which means that the intensified risks of the post-'70s era have been borne mostly by working Americans and their families.

Against this backdrop, it's little wonder Americans remain so pessimistic about the economy. President Bush keeps saying the "economy is strong, and it's getting stronger." But Americans don't believe it. Unfortunately, Americans also don't believe that government can effectively address the problem of rising insecurity. In a recent series of focus groups, the Economic Policy Institute (EPI) found that middle-class Americans "believe traditional relationships that formerly provided some security are disappearing." Yet they also believe that "government is corrupt and neither trustworthy nor a source of solutions." The middle-class response to rising insecurity, according to the EPI's focus groups, is blunt and resigned: "It's up to me."

All of which suggests that there may well be a method to the madness of Bush's calls for an "ownership society." The Republican agenda is to replace existing protections with highly individualized private accounts and then let the chips fall where they may. This strategy may help the affluent and fortunate, but it won't provide strong guarantees of economic security to most Americans. A recent analysis by Yale economist Robert Shiller drives this home, predicting that nearly 50 percent of Americans who opt into private Social Security accounts based on the formula recommended by Bush's Commission to Strengthen Social Security would fail to break even, while the tenth of account holders who are least fortunate would lose around $50,000 in net retirement wealth.

Yet, while the ownership society can't guarantee economic security, it fits perfectly with the idea that "it's up to me"--that Americans are on their own in the new world of work and family. And, the more Americans believe that, the more likely it is that they will support conservative politicians who want to shift even more risk onto their shoulders. Call it the vicious cycle of insecurity--if Americans feel no one can help them, they will back leaders who won't. In the '30s, Democrats saw economic security as the keystone of a broad coalition in support of their party. Today, Republicans appear to see economic insecurity in much the same way.

Economic security resonates with Americans for a simple reason: It matters to them, to their families, to their pocketbooks. Fairly or unfairly, liberalism came to be seen as a great campaign on behalf of the other: the poor, the disenfranchised, the marginalized minority. This was a sinister caricature grounded in a shining truth: Liberalism did stand up for the dispossessed in the great civil rights struggles of the 1960s. But, as a guide to liberalism's achievements in domestic policy, it was a smear--and an ironic one--because the ideal of economic security purposefully avoided the differences of race and culture that ultimately helped tar it.

Today, however, there is little need to choose between alternative frames. Economic security is something vital for all Americans. There is no core group that is comfortably secure, while a marginalized "other" peers in from the outside. To the contrary, the vast majority of Americans--black and white, poor and middle class--are now in the same turbulent sea of economic uncertainty. The sociologist Mark Rank has estimated that more than half of white Americans will spend at least a year below the poverty line by the time they are 75 (the results are not materially changed by excluding college students). For most, the time spent poor will be short, but it will be unpleasant, unwelcome, and often unavoidable--a result of one of the routine but wrenching events that commonly push people over the brink: ill health, divorce, a death in the family, loss of employment. The problem of insecurity is not the problem of persistent poverty. It is the problem of often devastating hardships that can strike almost all of us. When it comes to events like these, shared insurance isn't something we do for others; it is something we do for ourselves and our families that we cannot do alone.

This is one reason why social insurance gives more to those who contribute more (while still favoring those with low earnings and those who experience economic crises). Critics of social insurance deride payments to the nonpoor as a form of political bribery. But insurance is not relief. It is meant to protect standards of living, to keep families from approaching poverty's frightening gates. Bush's newly favored idea of "progressive indexation" within Social Security, in which the benefits of poor workers hold steady while those of middle-income workers are sharply cut, threatens the whole bargain. The message is that economic security isn't for families trying to get ahead; it's for those stuck at the bottom.

And that's exactly the wrong message. Economic security is a cornerstone of economic opportunity, and the common treatment of the two ends as antithetical could not be more mistaken. Like businesses, people invest in the future when they have basic protection against the downside risks of their choices. Excessive fear of loss thwarts, rather than promotes, advancement by encouraging people to take individually rational, but collectively suboptimal, steps to protect themselves. The worker who fears downsizing at any moment may work harder for a time. But, in the long run, insecure workers tend to underinvest in specialized training; they are more reluctant to change jobs; they try to minimize their sense of job commitment to protect themselves against psychological loss. And, of course, none of these costs include the huge emotional and economic losses that fall on workers and their families when they lose their prime source of income and self-worth and are left without a lifeline.

Americans seem to understand this. Students of public opinion have long marveled at Americans' seemingly inconsistent celebration of government insurance programs, on the one hand and the ethic of rugged individualism on the other. Americans are "operational liberals" and "philosophical conservatives," public opinion analysts Lloyd Free and Hadley Cantril once argued. They want to have their welfare-state cake and eat their free-market capitalism, too. But why not? If Americans are to be encouraged to invest in new skills, strong families, new jobs, and everything else that makes upward mobility possible, we need a bigger umbrella of basic insurance, not a smaller and more tattered one. Back in 2003, Bush's Economic Report of the President said that it was the job of government to provide "the economic environment in which risk-takers and entrepreneurs create jobs." Apparently, Bush thinks the only folks taking economic risks are the well-off and corporations, not ordinary Americans.

Still, Bush was right when he suggested, in his 2004 convention speech, that the systems that provide security and opportunity were "created for the world of yesterday, not tomorrow." Insecurity is still very much with us. But its nature and causes have changed dramatically--and in ways that are not always well-recognized. Even as working women became the norm, the special strains faced by two-earner families were largely neglected. So, too, were the distinctive unemployment patterns that became increasingly prevalent as industrial jobs gave way to service work and workers' skills required more frequent updating.

In the new world of work and family, the emphasis should be on portable insurance to help families deal with temporary interruptions to income and big blows to household wealth. And these insurance protections should be mostly separate from work for a particular employer, sponsored either by government or private communal associations. By the same token, we should not let massive social risks be borne by Band-Aid institutions that do not distribute those risks broadly or efficiently. Bankruptcy should not be a backdoor social insurance system; private charity care should not be our main medical safety net; early retirement and disability programs shouldn't be a way of simply shedding older workers--and not because these systems are prone to abuse, but because they were not designed to bear the burden they now carry, much less to carry it effectively or equitably.

The concrete ideas for achieving these goals will have to be thought through at length, of course. Yet the details should not be allowed to upstage the aspiration. There is no shortage of plans to expand insurance; I have tried to peddle a few myself. But, though plans abound, their advocates have largely failed to develop a compelling logic that unites them under a common umbrella and ties them to practical politics. The need for economic security in the new world of work and family is such a logic, and it is one that could unify a wide range of forces behind a new Democratic agenda.

In May, the Pew Research Center released its "political typology" survey for 2005. Perhaps the most telling finding was that two groups of Republican-leaning voters identified by Pew, each representing one-tenth of the electorate, depart sharply from the anti-government line of the party's affluent backers. These voters (which Pew labels "progovernment conservatives" and "disaffecteds") aren't hard-core social conservatives, though many are deeply religious; they're mostly middle-class white men and women with less than a college degree. And what's most striking about these voters is how strongly they support public guarantees of economic security. By two-to-one majorities, they endorse government-guaranteed health insurance. Virtually all want the minimum wage raised. Most want government to help the needy. Democrats have been spinning themselves in circles trying to lessen such voters' animosity on foreign policy. They might do better to give them what they want on economic policy.

"New ideas" are not enough. What is needed is a morally grounded call for a new social contract in which government helps Americans who "work hard and play by the rules"--in Bill Clinton's memorable phraseology--to deal with the pressing economic risks of the twenty-first century. The debate over Social Security is the place to begin the battle. Yet, even here, the Democrats have too often let the technical outshine the moral, and they may soon lack the plump target that the president's flawed Social Security reform plan has come to represent. If Democrats want to seize the high ground, they need their own clear vision of an "insurance and opportunity society"--a vision that challenges the massive shift of risk onto families and promises the security needed for true advancement.

Denouncing Republicans' ethical and procedural abuses is not enough either. Republicans certainly deserve the charges. But the conceit that it was complaints like these that paved the way for the Republican capture of Congress in 1994 misses the larger lesson of the GOP takeover. Newt Gingrich and his fellow insurgents weren't afraid to cry corruption or criticize abuses. Yet their cries were animated by a single big idea--that government had run amok, trampling commerce, freedom, and Americans' pocketbooks.

The Gingrich revolutionaries soon faltered, of course. But it's now clear that their efforts sowed the seeds for the GOP's aggressive exercise of power today. Those seeds were ideological and organizational; they consisted of ideas linked to institutions and were pushed to the top of the political agenda by an increasingly coordinated party. Democrats are not going to build a comparable movement overnight. But, if any political fight presents an opportunity to begin the difficult work of reforging a majority political coalition on favored Democratic terrain, it is the fight over economic security.

In 1938, when he called for national security for all, FDR described insecurity as the nation's last great frontier, setting the agenda for his party for the next three decades. Today, however, the frontier of insecurity is closing back in. As Bush's troubles on Social Security show, Americans are not yet ready to give up on the ideal of shared fate. Let us hope that Democrats are not either.

Bigger and Better

Cecille Isidro — Fri, 06 May 2005 00:00:00 -0400

Remember those bumper stickers during the early-1990s fight over the Clinton health plan? "National Health Care? The Compassion of the IRS! The Efficiency of the Post Office! All at Pentagon Prices!" In American policy debates, it's a fixed article of faith that the federal government is woefully bumbling and expensive in comparison with the well-oiled efficiency of the private sector. Former Congressman Dick Armey even elevated this skepticism into a pithy maxim: "The market is rational; government is dumb."

But when it comes to providing broad-based insurance -- health care, retirement pensions, disability coverage -- Armey's maxim has it pretty much backward. The federal government isn't less efficient than the private sector. In fact, in these critical areas, it's almost certainly much more efficient.

To grasp this surprising point, it helps to understand how economists think about efficiency. Although politicians throw the word around as if it were a blanket label for everything good and right, economists mean something more specific. Or rather, they usually mean one of two specific things: allocational (or Pareto) efficiency, a distribution that cannot be changed without making somebody worse off; or technical efficiency, the most productive use of available resources. (There's a third possibility, dynamic efficiency, but we'll take that up in a moment.)

When the issue is health insurance or retirement security, allocational efficiency is really not what's under discussion. Nearly everyone agrees that the private market won't distribute vital social goods of this sort in a way that citizens need. Before we had Social Security, a large percentage of the elderly were destitute. Before we had Medicare, millions of the aged (usually the sickest and the poorest) lacked insurance. If we didn't subsidize medical care -- through tax breaks, public insurance, and support for charity care -- some people would literally die for lack of treatment. Market mechanisms alone simply can't solve this problem, because private income is inadequate to pay for social needs. This is one of the chief reasons why government intervenes so dramatically in these areas by organizing social insurance to pay for basic retirement and disability, medical, and unemployment coverage, and by extensively subsidizing the cost of these benefits, especially for the most vulnerable.

What's usually at issue, instead, is technical efficiency: Are we getting the best bang for our necessarily limited bucks in these areas? The notion that the private market is, by definition, better at delivering such bang for the buck is the main rationale offered for increasing the already extensive role of the private sector in U.S. social policy. Thus, Medicare vouchers or partly privatized Social Security would supposedly engage the discipline of competition and lead to more efficient use of resources.

Liberals usually retort that social policies have other goals besides efficiency, most notably distributive justice. That's true enough, and it's another major reason why we should be profoundly skeptical of unqualified paeans to the private sector. In theory, it might be possible to design social-insurance programs that rely on the private sector but do everything that current programs do. In practice, however, privatized approaches almost invariably change the distribution of who gets the benefits, because they tend to erode common pools and subsidies (indeed, that's what their advocates often want). Yet there's no reason for advocates of social programs to cede the ground on efficiency while raising broader concerns of this sort, because in health and social policy, what is most just is also, in a great many cases, most efficient as well.

Broad-based insurance, after all, is not like widgets. In the fiercely competitive market of economics textbooks, multiple sellers appeal to multiple buyers who have good information about the comparative merits of relatively similar products. Competition squeezes out inefficiencies and yields optimal outcomes. But "markets" for social insurance don't work like this. In particular, information in these markets is both scarce and unequally distributed. This leads, in turn, to all sorts of familiar distortions on both sides of the transaction. Consumers, for example, can saddle private insurers with "adverse selection," which occurs when only high-risk folks buy insurance. The "moral hazard" problem crops up when people are insured against costs that are partially under their control, and then engage in risky behavior. On the producer side, health-insurance companies can take steps to avoid costly patients, and purveyors of retirement products can gull unwary retirees in order to enrich insiders. All of this is why insurance aimed at achieving broad and necessarily social objectives has never worked well, or indeed at all, without some government support and regulation. And it's also why it often makes sense for that support to take the form of public insurance.

Notice I say "insurance." The real issue in the big-ticket areas of U.S. social policy isn't public versus private services. It's public versus private insurance. Medicare buys essentially all its services from the private sector, and no one wants that to change. What some want to change is the degree to which Medicare is in the insurance business, and it's here that all the efficiency advantages of the public sector become clear.

Perhaps the most obvious is the advantage that neither side wants to talk about: compulsion. In the realms of public policy under discussion, however, compulsion is often necessary to make the market work. Think about what would happen if younger and healthier senior citizens were allowed to opt out of Medicare for private coverage: The broad risk-pool of the program would collapse.

Broad programs also have another big advantage: They are ridiculously inexpensive to administer. The typical private health insurer spends about 10 percent of its outlays on administrative costs, including lavish salaries, extensive marketing budgets, and the expense of weeding out sick people. Medicare spends about 2 percent to 3 percent. And Social Security spends just 1 percent. Even low-cost mutual funds have operating costs greater than that.

Here is where critics of social insurance usually pull out their trump card -- the claim that social insurance is not just inefficient but unaffordable. Maybe social insurance is, in some sense, efficient; but, these critics argue, its inexorable growth will lead the United States to financial ruin. And it is true that the growth of social insurance isn't slowed by the usual market brake of consumer willingness to pay. (If it were, as just emphasized, it wouldn't work.) But that doesn't mean that there are no brakes at all. If it did, the federal government would now be a leviathan, rather than -- as is the case -- about as large as it was in the early 1970s. Americans don't decide individually how much of their income to devote to social insurance. But, through their elected representatives, they do decide -- in a rough way, of course -- how much of the nation's income to devote. Spending has trade-offs, in the form of higher taxes and forgone priorities, and those trade-offs are visible in people's tax bills and everyday lives, and in public debate. Anyone who has followed recent political fights knows that politicians are not evading the rising costs of social programs.

What's more, the government has another advantage when it comes to holding down costs: It is a powerful negotiator. Medicare pays doctors and hospitals less per service than does the private sector, and its costs have grown more slowly than private health plans over the last 30 years, despite huge technological advances in care for the aged. Medicaid is even more austere (some might say too austere): Its payments are well below private levels, and it negotiates bargain-basement prices on prescription drugs -- something Medicare has been barred from doing. The main reason that Medicaid's costs are rising so rapidly is not that it pays exorbitantly for services but that it covers a lot more children and families than it used to, a good thing in an era in which private coverage has plummeted. Lest government's use of its countervailing power to hold down prices seems illegitimate, it's worth remembering that this is exactly what HMOs and other big health plans were supposed to do -- but Medicare and Medicaid do it better.

To be sure, public insurance could still dampen what economists call dynamic efficiency, that is, innovation and improvements in quality. But in some areas, like sending out retirement checks, it's not clear where the innovation will come from, while in others, like micromanaging providers, it's not clear that the private sector's "innovations" are really worth emulating. Many of the innovations have to do with discriminating against people at risk of getting sick, micromanaging doctors, and shifting out-of-pocket costs onto patients. Profit-motivated entrepreneurs quickly realize that the most effective way to minimize costs is to get rid of the people most likely to need care. This may be efficient from their perspective, but it's obviously not efficient for society.

Plus, when it comes to the most basic and important form of dynamic efficiency -- namely, quality control and improvement -- the public sector is arguably as capable as the private sector, and probably more so. As Phillip Longman has argued in an important Washington Monthly article on veterans' health care, the Department of Veterans Affairs (VA) has used its central power to create a model evidence-based quality-improvement program. Although the Medicare program still has a long way to go to match the VA, no one disputes that it conducts more rigorous reviews of technology and treatments than private health plans do. Indeed, private plans use Medicare's criteria for covering treatments as their standard of medical necessity. Information about quality is a classic public good -- everyone benefits from it, but few have strong incentives to supply it. A large insurer with extensive data on its patients and considerable power to reshape market practice is arguably best positioned to provide such a good.

And this is simply to focus on efficiency. As noted already, the public sector runs circles around the private sector in terms of equity, the other major rationale for social insurance. If the current functions of social insurance were just turned over to the private market, vast numbers of people simply wouldn't be able to afford anything as good as Social Security and Medicare. Conservatives like to argue that everything provided in the Social Security package -- the annuity, disability, and life-insurance coverage -- could just be purchased in the private market. It could, but at far greater cost for most Americans, and many applicants would be deemed "uninsurable." All of which suggests that the claim that social programs are "inefficient" is often just a politically correct way of saying that they don't follow the usual market logic of giving the most to those with the greatest means.

Liberals frequently stress the equity argument but buy into the efficiency critique because they recognize, correctly, that the market is usually tremendously efficient. But they shouldn't accept that premise when it comes to social insurance. Well-functioning markets are indeed efficient for ordinary commerce, but well-designed social insurance is almost always more efficient than its market counterparts when it comes to dealing with the basic social risks that capitalism invariably produces. It's high time for liberals to say what logic, evidence, and the lived experience of citizens all show: The efficiency attack on social insurance, far from a self-evident truth, is usually an attack on the ideal of social insurance itself -- the notion that everyone, regardless of income or likelihood of need, should be covered by a common umbrella of protection. And, ultimately, social insurance is good for the efficiency of society as a whole, not just because it provides much-needed protections at a reasonable cost, but also because it allows people to deal with what FDR once called the "hazards or vicissitudes" of modern capitalism without draconian restraints on the free play of the competitive market.

So the next time someone complains to you about the compassion of the IRS, the efficiency of the post office, all at Pentagon prices, tell them you'd be happy with the efficiency of Social Security, the compassion of Medicare, all at Medicaid prices.

Early Retirement Accounts are the Way Forward

Cecille Isidro — Mon, 07 Feb 2005 00:00:00 -0500

Could a reformed public pension system give citizens more control over their retirement savings, as conservatives want, without undermining security in old age, as liberals fear? Here is a proposal that does just that in the American context, although it could apply equally well to any public pension system struggling with long-term debts and an ageing population.

The idea is to allow all US workers to divert a portion of their payroll taxes into personal "early retirement accounts", which would give individuals more control over their financial destiny and the timing of their retirement. In exchange, the age at which Social Security benefits kick in would be pushed back several years, but without any cuts in monthly benefits thereafter.

At a stroke, this proposal overcomes the most serious objections to privatisation plans. Although such a system would require some initial borrowing, it more than pays for itself over time. Say, for example, that individuals were allowed to divert one-sixth of their payroll taxes into early retirement accounts. Suppose further that the minimum age for receiving a Social Security pension rose from the current 62 to 68, and that the threshold for full benefits increased from 65 to 72. The Social Security Administration's Office of Policy estimates that the savings from this extension in the retirement age would not only cover the full cost of the early retirement accounts, but would also make the system solvent in the long term.

In his recent State of the Union address, George W. Bush, US president, outlined his vision of a new system in which all Americans now under the age of 55 would face significant cuts in their promised monthly benefits. The hope is that individuals could use their personal accounts to make up or exceed the difference.

But what happens if the market turns bearish several years into your retirement? Or if you exhaust your personal account and then have to subsist on substantially reduced Social Security benefits?

Our proposal preserves the core purpose of Social Security by protecting those in danger of outliving their savings from any cuts in monthly benefits. At the same time, it gives people a vehicle for financing early retirement.

While it leaves those aspiring to early retirement exposed to some financial risk, it allows them to bear that risk while they are still relatively young. If your early retirement account does not perform well enough for you to be able to retire at 62, then you will just have to work a few years longer before you receive full Social Security benefits. If you are physically unable to work, you would still be eligible for disability insurance.

There are other potential benefits to this plan. Most personal account plans call on individuals to purchase annuities when they retire. Annuities, however, are expensive, vulnerable to inflation, cannot be passed on to heirs and bear the risk that the company offering them will go broke. With early retirement accounts there would be no need to purchase annuities, because Social Security benefits would remain in full force in one's later years.

Best of all, early retirement accounts would encourage workers to remain in employment for longer, so as to retire in greater comfort later on. Research shows that people with 401(k) and other defined contribution plans tend to delay retirement. The longer citizens remain in the workforce, the more they will contribute to their own and the nation's economic well-being, and the likelier they are to remain healthy.

The original purpose of Social Security was to protect Americans from destitution in their final years -- a mission that remains as important today as it was 70 years ago. Since the first Social Security cheques started flowing, however, life expectancy at the age of 65 has increased by 34 per cent for men and 41 per cent for women. Today, a man retiring on Social Security at 65 can expect to collect benefits for a full 16 years, and a woman for 17.5. Given these gains in longevity, does it really make sense to maintain 65 as the standard retirement age?

Ensuring the strength and solvency of public pension systems in ageing societies need not require benefits cuts in old age nor massive new debts for our children. Rather, the best way to reform public pension systems is by encouraging all citizens to retire later and richer.

Fixing Social Security

Cecille Isidro — Mon, 01 Nov 2004 00:00:00 -0500

Social Security is a mess. With the oldest babyboomers now four years away from qualifying for benefits, the program faces a shortfall of $12.7 trillion. To close the deficit, the program would need to cut benefits by 27% by the time today's 25-year-olds retire. And yet in this silly season, neither presidential candidate is offering a viable solution: Kerry says he won't touch Social Security; Bush promises an expensive privatization plan that would leave individuals with huge market risks. But there's another way. FORTUNE has learned that a new reform idea is percolating within the Social Security Administration. Nothing's official, but the idea is so good that we're previewing it here to get some public discussion going.

The idea starts with the creation of Early Retirement Accounts. Individuals could put one-sixth of the money they and their employers currently pay to Social Security into 401(k)-like accounts, which they could use to finance retirement beginning at age 62. How would Social Security make up for the loss of revenue? Monthly Social Security benefits would remain what they are today, but the age at which future retirees qualified for them would be delayed. Today you can qualify for early, reduced benefits at age 62; that age would gradually increase to 68. The retirement age for full benefits would be pushed back from 65 to 72. Preliminary analysis by the SSA indicates that the rollback in retirement ages would not only save enough money to fund the Early Retirement Accounts, but also return the system to solvency.

Most privatization plans stipulate that individuals take a 33% cut in their regular benefits and use personal accounts to make up (or exceed) the difference. That provision raises two big objections: What happens if the market tanks as you retire? And what happens if you live to be 115? Either way, you may end up eating dog food. (By contrast, today's system insures individuals not only against market losses but also against the risk of outliving their savings.) Some plans try to overcome market risk by promising a minimal return on personal accounts. But if there is a prolonged bear market, bailing out a whole generation of disappointed savers could easily become more expensive than the current system.

As for people living longer than their savings, privatizers suggest that retirees convert their personal accounts into annuities that will guarantee fixed payments for life. But annuities tend to be inefficient financial vehicles. Insurers have to set premiums high because they know that people who expect a long life will snap annuities up as a hedge against outliving their savings, while people who expect to die soon won't. Compelling everyone to buy annuities at retirement would eliminate that problem, but it would also impose a great burden on terminally ill people who might want to spend down their nest eggs quickly.

The new plan neatly solves these problems. It preserves full benefits for those who need them, the "old old." It leaves individuals exposed to some financial risk, but they bear that risk while they are still relatively young and able to recover. If your Early Retirement Account doesn't perform well enough for you to be able to retire in your early or middle 60s, then you can just work until 68 to qualify for Social Security's early retirement benefit, or until 72 to receive the standard benefit. In that case, you might miss out on some "golden years" of active retirement, but you wouldn't be stranded.

In the event that you're physically unable to work, you could still collect Social Security's Disability Insurance benefits, which would not have to be cut, as they would under most privatization plans. Also, there would be no need to bother with annuities. People would be using their personal accounts to finance only a fixed number of years before they reached eligibility for Social Security benefits.

There are other advantages. For example, the early retirement account might actually persuade people to work longer. Research shows that people with 401(k)s tend to delay retirement. Why? Because the money's theirs. If they don't spend it, they can live higher on the hog later. Also, under this plan, people who continue to work until age 65 wouldn't be sacrificing Social Security benefits as they often do today; instead they would be building up credits for bigger benefits in the future.

Because of Social Security's long-term insolvency, taxes will be raised and benefits cut, one way or another. This plan preserves a valuable government-issued insurance policy against advanced old age--the program's original purpose. But it also allows people who want to retire early a good chance (though not a guarantee) of being able to do so. Given polls showing that more young people believe in UFOs than believe they will ever collect Social Security, that's not a bad political bargain.