Sunday, March 20, 2005


The organization I work for is working to make sure John Bolton is not confirmed as the next US ambassador to the UN, so please call your senators & pressure them to vote against his nomination. You can also visit for more information.

I am really biased about this issue so I'm not going to present the other view. What is scary is that it looks like his nomination will not be opposed....

The Ugly American Bank from the NY Times:

You can say this about Paul Wolfowitz's qualifications to lead the World Bank: He has been closely associated with America's largest foreign aid and economic development project since the Marshall Plan.

I'm talking, of course, about reconstruction in Iraq. Unfortunately, what happened there is likely to make countries distrust any economic advice Mr. Wolfowitz might give.

Let's not focus on mismanagement. Instead, let's talk about ideology.

Before the Iraq war, Pentagon hawks shut the State Department out of planning. This excluded anyone with development experience. As a result, the administration went into Iraq determined to demonstrate the virtues of radical free-market economics, with nobody warning about the likely problems.

Journalists who spoke to Paul Bremer when he was running Iraq remarked on his passion when he spoke about privatizing state enterprises. They didn't note a comparable passion for a rapid democratization.

In fact, economic ideology may explain why U.S. officials didn't move quickly after the fall of Baghdad to hold elections - even though assuring Iraqis that we didn't intend to install a puppet regime might have headed off the insurgency. Jay Garner, the first Iraq administrator, wanted elections as quickly as possible, but the White House wanted to put a "template" in place by privatizing oil and other industries before handing over control.

The oil fields never did get privatized. Nonetheless, the attempt to turn Iraq into a laissez-faire showpiece was, in its own way, as much an in-your-face rejection of world opinion as the decision to go to war. Dogmatic views about the universal superiority of free markets have been losing ground around the world.

Latin Americans are the most disillusioned. Through much of the 1990's, they bought into the "Washington consensus" - which we should note came from Clinton administration officials as well as from Wall Street economists and conservative think tanks - which said that privatization, deregulation and free trade would lead to economic takeoff. Instead, growth remained sluggish, inequality increased, and the region was struck by a series of economic crises.

The result has been the rise of governments that, to varying degrees, reject policies they perceive as made in America. Venezuela's leader is the most obstreperous. But the most dramatic example of the backlash is Argentina, once the darling of Wall Street and the think tanks. Today, after a devastating recession, the country is run by a populist who often blames foreigners for the country's economic problems, and has forced Argentina's foreign creditors to accept a settlement that gives them only 32 cents on the dollar.

And the backlash has reached our closest neighbor. Mexico's current president, Vicente Fox, a former Coca-Cola executive, is a firm believer in free markets. But his administration is widely considered a failure. Meanwhile, Mexico City's leftist mayor, Manuel López Obrador, has become immensely popular. And his populist rhetoric has raised fears that if he becomes president he will roll back the free-market and free-trade policies of the past two decades.

Mr. Fox is trying to use a minor violation of the law to keep Mr. López off the presidential ballot.

If he succeeds, many Mexicans will believe that democracy was sacrificed on the altar of foreign capital.

Not long ago, the growing alienation of Latin America from the United States would have been considered a major foreign policy setback. So much has gone wrong lately that we've defined disaster down, but it's still not a good thing.

Where does Mr. Wolfowitz fit into all this? The advice that the World Bank gives is as important as the money it lends - but only if governments take that advice. And given the ideological rigidity the Pentagon showed in Iraq, they probably won't. If Mr. Wolfowitz says that some free-market policy will help economic growth, he'll be greeted with as much skepticism as if he declared that some country has weapons of mass destruction.

Moisés Naím, editor of Foreign Policy, says that the Wolfowitz nomination turns the World Bank into the American Bank. Make that ugly American bank: rightly or not, developing countries will see Mr. Wolfowitz's selection as a sign that we're still trying to impose policies they believe have

On a different yet related note, another interesting article from the NY Times:

In Russia, those who manipulate capitalism to gain fabulous wealth are called the oligarchs, and they sometimes end up in prison. Here we just call such people C.E.O.'s, and we put them in prison less often.

This is the time of year when corporate financial statements offer snapshots of their executives' mugging shareholders. Over the next few weeks, we'll find out precisely how much public companies overpaid their chief executives, but the news filtering out so far underscores the market failure in the boardrooms.

Carly Fiorina was fired last month as chairman and chief executive of Hewlett-Packard. So why did the board reward her with a total of $8.15 million in her last full year before booting her out?

Then there's Michael Eisner, who is finally being pushed out of the Walt Disney Company's chief executive post for running his company almost into the ground. Yet the Disney board recently gave him a $7.25 million cash bonus.

Both instances are a reminder that the executive suite in America is the last bastion of socialism in the world today. If Kim Jong Il traveled to America, he would be bewildered by most of corporate America but would immediately feel at home on a board's compensation committee.

A study for The Wall Street Journal by Mercer Human Resource Consulting found that at 100 major U.S. corporations, bonuses for C.E.O.'s last year rose more than 46 percent, to a median of $1.14 million. Both the amount and the percentage increase were the highest since comparable studies began five years ago.

Companies have shaved costs by laying off workers and reducing health care coverage - and then using those savings to slather more pay on top executives. It's true that companies are now cutting back on stock options for C.E.O.'s, but it's hard to be impressed by that restraint when bonuses are soaring.

Since 1993, the average pay for C.E.O.'s of the S.&P. 500 companies has tripled to $10 million at last count, while the number of Americans without health insurance has risen by six million.

If America's chief executives really earned their money, I'd be more sympathetic. But in 5 of the 100 companies in The Journal's study, bonuses rose as the companies' income dropped.

As John Kenneth Galbraith once put it: "The salary of the chief executive of a large corporation is not a market award for achievement. It is frequently in the nature of a warm personal gesture by the individual to himself."

Indeed, C.E.O. pay increased most rapidly at companies with weak governance and few shareholder rights, according to a study this year by Lucian Bebchuk of Harvard and Yaniv Grinstein of Cornell.

That study also found that public companies devoted about 10 percent of their profits to compensating their top five executives, up from 6 percent in the mid-1990's. That's a hijacking of corporate wealth by top managers.
Companies typically claim that C.E.O.'s are rewarded highly only when they outperform their peers. Poppycock. One study found that when companies didn't outrank their peers, they just redefined their peers.

Another study found that of the 1,000 largest companies, two-thirds claimed to have outperformed their peers. That's the "Lake Wobegon effect": All C.E.O.'s in America are paid as if they were above average.

If only my buddies determined my compensation: I'd like my earnings "peers" to be a New York journalism figure and someone with an interest in the third world - people like Rupert Murdoch and Bill Gates. What a bonus that would be!

Boards sometimes argue that they need to pay huge sums to hang on to talent. Really? Consider Mr. Eisner, who did a great job in his early years but has been a walking pay scandal ever since Disney earnings fell 63 percent in 1993 (after an accounting change) and he received $203 million. He has been so desperate to stay at Disney that he virtually Super-glued himself to his chair. If the board had wanted to pay the market price necessary to keep him, it could have offered a penny.

Or less.

Brian Halla, the C.E.O. of National Semiconductor, received a $5 million bonus last year. But he told The Wall Street Journal, "I feel I should pay somebody for doing this job." Now there's a smart suggestion.

So I called to ask Mr. Halla why, since he feels that way, his board shouldn't save the shareholders a bundle and charge him a fee to keep the job. He didn't take my call.