Thursday, August 28, 2008

End and Goal: On Reports of Corruption in China From a Domestic and Foreign Perspective

Corruption is a terrible thing. It is inefficient. At its core it represents a personal diversion of wealth from the principals of the state (its citizens) to individuals (those who are the beneficiaries of corruption). It serves as a fraud and a misuse of power. All of this is well known. As a systemic component of governmental culture it can weaken and ultimately de-legitimatize any state apparatus. Government whose political culture more strongly demonize corruption tend to serve their populations better and stand a greater chance of surviving as stable and legitimate. Global political culture has increasingly come to see corruption as an evil with legal and political consequences. States have been authorized to repudiate contracts entered into on the basis of bribery. World Duty Free, Ltd., v. Republic of Kenya (ICSID October 2006). International organizations have increasingly condemned corruption and states have embraced international agreements obligating them to reduce or eliminate corruption from state (and sometimes) private systems of intercourse. See United Nations Convention Against Corruption, entered into force December 2005. "It includes measures to prevent corruption, make corruption a crime, strengthen anti-corruption law enforcement and international cooperation, and help States recover stolen assets." United Nations Information Service, United Nations Convention against Corruption Receives 100th Ratification, UNIS/CP/548 (2 October 2007).

Still, corruption is very good for those able to profit from it. It represents a means of taxing transactions based on the ability of holders of power to extract tolls for activity that they control. It can limit competition and assure certain communities or individuals of dominance of a market, business or political sector. In cultures where such mechanisms are viewed as necessary or acceptable means of social or economic organization, these sorts of practices might flourish. within political culture. Whatever its micro utility for the preservation of power and status distinctions within local communities, these sorts of practices are inconsistent with rising global culture. Even within cultures that condemn practices roughly understood as corrupt, there will always be a certain criminal element willing to risk condemnation for the personal benefits of potentially successful corrupt practices. Crime, after all, is endemic in all cultures--religious, Marxist, capitalist, totalitarian an anarchic. Governments are composed of people, it is not surprising that all state apparatus will evidence some corruption from time to time. It is the manner in which the state apparatus deals with the corruption of some of its agents, and the political culture that the state apparatus fosters among its members and citizens, that make a great difference in the legitimacy of a state system--no matter how authoritarian. It is with this understanding of the nature of people and institutions that most efforts against corruption focus on monitoring and surveillance, coupled with strengthening a culture of condemnation and a stronger enforcement of existing laws and the construction of a globally harmonized set of behavior norms about corruption.
"There are signs that the tide is turning against corruption", said Mr. Costa. Governments are being elected on the basis of anti-corruption programmes. There is increased transparency in the banking sector, and a stronger emphasis on integrity in the public sector. In September 2007, the World Bank and UNODC launched a Stolen Asset Recovery (StAR) Initiative to help developing countries recover assets stolen by corrupt leaders, help invest them in effective development programmes, and eliminate safe havens."
Antonio Maria Costa, head of the United Nations Office on Drugs and Crime, quoted in United Nations Convention against Corruption Receives 100th Ratification, supra.

But corruption can also be used as a weapon among stakeholders in or between competing political systems. Because corruption--and a state's toleration or institutionalization of corruption--can serve as a means of attacking the legitimacy of that system, states and civil society actors have sought to use it as a political weapon. Among the most talented actors on this political stage are the organs of news media (whether or not controlled by states or other economic, political or social actors). The utility of the connection between corruption and the legitimacy of the political culture of a state, and between corruption and institutional mechanics for its containment were nicely evidenced in two reports of the same same story--one from the BBC (China Admits Mismanaged Funds, BBC News Online, August 18, 2008) and the other from the state news organ the People's Republic of China ($660 Fund Misused or Embezzled, People's Daily Online, August 28, 2008).

Both stories reported the 2007 Corruption Report issued by Auditor General Liu Jiayi. Both reports started in roughly the same way:
Central government departments and their subordinate units misused or embezzled about 4.52 billion yuan ($661.09 million) last year, for which 14 officials have been detained, the country's top auditor said yesterday. A total of 88 people have been arrested, prosecuted or sentenced, and 104 people handed administrative punishments for the violations in 2007, Auditor-General Liu Jiayi said in his annual report to the national legislature.
$660 Fund Misused or Embezzled, supra. From there the focus of the reports diverge in significant ways--and to political effect. Let's start with the People's Daily Report. This report emphasized the institutional aspects of the issue of corruption. It is grounded in the assumption of the legitimacy of the system and of the marginalization of the conduct. The report first turned to the details of the extent of the corruption within the central state apparatus:
The NAO has named 10 central departments, including the education and commerce ministries, the National Bureau of Statistics, State Administration of Taxation and the State Administration of Radio, Film and Television, as the violators. $660 Fund Misused or Embezzled, supra.
And then in the local state sectors, involving land use fees and the sort of local construction corruption, misuse of housing funds and improper local loans that Western governments have long been used to. Id. Lastly, it turned to the financial sector where it reported "Audit of nine financial institutions, including the Agricultural Bank of China, showed 14.2 billion yuan ($2.07 billion) had been used illegally, the report said, and about 140 suspects from these institutions were handed over to judicial departments." Id. The analytical part of the report was fairly straightforward, in a Western sort of way:
Though central government departments have become more adept at handling budgets, more steps need to be taken to better manage allocations, Liu said. Liu assumed the auditor-general's post in March and this is his first report to the NPC Standing Committee. He succeeded Li Jinhua, known for his courage in revealing the government departments' fund mismanagement and raising an "audit storm" every year since 1999. Id.
What should be striking about both the effort and the report is its blandness. The Chinese appear to be doing what most governments now attempt--highlighting and presenting in a a positive way governmental efforts to reduce corruption. And the focus of the criticism was on systems integrity and effectiveness. This is what one might expect of a report of corruption from, say, the urban centers of New Jersey or Sao Paulo.

That focus is made clear by the list of suggested related stories:
Chinese senior official urges more efforts in curbing official misconduct, People's Daily Online July 28, 2008 ("A senior Chinese official on Monday urged discipline inspection departments to work harder to fight corruption, breach of duty and other misconduct that harm the public interest."); Senior official vows to root out corruption, People's Daily Online July 23, 2008 ("China will intensify its cooperation with the international community and learn from other countries' experience to fight corruption and ensure clean governance, a senior leader said yesterday."); Corruption reports boom in SW China city after text message campaign, People's Daily Online July 15, 2008 ("Prosecutors in southwest China say they have received more reports of corruption in the last three weeks than they received for the whole of last year -- thanks to text messages offering hefty rewards for tip-offs. "); Corruption prosecution a new high, People's Daily Online, July 10, 2008 (""We will intensify investigation of job-related crimes among leading government agencies and leading officials," Cao [Jianming, procurator-general of the Supreme People's Procuratorate] said at a work conference. "We must resolutely deal with cases of bribery and corruption as well as dereliction of duty among officials, who usually collude with merchants in money-for-power deals and severely damage public interests," he added."); Tight rein demanded to fight corruption People's Daily Online July 9, 2008 (""Chinese procuratorates face the difficult challenge of strengthening their function of legal supervision and insuring consolidation of the Constitution and Law," Zhou [Yongkang, a Member of the Standing Committee of the CPC Central Committee Political Bureau] said. Corruption and miscarriages of justice are the problems most apparent to the public, he said."). These are all meant to drive home the point--corruption is a national problem that requires and has produced a significant national response, as does any sort of criminal activity.

In contrast, the BBC Report paints a different picture. It emphasizes the political consequences of the report and indulged in the sort of speculation that suggested not news but the political orientation of its editors. It starts with a suggestion of potential illegitimacy and of the direct connection between the report and the much larger issue of the legitimacy of the Chinese State apparatus under its political system. "Beijing authorities admit that fighting corruption is one of their key tasks. Chinese President Hu Jintao has repeatedly warned that endemic corruption threatens the Communist Party's grip on power." China Admits Mismanaged Funds, supra. It suggested that the report was "a glimpse of how widespread government corruption is in this vast nation." Id. It then reported details of the corruption that emphasized the use of the funds in a manner far more flavorful than the Chinese report that had omitted this information ("diverting public funds to speculate in stocks and using disaster relief money to build government offices" Id.), and indicated skepticism about the characterization of some of the mismanagement ("The report also found "managerial irregularities" in the use of another 41.7bn yuan ($6bn) of public money." Id.). This, of course, is fair game for Western media, which tends to adopt similar stances when reporting corruption in developed states. But the end of the report suggests that the BBC views Chinese corruption in a light different from Western corruption, and fair game for a larger project--that of fostering political change:
Despite admitting that tackling corruption is a top priority, China's rulers have a poor track record, correspondents say.Previous crackdowns have failed, and critics believe that without an enquiring free press and an independent judiciary, corruption in China will continue to spread. Id.
The agenda becomes clear--while Chinese functionaries expose corruption, Western media expose the venerability of the Chinese state to political change. A report about Chinese anti corruption efforts becomes another blow for political change in China grounded in the suppression of the Chinese Communist Party.

Indeed, this focus becomes clearer in the context of those related stories suggested by the BBC: Corruption 'threatens China rainforest' BBC News Online (21 Aug 2008) ("Farmers in the tropical region of Xishuangbanna in China's south-west Yunnan province recently staged a protest, accusing local officials of colluding with the rubber industry to destroy the local rainforest."); China fights misuse of quake funds, BBC News Online, 07 Jul 2008 (China has launched a massive campaign to ensure earthquake relief funds are not misused by local officials. Nearly 10,000 auditors have been dispatched to areas of Sichuan hit by the disaster in May, to guarantee money is spent on those who actually need it. . . . Chinese leaders say corruption is one of the country's biggest problems - and recently unveiled a five-year plan to fight it. Corruption is endemic in many areas of society - even doctors are bribed by patients desperate to ensure they receive the best treatment.); Top China boss removed from party, BBC News Online, 26 Jul 2007 ("The former Communist Party leader of Shanghai has been expelled from the party, state media reports. Chen Liangyu was . . . fired last year after a probe into the alleged misuse of the city's pension fund. Many other senior figures were also accused of involvement."); Shanghai officials hit by scandal, BBC News Online, 02 Mar 2007 ("Nine senior officials and business leaders have been reportedly expelled from China's Communist Party over a huge Shanghai corruption scandal. . . . Despite China's market reforms, Communist officials still have control over large parts of manufacturing, banking and real estate industries. Corruption is a widespread and growing problem, which Beijing is struggling to control, our correspondent says."); China steps up corruption fight, BBC News Online, 14 Feb 2007 ("China plans a new corruption agency after almost 100,000 party members were disciplined for misconduct last year. . . . The figure is down on 2005. But despite the fall, most people in China, including the party leadership, believe corruption is endemic and rising."); China finds pension fund abuse BBC News Online, 24 Nov 2006 ("China's National Audit Office says its investigations have found that as much as 7.1bn yuan ($900m) of pensioners' money has been misused. It said the money had been used in overseas investments, construction projects and unauthorised lending. . . . Any crisis in China's pension funds could have important political consequences."); Shanghai scandal 'implicates 50' , BBC News Online, 23 October 2006 ("More than 50 people have been detained in Shanghai's widening pension fund corruption scandal, a Beijing-funded Hong Kong newspaper has reported. . . . The corruption scandal demonstrates the problems facing those who wish to end graft in China, our correspondent says. The courts do not operate independently and almost all of those detained in Shanghai have not been seen or heard of since, he adds. There is little independent oversight. Auditors and corruption investigators are limited and the usual checks and balances that expose corruption - such as a free press and regular open elections - do not exist."). These related stories are all meant ot drive home a different point--corruption is threatening the integrity and legitimacy of a state whose very foundations might be corrupt because of the way its government is organized. Corruption here plays a very different tune.

Thus, the People's Daily Online and the BBC present two very different pictures of corruption and China. One assumes corruption as an internal problem of governance that requires reform and institutional effort within a structurally sound and legitimate system. The other suggests that corruption is so extensive and naturalized component of the political system within which it operates that it indicates the corruption of the system itself within which these acts arise. For corruption to be reformed, then, the foundations of the state apparatus will require revolutionary reordering as well. Thus, while the People's Daily slants its stories to prod greater institutional efforts at monitoring and suppressing corruption, the BBC News slants its coverage to prod change in the political system of China.

It does not follow, necessarily, that either the approach of the Chinese or that of the BBC ought to be mocked or condemned. But it does suggest the way in which an engagement with news provides opportunities well beyond reportage. This, of course, is not a new insight. It is, however, interesting to note in this particular case the way in which the passive aggression of news is exploited. Here, both the People's Daily and the BBC News services is an actor seeking to advance their political, social, economic and cultural agenda, or that of their masters. To that end, each is entitled to deploy all cultural, legal, social and economic levers at their disposal My point is to suggest that in that contest, nothing is ever as simple as it seems or as straightforward as it might be suggested. But the consequences can be perverse. Corruption, in this case, is already morphing from a notion of a set of bad behaviors among agents of economic, political, social and religious collectives, to a weapon in an ideological battle among those collectives for supremacy within their respective hierarchies of power and legitimacy. Corruption provides a good example of the subtle ways in which even the most noble of subjects can serve as vehicles for any number of other agendas. Nietzsche perhaps understood this well and said it much more compactly when he suggested:
End and Goal.--Not every end is the goal. The end of a melody is not its goal; and yet: as long as the melody has not reached its end, it also hasn't reached its goal. A parable.
Friedrich Nietzsche, Aphorism 204, from The Wanderer and His Shadow (1880) reprinted in Seventy Five Aphorisms From Five Volumes 183 (Walter Kaufmann, ed., and trans. (New York: Vintage Books, 1989). And so it is with corruption in general and corruption in China in particular.

Friday, August 22, 2008

Sovereign Wealth Funds: A Smattering of Opinions that Count But Perhaps Ought Not

I have suggested that Sovereign wealth Funds represent a critical nexus point for the convergence of public and private law. Larry Catá Backer, The Private Law of Public Law: Public Authorities as Shareholders, Golden Shares, Sovereign Wealth Funds, and the Public Law Element in Private Choice of Law. Tulane Law Review, Vol. 82, No. 1, 2008. It represents on the one hand, attempts by states to participate in global markets like private individuals. On the other hand, it also possesses the possibility of governance by other means--turning markets into another vector for regulaiton--the way that surveillance and monitoring has already become. See Larry Catá Backer, Global Panopticism: States, Corporations and the Governance Effects of Monitoring Regimes. Indiana Journal of Global Legal Studies, Vol. 15, 2007.

Sovereign wealth funds are viewed as another factor in international financial politics. As noted in a geopolitical context by Yoichi Funabashi, the Editor in Chief of the Asahi Shimbun, published in Tokyo, Japan:
Compounding the effects of its diplomatic fumbling, Washington is also losing economic clout in Asia. With the dramatic growth of sovereign wealth funds (SWFS) in recent years, Western economies have had a rude awakening t the rapidly shifting balance of global economic power: the line between political and financial power is becoming increasingly blurred.
Yoichi Funabashi, Keeping Up With Asia: America and the New Balance of Power, 87(5) Foreign Affairs 110, 116 (September/October 2008). Yet for all that, I have suggested the extent of the complexity of the issues sovereign wealth funds create, requiring an analysis beyond the fear--and the longing . . . for money. Larry Catá Backer, Sovereign Wealth Funds And Hungry States: Adjusting the Borders of Public and Sovereign Activity Across Borders, Law at the End of the Day, June 6, 2008. That fear and longing is nicely expressed at times by conflicting statements put out by governmental sources--perhaps attempting top test the culturo-political waters. Thus, for example, the French finance minister has suggested that SWFs are welcome to invest in France, while the French President suggests that SFWS are in need of substantial control. Sarkozy to use CDC to defend French cos against ‘aggressive’ speculators, THOMSON FINANCIAL NEWS, Jan. 8, 2008. Similarly, the German president has been heard ot propose a law to regulate SWFs, while the German finance minister tries to lessen the implications of regulation by saying ‘nobody wants to block investment, that would be crazy”. See Grant Clelland, Governments split over sovereign wealth funds, DOW JONES INDUSTRIAL NEWS ONLINE, May 23, 2008.

Recently I had my research assistant at Tulane Law School, Jacob Welch (Tulane 2010) to gather together the current crop of influential political pronouncements on public policy responses to sovereign wealth funds. Most, of course, political and policy players are not expert, but expertise would get in the way of intuition. And it is not clear that in the production of political culture knowledge is necessary. But that is nothing new for elite legislators and taste makers. One does not have to know to produce culture or cultural responses--one just needs a particular authority or legitimacy to speak. Cf. Pierre Bourdieu, The Field of Cultural Production (Randal Johnson, ed. & Trans., New York: Columbia University Press, 1993). And a willingness to use that authority. Cf. Eric A. Nordlinger, On the Autonomy of the Democratic State 7 (Cambridge: Harvard University Press, 1981). As my research assistent noted: "The political response has run the gamut from fearful protectionism, to welcoming the funds as a source of stabilizing cash for businesses caught in a downturn. Most adept politicians are taking a ‘wait and see’ approach, while financial insiders tend to stress the importance of keeping markets open and welcoming the inflow."

And so to those sources of authoritative or legitimate sources of opinion for the common people. For this purpose I use the classification system devised by my research assistant: (1) fearful; (2) Moderate/Cautious; and (3) Welcoming. We then report on the reactions by personages attached to some of the sovereign wealth funds.

1. Fearful:

A. Senate Banking Subcommittee on Security and International Trade and Finance Chairman Evan Bayh, "Sovereign nations have interests other than maximizing profits and can be expected to pursue them with every tool at their disposal, including financial power. For this reason, Congress must establish standards for transparency and behavior now to prevent unwarranted interference in our economy by foreign governments." Evan Bayh, Editorial, Time for Sovereign Wealth Fund Rules, Wall St. J., Feb. 13, 2008 (follow the “02.13.08 The Wall Street Journal – Time for Sovereign Wealth Fund Rules” hyperlink).

B. Senator Hillary Clinton, "We need to have a lot more control over what they [sovereign-wealth funds] do and how they do it." Editorial, The invasion of the sovereign-wealth funds, The Economist, Jan. 17, 2008.

C. Securities and Exchange Commission Chairman Christopher Cox: “[The emergence of sovereign funds] challenges us to ask whether these many benefits of markets and private ownership will be threatened if government ownership in the economy … becomes more significant. When the regulator and the regulated are one and the same, deference to [sovereign wealth funds] can all too easily trump vigorous and neutral enforcement. When individuals with government power also possess enormous commercial power and exercise control over large amounts of investable assets, the risk of misuse of those assets, and of their conversion for personal gain, rises markedly. Unchecked, this would be the ultimate insider trading tool." David Cho and Thomas Heath, Oil and Trade Gains Make Major Investors Of Developing Nations; WASH. POST, Oct. 30, 2007.

D. French president Nicolas Sarkozy, "In the face of the increasing power of extremely aggressive speculative funds and sovereign funds which do not obey economic logic (France is taking) the political and strategic choice to protect its companies, to give them the means to defend and develop themselves." Sarkozy to use CDC to defend French cos against ‘aggressive’ speculators, THOMSON FINANCIAL NEWS, Jan. 8, 2008.

E. Sarkozy, again: “[domestic] corporations will be sold down the river.” Id.

F. Former Treasury Secretary Lawrence Summers, "The logic of the capitalist system depends on shareholders causing companies to act so as to maximize the value of their shares. It is far from obvious that this will over time be the only motivation of governments as shareholders. 'Imagine that a SWF makes an investment in a major bank of another nation that goes bad.' 'Is there anybody in the world that can assert that, with billions of dollars on the line, their head of state and foreign minister are not going to get involved in the negotiations." Lawrence Summers, Opinion: Sovereign Funds Shake the Logic of Capitalism, FIN. TIMES, July 30, 2007.

G. Deputy Assistant Treasury Secretary for Asia Robert Dohner, '"ransactions involving investment by sovereign wealth funds, as with other types of foreign investment, may raise legitimate national security." Press Release, Robert Dohner, HP-873: Statement by Deputy Assistant Secretary Robert Dohner before the U.S.-China Economic and Security Review Commission, Feb. 7, 2008.


A. Senate Banking Committee Chairman Chris Dodd, "SWFs have been and will continue to be a high priority for the Committee." Ron Orol, Congress Probes Sovereign Wealth Funds, LAW.COM, Jan. 15, 2008.

B. Senator Chuck Schumer, "Because sovereign wealth funds, by definition, are potentially susceptible to noneconomic interests, the closer they come to exercising control and influence, the greater concerns we have. The question of the day is whether these huge pools of investment dollars, known as sovereign wealth funds, make the U.S. economy stronger or pose serious national security risks." Joint Economic Committee Hearing: “Do Sovereign Wealth Funds Make the U.S. Economy Stronger or Pose National Security Risks?” Opening Statement of Chairman Charles E. Schumer, Feb. 13, 2008.

C. Senator Barack Obama, "I am concerned if these ... sovereign wealth funds are motivated by more than just market considerations, and that's obviously a possibility. If they are buying big chunks of financial institutions and their board(s) of directors influence how credit flows in this country and they may be swayed by political considerations or foreign policy considerations, I think that is ... a concern." Obama says concerned about sovereign wealth funds, Reuters, Feb. 7, 2008.

D. Spokesman for House Financial Services Chairman Barney Frank, "We are going to look at the big picture of this phenomenon and try to gauge what are the policy implications for these funds in the U.S." Ron Orol, Congress Probes Sovereign Wealth Funds, LAW.COM, Jan. 15, 2008.

E. Wharton finance professor Franklin Allen: "I think [the threat of SWF’s being used to exert political] pressure is a legitimate worry, but I'm not sure we have seen signs of that yet." KNOWLEDGE@WHARTON.COM, Dec. 12, 2007.

F. European Commissioner for Economic and Monetary Policy Joaquin Almunia, '"There are situations that are quite striking when the investor is a sovereign fund, a foreign state. This requires transparency. We need to set out European principles because we can't fulfil the internal market and its roles if each member state has different principles." EC to rule on sovereign wealth funds, TELEGRAPH.CO.UK, Nov. 29, 2007.

G. Germany Chancellor Angela Merkel, "How do we actually deal with funds in state hands This is a phenomenon which until now has not existed on such a scale." Steven R. Weisman, A Fear of Foreign Investment, N.Y. TIMES, Aug. 20, 2007,

H. Vice President of the European Commission for Enterprise & Industry Günter Verheugen, '" think the question that must be discussed is how we can defend our strategic interests without violating our most important principles of the freedom of movement of capital in the internal market. I think it is an important issue." Id.


A. David Lewis, Lord Mayor of the City of London “We open our arms to hug them. If they wish to conduct acquisitions in London, there will be no problem if the acquisitions are in accordance with British supervisory laws.” Zhou Jiangong Chinese Companies Preferring London to New York City; CHINASTAKES.COM, June 19, 2008.

B. European Union Internal Market Commissioner Charlie McCreevy 'Let us be brutally frank about this: sovereign wealth funds have been positive and long-term investors. There is, as far as I know, no instance of sovereign wealth funds acting in any manner other than responsibly up until now.” EU In sovereign wealth fund call, BBC NEWS, Feb. 27, 2008.

C. The IMF Joint Committee report: "unencumbered trade in goods and services and cross border investment creates the greatest opportunity for growth both in the United States and abroad," while "policies that impede cross border investment can lead to inefficient decisions and potentially reduce aggregate investment." Putting greater restrictions on SWFs "may be interpreted by other potential investors as an indication that the United States is inhospitable to foreign investors." Winter Casey, Opening the Door to Foreign Investment: Sovereign wealth funds enjoy tax breaks in the U.S., NATIONAL JOURNAL.COM, Jun. 20, 2008.

D. Douglas Redikerof of New America Foundation "We want to be encouraging people to invest as much of this money in the U.S. as we can. We are driving our way around the country every day and sending them our U.S. dollars at $3 or $4 a gallon. ... You really want those dollars recycled back into your economy, because if they aren't, it means they are going somewhere else and the dollar is less attractive and will continue to weaken." David Cho and Thomas Heath, Oil and Trade Gains Make Major Investors Of Developing Nations; WASH. POST, Oct. 30, 2007. Mr. Welch, my research assistant notes, "Mr. Redikerof points out that the money invested in the US is from oil profits, but fails to make the connection that Americans may rebel against SWFs for that very same reason."

E. Germany’s Finance Minister Peer Steinbrueck has previously described the German plans to defend domestic firms as modest compared to those of other countries, including Britain, France and the United States.
"Sovereign wealth funds are welcome in Germany," he said in the text of a speech for delivery in Bonn. "Their commitment contributes to value creation and employment in Germany, and also to stabilisation in times of financial market turbulence, as we are currently experiencing." Steinbrueck has previously described the German plans to defend domestic firms as modest compared to those of other countries, including Britain, France and the United States." Sovereign funds welcome in Germany, finmin says, REUTERS INDIA, May 9, 2008.
F. Peter Weinberger, former CEO of Goldman Sachs Int.: "SWFs have invested most actively in the US: approximately $85bn (€54bn, £43bn) or 0.5 per cent of the total value of the US equity market. It is hard to see why these investments have harmed Americans. They are a tiny fraction of the total market. In each case, the entities receiving the capital decided that the price and terms were superior to what they could secure elsewhere. More important, this is how the markets are supposed to work... it is only a matter of time before SWFs are represented on boards of companies in which they invest – and they should be. All shareholders would benefit from a large, important SWF in the boardroom." Peter Weinberger, Opinion: Sovereign funds offer a wealth of benefits, FIN. TIMES, May 22, 2008,

To these, one can add the official approaches suggested by me in an earlier post: Larry Catá Backer, Sovereign Wealth Funds And Hungry States: Adjusting the Borders of Public and Sovereign Activity Across Borders, Law at the End of the Day, June 6, 2008.

Fund Responses

Mr. Welch notes that "Those speaking out against scrutiny of the funds include businesses such as Blackstone , Merrill Lynch , and Citigroup , all of whom have benefited from a cash inflow from SWF’s during the credit crisis of the past few years. Funds themselves have also been critical of any negative response of their investments, especially immediately after the announcement of the IMF’s plan to create a code of conduct." On Blackstone, see, e.g., Megan Davis, UPDATE 2-Blackstone CEO says SWF scrutiny causing chill, REUTERS, Apr. 14, 2008. On the Code of conduct idea, see Sovereign Wealth Funds And Hungry States:, supra.

Mr. Welch has noted that "Merrill Lynch, who has especially benefited from an inflow of cash from Singapore’s Temask and Korea’s investment fund during a downturn, praised SWF’s in a recent press release: "’Investors should rejoice in the more balanced global economy and the impetus that SWFs will provide to continued growth and development of global asset markets,’ said Alex Patelis, head of international economics at Merrill Lynch.” See: Press Release, Merrill Lynch, Merrill Lynch Economists Expect Sovereign Wealth Fund Assets to Quadruple by 2011 (Oct. 12, 2007). It is well known that Citigroup has aggressively sought funding abroad, beginning with a large sale to ADIA in the 90s, and recently courting the funds of China, Kuwait, and Singapore simultaneously, Mr. Welch suggests, citing to Andrew Dash and Andrew Ross Sorkin, Escalating Losses Force Citigroup to Seek More Foreign Investment, N.Y. TIMES, Jan. 12, 2008, at Business Section.

A. Mohamed Al-Jasser, vice governor of the Saudi Arabian Monetary Agency, "It's like the sovereign wealth funds are guilty until proven innocent." Yoolim Lee and A. Craig Copetas, Wealth Funds Hear Disclosure Warning in Davos Meeting (Update4), BLOOMBERG ONLINE, Jan. 24, 2008

B. Sultan Ahmed Bin Sulayem, chairman of Dubai World: "If somebody comes with regulations that make it difficult for someone from certain geographical locations to invest in Europe or the west, people will take their investment somewhere else. If you put a politician in charge of an investment, believe me, that investment fund will not last for a very long time." Dubai fund hits back at criticism, BBC News, Feb. 29, 2008-

C. Gao Xiqing, president of CIC said a code of conduct for SWF would only “hurt feelings” and “it’s stupid.” Thomas H. Wilkins, A Code of Conduct for Sovereign Wealth Funds “Stupid”, Says CIC, CHINASTAKES.COM, Apr. 8, 2008.

D. [UAE] Central Bank Governor Sultan bin Nassir Al Suwaidi said the IMF lacks sufficient experience in such issues and its involvement following Western pressure could discourage further SWF investment in the United States. The states he represented included Bahrain, Egypt, Qatar, Jordan, Kuwait, Iraq, Lebanon, Libya, Oman, Syria, and Yemen. "We reiterate our misgivings regarding the Fund's involvement in setting best practices for Sovereign Wealth Funds… the IMF does not have the requisite expertise in the areas of governance and transparency to take the lead in producing a set of best practices for SWFs," Al Suwaidi said at a meeting of the IMF and its Financial Committee in Washington. Staff Writer, Suwaidi critical of IMF attempt to monitor SWF investments in West, EMIRATES BUSINESS24-7, May 9, 2008.

Thus one has the makings of an interesting conversation about sovereign wealth funds at the level of which public policy is culturally produced. Within that context, interestingly enough, the Americans are playing a fairly minor role. The fear is easy enough to describe-- that states will apply a set of welfare maximization criteria to their investment activities different from that of other actors (even juridical persons like corporations). The difference? Political criteria. But what are these political criteria? Simply stated they are an expression of those welfare maximizing actions and ideals of the demos of any state that its politicians are duty bound to advance. Notice the parallels to the corporate actions of boards of directors that last description were meant to conjure. The holders of office within a political apparatus owe duties to and are subject to discipline by their stakeholders (citizens, interests groups, residents, etc.). The directors of a large corporation also owe duties to and are subject to discipline by their stakeholders (shareholders, lenders, employees, etc.). The duties will vary depending on the relationship between stakeholder and entity. The duty of welfare maximization of the state to its citizens is distinct from that owed to its non-citizen residents; the welfare maximization duty of corporations to shareholders are distinct from that owed to its lenders. But there is duty all the same.

At the root of this uneasiness, of course, is the way in which sovereign wealth funds serve to destabilize the old order assumptions about public and private law. Sovereign wealth funds, like multinational corporations with public functions suggest that the old "each in their own place" nostrums about the division of economics and politics, and its effects of the construction of law is no longer reflective of any reality "on the ground." This results form the mixing of two once distinct spheres of activity. Though it has been foolish to consider them distinct. Just as corporations might consider cross holdings hostile (excet perhaps among certain industries following certain rules in state like Japan), so states might consider hostile attempts by other states to invest in domestic economic enterprises for precisely the same reason--as shareholders both corpñorate and states would seek to maximize their own welfare (including the values--economic, political, moral, social, religious, etc.) that contributes to that maximization. But in a world neatly divided into categories--public and private--this makes no sense. While states appear to be mimicking corporate (private) behavior, they are not behaving like private enterporises. Why? Precisely because they do not maximize welfare like economic entities.

Ahh, so what the argument suggests is not merely an implausibility of converghing public and private law where entities seek to participate in markets. Instead, the real objective is to privilege a single view of those factors that together constitute appropriate considerations for welfare maximizing behavior by shareholders. And for that purpose, the desires of popular sovereigns, expressed through their political representatives or their delegees within the governance organization of sovereign wealth funds, is recategorized as NOT legitimately welfare maximizing for purposes of asserting rights as shareholders. This is effectively what is being attempted within the jurisprudence of the European Union. See, Larry Catá Backer, The End of Golden Shares in the EU: The EU Commission Takes a Step in its Abolition, It Ought to Harmonize the Rules of Sovereign Investments Instead, Law at the End of the Day, March 9, 2008.

This is a a position I have criticized before. See Larry Catá Backer, State Subsidies and the Character of the Market Transactions of Sovereigns: The Case of EADS, Law at the End of the Day, May 29, 2008. See, e.g., Larry Catá Backer, Brazil Builds a Sovereign Wealth Fund and Norway Flexes Its Muscles: Private Participation in the Market or Regulation by Other Means, Law at the End of the Day, May 24, 2008; Larry Catá Backer, Extraterritoriality and Corporate Social Responsibility: Governing Corporations, Governing Developing States, Law at the End of the Day, March 27, 2008. Though I do take the point that not all shareholder values are legitimate. Two chestnuts from the more ancient history of American law point out a good starting point for consideration of limits. One suggests the limits of director discretion in acting in the name of the entity--looking to institutional welfare maximization for the benefit of its constituent community. Dodge v. Ford Motor Company, 204 Mich. 459, 170 N.W. 668 (1919) ("A business corporation is organized and carried on primarily for the profit of the stockholders. The powers of the directors are to be employed for that end. . . . There is committed to the discretion of directors, a discretion ot be exercised in good faith, the infinite details of business. . . . The judges are not business experts. It is recognized that plans often must be made for a long future, for expected competition, for a continuing as well as an immediately profitable venture."). The other suggests similar (though more broadly put) limits on shareholder discretion ot exercise her rights as represented by her stake in the entity. Gamble v. Queens County Water Co. 123 N.Y. 91, 25 N.E. 201 (1890). Both essentially point to limitations based on duties of loyalty to the entity--duties that can at times sound like those extracted from the German constitutional conception of Bundestreue. See Larry Catá Backer, Restraining Power from Below: The European's Constitution Text and the Effectiveness of Protection of Member State Power within the EU Framework (July 2004), Federal Trust Constitutional Online Paper No. 14/04, at 12-13.

But to some extent, the Europeans, and their suspicions about the possibility of the private character of actions by public entities, is not irrational. If the Norwegian government, for a plausible example, might be able to apply the public policy embedded in their corporate statutes indirectly through assertions of shareholder power in ways that they could do directly (because they might not legislate beyond their borders) then are we really dealing with participation or governance? On the other hand, shareholder activity does not lose its private and participatory character merely because it serves as a motivation for shareholder action. Suppose that a large institutional shareholder embraced the same public policy notions and attachment for the Norwegian corporate code and used its institutional shareholder power to advance those objectives within the corporation? That, certainly, would not be viewed as either political or regulatory--and could be easily justified on traditional grounds (maximization of long term corporate welfare). And this quandary, of course, highlights another destabilizing aspect of state participatory activity in the market--the dissolution of the once firmer division between law and contract, or between statute and regulation. It suggests that just as there is a convergence of public and private law, so there appears to be a similar convergence between law as a formal and institutionalized set of tools over which public entities exercised a monopoly power (on the one hand), and governance as private, contractual, and informal methods of controlling or regulating behavior available to any community with sufficient power to assert it. See, e.g., Michel Foucault, Discipline and Punish: The Birth of the Prison (Alan Sheridan, trans., 19977, NY: Vintage Books 1995)). Law, like the state, might be harder to detect within the globalized institutional environment of soft and hard multi-level and polycontextual regulation. See Larry Catá Backer, Democracy Part XI: Mass Democracy and Shareholder Democracy Converge, Law at the End of the Day, June 30, 2008.

The difficulty, thus, is not with respect to the motives of the investors--public or private--but with the nature of the investment. And here, astonishing enough, the Americans may have it partially right (without necessarily meaning to)--the important distinction is not the character of the welfare maximizing matrix used by public or private shareholders in choosing how to assert their shareholder power, but whether the use of that power is participatory or regulatory. It is easy enough to turn this standard into nothing more than the public private distinction again, and use it as a back door to re-introducing the current thinking about "private reasonable investor" touchstones for public investment. But the Americans are also wrong--formalist analysis is hardly an adequate touchstone for regulatory policy in this context. States that participate in markets that they also regulate can hardly be said to be participating as equals with non governmental others. That was a crucial insight of the European Union's Golden Share cases, and one worth considering. See discussion in Larry Catá Backer, The Private Law of Public Law:, supra. Whether or not states participating in markets they regulate actually use their regulatory power, that power is always available and in any case their actions within their own jurisdictions might well have strong governance effects without the need of formal regulation in a way that cannot be countered. This would not be the case where the state invests in economic enterprises subject to foreign state political control. For those reasons, the rationale of cases like Hughes v. Alexandria Scrap Corp., 426 U.S. 794 (1976) and Reeves, Inc. v. State, 447 U.S. 429 (1980) ought to be generalized. But the application of those cases ought not to be considered further, at least in the context of sovereign wealth funds.

That approach might suggest another basis for regulation--grounded in a distinction based on the ability of host states to affect the investment. If the investing public entity is subject to treatment identical to that of other investors--including exposure to liability, constraints on actions and the like, and may not legislate its way around those equally applicable constraints, then the state investor ought to be deemed private and subject to no further regulation (with the usual exceptions for critical or sensitive industries--defense and the like). Where this is not the case, then the investment activity can be deemed regulatory and controlled like other intrusions by one polity into the affairs of another.

But people (and elites with power and status to protect) still wish it so. And they might have enough residual power to impede change, or at least reroute it. And that, more than the substance of their reactions, conversations, etc., provide the great teaching of these mouthpieces of elite thinking. "In October, the United States joined with Europe and Japan to call for a set of best practices to which funds would subscribe voluntarily. The practices would include pledges of nonpolitical governance structures and more disclosure of portfolio activities." Steven R. Weisman, Overseas Funds Resist Calls for a Code of Conduct, New York Times, Feb. 9, 2008.

And the solution--Windowdressing:
“These funds do not think of themselves as political, and so far they haven’t been,” said an I.M.F. official involved in the drafting of a code who would not speak on the record about internal discussions. “What we’re hearing from them is, ‘What are you so upset about?’ But the concerns are there, and they need to be taken care of in a code of best practices. . . . ” Id.
And diversion--the essence of managing a problem away: "Lou Jiwei, head of China’s $200 billion fund, said at a talk at the World Bank that the I.M.F.’s effort had run into disagreement over the meaning of transparency and political motivation." Id.

The real problem remains. It is not a fear of xenophobia--as Lawrence Summers suggests (id.), but the need to confront the changing landscape of power and regulation at the supra national plane.

Thursday, August 14, 2008

International Law or Principles of Convenience--On the Transfer of Control of Bakassi to the Cameroons

Western international law theorists make of the notion that the world has moved beyond ethnos as an ordering principle of the constitution of nation states. Since the disastrous flirting with the concept in 19th and early 20th century Europe, the idea that for every ethnos there must be a state has given way to a pluralistic view of demos (embracing the inhabitants of a state with political rights) based on the privileging of values and characteristics of membership in a polity. Formal constructs like citizenship, political and social rights and the cultivation of common political and social values now substitute for ethnos markers like language, culture, customs, race, religion and the like. Law, in effect, has sought to substitute for culture, to create a space within which a particular group of people can claim common membership irrespective of substantial differences defined by those characteristics that define ethnic membership.

Large states now are fully vested in notions of demos-citizenship to overcome ethnos as a means of uniting large groups of ethnically diverse peoples into one commonality--at least for politico-legal purposes. India, the United States, and the People's Republic of China represent more of less currently successful variants of this model. The European Union's now generation long efforts at social engineering to create what Nietzsche a century ago called for--the creation of a European from out of the national- tribal chaos of the recent past. See Friedrich Nietzsche, Human All Too Human (Para 475). For an example of its use in the debates about the Europeanization of concepts of demos within the European Union, see, e.g., Simón Royo Hernández, Nietzsche And Unamuno On The Meaning Of The Earth, New Nietzsche Studies. Nietzsche's Ecology & Kant, Neokantianism, Nietzsche. Volume 5:1/2 Spring/Summer 2002, pp.42-56 ,Irina Bassina and Marcel Bas, The United Europe As An Antidote To A Democratic Nation-State In The Ideas Of F. Nietzsche, Published on Internet January 2002.

Except not always. Language, religion, race, and other strong markers of ethnicity continue to play a large role in the way in which states are constructed--not only in the "usual place" (Africa and Asia) but in the heart of Europe as well. The same forces that drove the Sudeten Germans of Czechoslovakia into union with Germany, drove the Kosovar Albanians out of the embrace of a greater Serbia.East Timor, Israel/Palestine, Tamil land in Sri Lanka, the tribalization of Europe in the form of autonomy/independence movements from Scotland to Catalonia all suggest the continuing power--within political theory and the constructing of an international framework for legal ordering, of the ethnic principle in state construction. Yet these constructs all evidence the hierarchy inherent in the framework of globally supervised governance which has been deepened since the Yugoslav wars of the 1990s. In the early 21th century it is not clear if this is international law or a set of international principles of convenience.

It was with this in mind that I read news of the transfer of the Bakassi to the Cameroons. Nigeria Cedes Bakassi to Cameroon, BBC News Online, Aug. 14, 2008. The transfer brought to an end a dispute of very long standing between the successors to the British and German empires--Nigeria and Cameroons, resolved in 2002 by a judgement of the International Court of Justice brought by Cameroons on 1998. See Land and Maritime Boundary between Cameroon and Nigeria (Cameroon v. Nigeria: Equatorial Guinea intervening), judgement October 10, 2002..

This has all the stuff of politics, law, culture and economics. The territory is inhabited mostly by ethnic" Nigerians, and it sits atop a vast amount of potential energy wealth. But the borders were never defined by reference to either characteristic, but by the desires of European princes in the 19th century. Those desires, it seems, have been inherited by the new rulers of the region.
The peninsula on the border between Nigeria and Cameroon has been disputed for decades. In the 1980s Nigeria and Cameroon nearly went to war over the area, which is rich in oil and gas. Cameroon asked the International Court of Justice in The Hague to decide who rightfully owned the peninsula, home to about 200,000 people. In 2002 the court ruled that it belonged to Cameroon, and the Nigerian government under former President Olusegun Obasanjo agreed to hand it over.
Bakassi Plans Stirs Nigeria Tension, BBC News Online, Aug. 13, 2008. ("About 90% of the population of the area is made up of Nigerian fishermen, estimated to number up to 300,000." Nigeria Cedes Bakassi to Cameroon, supra.).
The people of Bakassi are Efik and Ekoi in origin. They belong to the same ethnic groups considered as aborigines of Calabar metropolis, and they see their territory as an extension of the Obong of Calabar's sphere of influence. The chiefs who preside over the affairs of the different Bakassi communities not only visit their domains from Calabar, they sit in council with the Obong. Bakassi people believe they are traditional vassals of the Obong of Calabar.
Maxwell Oditta, Bakassi: Eclipse of a People's Heritage, Daily Independent.

Yet the most interesting aspect of this was the shadow of the old imperial order that hung over the whole affair. From start to finish, the decision was a European one--using European institutions, law, and the dead hand power of European imperial agreements. The Africans remained both passive, and passive-aggressive users of old colonial breadcrumbs and its institutions in new clothing. For at the end of the day, the issues in its legal, and political context were managed by the international community in a way in which the African states had little to say other than to stand in for the European powers in their now centuries old dispute. Overseen by the community of Nations in the form of the United Nations and the International Court of Justice, the resolution of this dispute evidences both the power of management as law in international relations, and on the depth of the dependency in which Africa still finds itself. Not that one can blame the Cameroons--the allure of wealth form natural resources is great--and there is no benefit to ignoring the possibilities offered by the current international law framework. To the extent that they could use the legal detritus of their former colonial masters to good effect, then why not? And for Nigeria, there is some silver lining--the cultivation of hatred against Cameroons among people whose own ethnic hatred might well have been turned against the Nigerian central government itself. When coupled with the agreement over wealth sharing, this works to the advantage of the Nigerian authorities as well.

In this context, consider that the "International Court of Justice ruling was based on an early 19th Century colonial agreement between Britain and Germany." Nigeria Cedes Bakassi to Cameroon, supra. The international community has been thrilled at the prospect of the transformation of a 19th century colonial arrangement into a 21st century methodology of international law. "The transfer of Bakassi had been described by UN Secretary General Ban Ki-Moon as "a model for negotiated settlements of border disputes"." Id. Yet, to the end, notions of state construction, the principle of population integrity and self-determination all seem to take a back seat. Thus, despite realities on the ground--and arguably in a strike for demos over ethnos--both Nigeria and Cameroons, then, behaved like "good" 19th century Europeans.
Nigeria and Cameroon had signed the "Green Tree Agreement" under which Abuja agreed to cede the peninsula to Yaounde in compliance with the verdict of the ICJ, which held that the territory belonged to Cameroon. Under the agreement signed in New York on June 12, 2006, in a U.S-facilitated mediation talks between the two countries, and in the presence of former United Nations' Secretary-General, Kofi Annan, Cameroon was to assume full sovereignty over the peninsula on August 14.
Maxwell Oditta, Bakassi: Eclipse of a People's Heritage, Daily Independent.
Everyone, including Americans, it seems, was happy with the idea that the people of a place can acquire a fungible sense of political belonging. Change a flag and the police force, and it might be possible to cultivate a new set of political allegiances in short order. Today Nigerians, tomorrow Cameroonians. Indeed, if those principles are trans-national, then it opens all sorts of possibilities for the peoples of Arizona (into Mexico), the Palestinians (into Israel), and the Gibraltans (into Spain). Citizenship is a learned experience that can be taught and untaught. The world can be remade in small increments. Just ask the Yugoslavs or the Eritreans.

Yet this seems a necessary consequence of the legalization of the contractual relations among states. The great emerging framework posits that contracts among states--conventions and treaties--now acquire a legal dimension as regulation rather than agreement. That regulatory dimension might be subject to vindication as law rather than as contract and disputes thereunder settled by judicial process. The consequence is a necessary formalism--grounded in the vindication of treaties without regard to their context and the changing legal orders which they purport to control. This legalism is meant to serve as a substitute for the violence that usually followed contractual disputes among states. All of this of course requires a transnational mechanism for the recognition of law and its implementation.

Yet it is not clear whether what we are witnessing is a transformation of contract into regulation, or or the constitutionalization of the law of treaties. Especially for smaller nations, this legalization of treaty "law"--not a law about treaties but as law through treaty--is hard to avoid. Thus, the Nigerians acknowledged the constraints of both the dead hand of colonialism and the current framework of international law. "'he gains made in adhering to the rule of law may outweigh the painful losses of ancestral homes," said the head of the Nigerian delegation, Attorney General Mike Aondoakaa.'" Nigeria Cedes Bakassi to Cameroon, supra.
It was Cameroon that dragged Nigeria to the World Court, averring that given the trend of international treaties entered with Nigerian authorities over a century, Bakassi Peninsula rightly belonged to them.Even though some of these treaties were colonial pacts, they are binding on the succeeding governments of Nigeria, they argued. The Cameroonians urged the court to determine the international land and maritime boundary with Nigeria, whether it is Rio del Rey, which would mean Bakassi belongs to Nigeria or Akpa Yafe, which places Bakassi within Cameroonian territory.
Bakassi: Eclipse of a People's Heritage, Daily Independent, supra. Africa remains nicely mired in the 19th century, and unable to rid itself of its effects by reason of the imperatives of 21st century international law as state management taking for its primal assumption the regulation of state (public) violence.

And the consequences will be very European as well, at a stroke both a blow for multi-ethnic states and the reality of mass population transfers that reduce the reality of demos over ethnos to hortatory desire. ("The Nigerian government told the people of Bakassi that if they wanted to be resettled in Nigeria, they could." Bakassi Plans Stirs Nigeria Tension, supra), and wealth sharing by elites in both states ("Its offshore waters are thought to contain substantial oil fields - untapped because of the border dispute - which Nigeria and Cameroon will now work together to explore." Nigeria Cedes Bakassi to Cameroon, supra.). And the resettlement will continue to cause problems for Nigeria ("The state created a place they called "New Bakassi", carved out of an existing local government area. But now thousands of people have come, expecting a cash handout for moving from their homes. And the original inhabitants of New Bakassi are bitter they are being displaced too." Bakassi Plans Stirs Nigeria Tension, supra)and Cameroons ("Militants, thought to be from the oil-rich Niger Delta, had attacked Cameroonian police in Bakassi, and the police retaliated. . . . Id.). "Chief Effiong of Obuntong sits drinking palm wine in a shack overlooking the land cleared by the contractors building the houses for the Bakassi displaced. . . . . As a traditional ruler, it was at his shrine that he could be consulted on spiritual matters. Angry, hurt and humiliated, he has dark warnings for the people who destroyed it, saying the spirits will avenge its removal. "I will commit suicide, but before I do, they will all die, even if they are a million of them."" Id. Thus the success of management--there will be violence, but contained and manageable. Just the sort of thing the international order desires--the conversion of public acts of political will to private acts of revenge.

Monday, August 11, 2008

On the Cuban View of the Russian Invasion of Ossetia/Georgia


En el bote iba remando
Por el lago seductor,
Con el sol que era oro puro
Y en el alma más de un sol.

Y a mis pies vi de repente,
Ofendido del hedor
Un pez muerto, un pez hediondo
En el bote remador

José Martí Versos Sencillos (1891). ("In the boat I was rowing By the seductive lake, With the sun that was pure gold and in my soul more than mere sun. And at my feet I suddenly saw Offended by its stench, A dead fish, a disgusting fish, In the row boat ").

Cuba and Russia have been moving back together as Russian wealth has made it possible for Putin to assert at least a shadow of the policies and objectives of the old Soviet Union. That, like the sun of a golden are now past, is alluring to those who once basked in its golden warmth--like depictions of heavenly spaces in Byzantine frescoes. But there is a rotting fish in that golden aura of part striving for a Stalinist internationalist world order--the nationalities problem.

And so it is that the Russian invasion of Georgia in defense of the autonomous region of South Ossetia, has posed a problem for that old friend of the Soviet Union--Fidel Castro. Fidel Castro Ruz, Reflections of Fidel: Cannon Fodder for the Market, Granma, August 12, 2008. This rotten fish makes the usual analysis difficult. And so Fidel Castro falls back on an old bromide--the Americans are at fault! Yet that also smells for Fidel as he rows his boat toward that Stalinist utopia that seems even more elusive as the fiction of the Old Soviet Union is replaced by the fascist authoritarianism of the new Russia. But still--loyalty counts for something.

And so the sadly repetitive ethnic warfare, that boils beneath a global commitment to the maintenance of multi-ethnic states whose diverse citizens are theoretically guaranteed equivalent civil and political status, is reduced to a commodification of American market power. This is a hard act for Fidel--who must concentrate on Georgian efforts to pacify South Ossetia while ignoring Russia's attempts to do the same in Muslim Chechnya.

But no matter--the difference is the United States. An odd choice, but a sensible one from an anachronistic perspective. Yet it was more clever than that. For Fidel suggests that the Georgian affair was concocted for the amusement of the American media and its efforts to jostle for viewership in a hotly fought campaign for global markets.

Why did Georgia choose August 8th, at the time the Olympic Games were being opened in Beijing, to occupy Tskhinvali, the capital of the Autonomous Republic? On that day, four billion people on the entire planet were watching on television the marvelous spectacle with which China opened those Games. Only the American people could not enjoy a live broadcast of the exciting festival of friendship among all the people of the world that was staged there. The monopoly over the broadcasting rights had been bought by a television channel that had paid $900 million and wanted to earn maximum commercial dividends for every minute of broadcasting time. The rival corporations got even by covering news of the war in the Caucasus, since this was nobody’s exclusive. The dangers of a serious conflict were threatening the world.

Reflections of Fidel: Cannon Fodder for the Market, supra. But more than that--the Georgians deserved their fate at the hands of the noble Russians--who had only the best interests of the South Ossetians at heart--after all Georgia has sent troops to Iraq at the behest of the Americans (and might send South Ossetains as well). "It is only natural that people from South Ossetia do not wish to be sent as soldiers to fight in Iraq or in other parts of the planet at the behest of imperialism." (Id.).

And thus we have the ultimate reductionism--a Georgian adventure for the amusement of the global (American) media that threatens nuclear war for the profit of the news media--that from Castro's perspective is no media at all. "Saakashvili, on his own, would never have launched himself into the adventure of sending the Georgian army into South Ossetia, where he would be clashing with Russian troops stationed there as a peace force. A nuclear war is not something to fool around with; and providing cannon fodder to the market cannot be rewarded." (Id.).

Georgia is a small actor on the world stage, South Ossetia even smaller. Regions and Territories: South Ossetia, BBC News Online, August 12, 2008. Russia is not, nor is the American media. The nationalities issue appears like a small nuisance on the road to the embrace of greater values. Yet it has the power to undo the nicely crafted system of political ordering post 1945 as readily as it undid the old and stable 19th century order based on Imperial control. Castro adds the interesting wrinkle--it is not only states that now drive the politics of sub national agitation, but any set of organizations with power to influence actors. In this sense, American media, like large corporations or larger states, can as easily influence political events--and the construction of demos, ethnos, and communal relationships, as traditional political sovereigns. Yet that insight suggests as great a danger for Cuba as it does for the integrity of Georgia--whose fate suggest the integrity of other multi cultural states--not the least of which include Russia and China (and in that sense Castro appears to be cheering the wrong side)--or that of other politically aware ethnic territories. And so Fidel rows his cosmological boat to that golden sunset of completion, only to discover a rotting fish in the boat, the odor and presence of which cannot be avoided on the journey of the rower to a place now less perfect for the fish and its odor. "Let’s hope that the Olympic Games can continue without being interrupted by a very serious crisis. The women’s volleyball match against a good U.S. team was great and the baseball has yet to begin." Reflections of Fidel: Cannon Fodder for the Market, supra.

Thus, of course, another consequence of the West's foolish adventurism in the former Yugoslavia, and lately, in the independence of Kosovo. It is ironic, indeed, that the there should be such a great concern about the territorial integrity of Georgia almost immediately after years of hostility to such integrity for Serbian territory. See, e.g., UN Split Over Over Georgia Resolutions, BBC News Online, Aug. 22, 2008. In both cases, larger and more powerful states, with all sorts of agendas--vengeance, advantage, etc.--have paid lip service to the ideals of multi-ethnic states as they conspire to fracture all but the largest states into such small units that they would have no choice but to become dependent on the few remaining large states. But there may be logic to the apparent inconsistencies. Thus, from Kosovo to Georgia--from the United States, the European Union, to Russia--there appears to be an attempt to reconstitute empire, if only by default. In a world in which all states are equal--but only a handful are large multi-ethnic and multi-national political entities among a large number of tribal states--the reconstitution of the family of nations along a more formally constituted hierarchical basis cannot be far behind.

Consequently, perhaps, the world is embarking on a two track approach to the constitution of states. For the larger states--The United States, the European Union, China, Brazil, India--will continue to advance the ideas of states based on popular sovereignty grounded in a multi-ethnic, multi-religious demos. A limited autonomy might be possible within these systems, but the power of the center to reach all of the national territory, and the legitimacy of efforts to forge a single political community of shared values will be legitimated and privileged. Their constitutions, political philosophies and legal structures will reflect this to various extents and the ideals will continue to serve as the framework for state construction within the international organs they control, not the least of which will be the United Nations. For the others, there will be the comfort of tribalism--ethnos as demos. And the possibility of manipulation by the larger multi-ethnic states. The Chinese seem to understand this better than most, when in a subtly critical editorial they noted:

Georgia, a pro-Western ally of the U.S, is intent on asserting its authority over South Ossetia - population of about 70,000 – which is within Georgia, but has an autonomous government. Many South Ossetians support unification with North Ossetia, which would make them part of Russia. It is reported by many Western media that Russia supports the South Ossetian government, has given passports to many in South Ossetia, and calls them Russian citizens. Cease Fire for Olympics, People's Daily On Line, August 12, 2008.

The mechanics will be either autonomy as virtual independence (the approach to the breakup of Georgia) or the Yugoslav solution. Where tensions remain high, Ariel Sharon proved the effectiveness of a stricter separation. As the Russians have suggested with respect to their designs on Georgia: ""Our draft resolution is a reconfirmation of the six-point agreement, and there's no territorial integrity in the six principles," Vitaly Churkin, Russia's ambassador to the UN, said after a council meeting on Thursday." UN Split Over Over Georgia Resolutions, BBC NewsOnline, Aug. 22, 2008.

And there is some value to this two track approach--especially for the fantasy states that are the detritus of colonial expansion--either European, Russian, Persian, Spanish, Indian or Asian--a certain amount of reconstitution might well be necessary, starting with the organizational principle of ethnos as demos. But for these states the real long term solution, if they mean to retain their independence and avoid recolonization by the larger states (in one form of another), would be to follow the example of the European Union--from ethnos to demos within more or less well constituted supra-national governance organizations. But none of us may live to see this, despite its glimmering in organizations like the African Union. Too bad--for them. For others, like Georgia--the solution is to gravitate to an existing union.

This reconstitution of the construction and integrity of states is the really rotten fish in the rowboat.