"¡Váyanse al carajo, yanquis de mierda": ALBA Grows, Free Trade Reactionism and American Ideological Politics Beyond Globalization

ALBA, the command economy alternative to the free trade model of globalization, has acquired a new member--Honduras. According to the Cuban press, "The ALBA (Spanish acronyms meaning DAWN) was launched by Venezuelan President Hugo Chavez and supported by Cuba as an alternative to the failed US-led Free Trade Area of the Americas (FTAA). The regional initiative includes Venezuela, Cuba, Nicaragua, Bolivia and Dominica." Cuba Attends Honduras Official Joining of the ALBA Integration Initiative, Cuban News Agency, Aug. 25, 2008. ALBA is meant to prove that privatization and globalization are bad for people. ALBA means to show that that traditional divisions between public and private sectors remains valuable and important, and that certain sectors, traditionally overseen by the state as agent for territorially based communities, are essential for the maximization of the welfare of people organized into states. In a sense ALBA is compelling for those who control the apparatus of states now overwhelmed by new sorts of governance power--private, multinational and governance based. This is a world that is frightening because its rules are not well known and because the system reduces the privileging of the state. When states must compete as equals with corporate and other non-state actors, many of the smaller and poorer states may find themselves the losers. To a great degree, and at a certain level, there is irony in ALBA--it is a reactionary force seeking to fight against global changes that have begun to reconstitute, privatize, diffuse and democratize power outside the monopoly control of polities. That this fight might not be worth waging--states ought to survive as entities to the extent they add value to people's lives. But there is something rather old fashioned about ALBA--it appears to seek to substitute for a private law based global corporatism, a public law based corporatism of a Stalinist sort. But corporatism is corporatism. And its felt effects at the lowest rung of society is hardly ameliorated by the notions that the pain is a necessary component of public rather than private decisions (and always for their welfare). For all that, ALBA might serve other, and important, purposes--principally as a means of aggregating and institutionalizing responses to and challenges of American power in the Western Hemisphere. For that reason alone the Americans ought to pay greater interest in this phenomenon.

Cuba's attendance at the Honduran ceremonies was muted. "The Cuban delegation also includes deputy foreign minister Yilian Jimenez, Cuban ambassador to Honduras Juan Carlos Hernandez and other government officials." Id. But the point was well taken. . . . everywhere but the United States. The Americans, smug and distracted, confident that their model of integration requires no work to maintain, have paid scant attention as ALBA was first organized by Cuba and Venezuela, and then used as a multi-lateral nexus point for anti-American and anti free trade actions on the part of Latin American states seeking a better deal. It has become a safe haven for theorizing challenges to free market globalization that has found friends among the new governments of Latin America and has served to defend the interests of these governments against pressure form the West and its market imperatives. The Americans even failed to notice when the Cubans and Venezuelans announced the opening of an ALBA bank in Cuba in April, 2008. ALBA Opens Bank in Cuba, Prensa Latina, April 10.

But like all things in Latin America, eventually this sort of acting out may come to the attention of the Americans. And so, as one of its first acts of solidarity, Honduras has chosen the showy but safe theatrics of diplomatic bad manners--it has refused to receive the credentials of the new American Ambassador to Honduras. Honduras se niega a recibir las credentiales del nuevo embajador estadounidense, El Pais, September 13, 2008. The purpose was to show solidarity with Bolivia in the most dramtic but innocuous ways. The Honduran president stressed both the stroing ties to his fellow Latin American leaders but also the need to preserve his alliance with the United States.

Zelaya explicó que la entrega de credenciales del embajador Hugo Llorens, prevista para ayer, se ha retrasado para "ser solidario con los problemas que vive Bolivia, para que se busque una solución al problema boliviano, con el fin de que se logre restablecer la paz". "Estamos siendo solidarios con el presidente Evo Morales, que ha denunciado una intromisión" de EE UU en su país, puntualizó. "EE UU es un aliado de Honduras, no va a tomar represalias simplemente porque yo esté siendo solidario con Evo Morales", declaró Zelaya ante decenas de periodistas después de un acto oficial en un barrio de Tegucigalpa.

Id. The Honduran have thus chosen to contribute to the essentially theatrically sad melodrama of the last several weeks, which has seen the expulsion by the United States, Bolivia and Venezuela of their respective ambassadors. The only relief from this stage managed theatrical show has been Hugo Chavez's scene stealing lines (delivered unconscious of the self deprecating irony)--"¡Váyanse al carajo, yanquis de mierda, que aquí hay un pueblo digno. Váyanse al carajo cien veces!". EE UU expulsa al embajador de Venezuela, El Pais, September 12, 2008 ("Go to hell shitty Yankees, this is a dignified people. Go to hell a hundred times over."). And the Russians appear to be taking advantage of this squabble to show that their military aircraft and ships are still capable of showing up in Venezuela. "Respecto al aterrizaje de dos bombarderos estratégicos Tu-160 rusos en Venezuela, Hugo Chávez ha recordado que esta no será la única presencia de Moscú en América Latina, ya que próximamente visitará su país una flota naval de Rusia." This apparently is response to the reactivation of the American 4th Fleet to hover over Venezuela.

An interesting predicament for the United States. Its neglect and carelessness has made a shambles of its Latin American economic policy. That undercuts American business as it seeks to compete with its rivals from Europe and East Asia. The American's periodic frenzy behavior in Latin America--swooping in, for example, for a moment of solidarity with Brazil to carve up the global ethanol market--has proven ephemeral and irritatingly half hearted. Much of leaves the beneficiaries more annoyed than grateful: consider for example the American refusal to discuss its trade barriers against Brazilian agricultural exports while embracing notions of trade advantage based on ethanol. But that is the problem of the great change in American policy since 2001--a privileging of ideology over business interests. Thus the other great irony of ALBA--while the ALBA states pursue a reactionary statist policy, the Americans have pursued an equally reactionary policy of its own--privileging ideological agendas (democracy, etc.) over free enterprise and wealth creation policy. And the void created by the American embrace of Marxist ideologically driven foreign policy has created a space for Chinese entrepreneurs to fill, with talk of free enterprise and wealth creation. And it has proved an opening for the reintroduction of Russian military power (if only for show at the moment) into the region.

Democracy Part XV: In Which Elections Serve as a Prelude to Carving Power in Democratic States

Elections in some democratic states appear to be a prelude to real political change than its marker. In some states, elections are meant to substitute or amplify the para military campaigns among and between political followers that tend to serve as the real field on which elections are determined. So it is in Zimbabwe. "The MDC leader gained more votes than Mr Mugabe in March elections but official results show he did not pass the 50% threshold for outright victory.Mr Tsvangirai pulled out of the June run-off, saying some 200 of his supporters had been killed and 200,000 forced from their homes in a campaign of violence led by the army and supporters of the ruling Zanu-PF." Mbeke Bids to Save Zimbabwe Talks, BBC News Online, Sept. 8, 2008. But this system has recently been overtaken by the international legal order's taste for management of physically violent political contests. Enter South Africa, with its own interests to protect.

In the context of this most recent election the latest gyrations of President Mugabe and his South African benefactors have proven most instructive. See Mbeke Bids to Save Zimbabwe Talks, BBC News Online, Sept. 8, 2008. Mr. Mbeke has recently flown to Harare to save Robert Mugabe from the fate of other "big men" in Africa. "At the negotiating table it has been three against one - with Thabo Mbeki of South Africa and Arthur Mutambara, who leads a minority faction of the opposition, joining forces with Mr Mugabe to put pressure on Mr Tsvangirai to accept the Zanu-PF power-sharing plan." Allen Little, Nkomo's Ghost Hauunts Zimbabwe Talks, BBC News Online August 13, 2008.

We are reminded by the press that

Both Robert Mugabe and opposition leader Morgan Tsvangirai claim to have won this year's elections, marred by widespread violence.Since South Africa-brokered crisis talks broke down last month, both sides have hardened their positions.Mr Mugabe has said he is ready to form a government alone, while Mr Tsvangirai over the weekend said there should be new elections if a deal is not reached. South African Ministry of Foreign Affairs spokesman Ronnie Mamoepa said Mr Mbeki would meet both men, as well as Arthur Mutambara, the leader of a smaller opposition faction.

Mbeke Bids to Save Zimbabwe Talks, supra. We are also reminded of the fate of the last man who agreed to power sharing arrangements with Robert Mugabe--Joshua Nkomo. See Allen Little, Nkomo's Ghost Hauunts Zimbabwe Talks, BBC News Online August 13, 2008 ("Mr Mugabe has in mind what you might call the Nkomo solution: he retains control of the military and security services that he has used so successfully to terrorise his way to successive election victories.In other words he retains the coercive instruments of real executive power. Mr Tsvangirai gets the economy to sort out. Mr Tsvangirai is not weak enough to have to accept this poisoned chalice." Id.). Because elections tend to be bloody in Zimbabwe, and the political culture stalked by the force of ethnic, religious and other rivalries, managerial internationalism would seek a solution that while appearing to respect the form of democratic organization subverts its essence in the service of violence abatement. Stability, it seems, trumps even the forms of democratic change--and why not? In this case the hope might well be to rid Zimbabwe at last of a dictator without either the continued pretense of more "elections" or the fuss of a potentially quite bloody civil ethnic war in Zimbabwe.

From the perspective of the culture of law and its use in the settlement of Zimbabwe's government, is the way in which Mugabe continues to deploy the imagery of anti-colonialism against both his opponents and any non-African state that seeks to weigh in against him and his rule. Thus, it would seem, that because Mr. Tsvangiai profits from Western European and American anti-Mugabe sentiments, "Mr Mugabe makes hay with this, accusing his rival of being the candidate of Western interests, of resurgent British imperialism. This plays well in much of Africa, but it no longer plays well in Zimbabwe, where there is now real economic privation." Id. Ah the irony. It reminds me of a comment about another great practical philosopher of politics once made many years ago by H. L. Menken, but one ultimately far less successful than this modern version:

AN AMERICAN PHILOSOPHER: As for William Jennings Bryan, of whom so much piffle, pro and con, has been written, the whole of his political philosophy may be reduced to two propositions, neither of which is true. The first is the proposition that the common people are wise and honest, and the second is the proposition that all persons who refuse to believe it are scoundrels. Take away the two, and all that would remain of Jennings would be a somewhat greasy bald-headed man with his mouth open.

H.L. Mencken, Damn!: A Book of Calumny Section XXI (New York: Philip Goodman Co, 1918). Mugabe's philosophy might well also be susceptible to that sort of reductionism--that all that is bad and evil originates from the European world, and that those who refuse to believe Mugabe's telling of it are traitors. The resemblance is uncanny. Thus both the great power of a rhetoric of resistance to the colonial experience, and the ease with which that resistence can be used to reconstruct a law and political-culture system that undermines rule of law in its process and substantive aspects even as it appears to safegard it against neo-colonialist interference. Tyranny, it appears, might use the fear of tyranny to perpetuate its own abuse in the name of sovereign values thus undermined.

Brazil, China, Sugar, Ethanol and Politics

It is with some interest that I note the recent trade mission sent by Brazil to China. The mission was potentially important enough to earn a notice by petroleum interests. See China wants Brazilian technology in ethanol, Brazil-Arab News Agency, July 8, 2008 (Translated by Gabriel Pomerancblum). "This week, Brazilian government officials and businessmen are in China exchanging information, with the aim of opening up more investment opportunities in different sectors. One of them is biofuels." Id. The mission suggests a number of converging interests and points to the evolution of trade strategies among emerging nations.

The Chinese have long been interested in how Brazil manufactures and uses alcohol, which is obtained from sugarcane. Even though the Chinese government is not interested in producing alcohol from sugarcane, the country wants to know how Brazil produces, stores and transports alcohol. The trade mission to China is going to visit the cities of Macao, Hong Kong and Beijing, where the seminar "Investment opportunities in Brazil" will be held. The trip is headed by the Foreign Trade secretary at the Brazilian Ministry of Development, Industry and Foreign Trade (Mapa), Welber Barral, and aims to attract further investment from China into the country.

Id.

Brazil is energetically seeking trading partners where it can obtain them. It has become less fussy and more focused on economic objectives since the appointment of former university law professor Welber Barral to the office of Foreign Trade Secretary. A sense of the change under Mr. Barral's leadership can be gleaned from Brazil's recently announced export strategy:

The Ministry of Development, Industry and Foreign Trade of Brazil launched yesterday (3) the "2008-2010 Brazilian Export Strategy", a study that defines a series of actions to expand and diversify the country's foreign trade. Publication is an unfolding of the Productive Development Policy (PDP), disclosed in May by the federal government. The PDP established a target of expanding Brazilian exports to 1.25% of global trade by 2010, which would now be equivalent to US$ 210 billion. "At that time, we established targets, but did not say how we would get to them," said the Foreign Trade secretary at the ministry, Welber Barral, according to Agência Brasil. This year, according to estimates by the ministry, foreign sales should exceed US$ 190 billion.

Government launches export expansion program, Brazil-Arab News Agency, September 4, 2008 (Translated by Mark Ament). The focus of the program is traditional. It seeks to reduce agency and transaction regulatory costs generated by the governmental apparatus. "According to a press statement by the Ministry, the study raised some challenges that must be won by the country, like the improvement of the Brazilian competitive environment, reduction of bureaucratic costs and financing and improvement of infrastructure." Id. It also seeks to diversify economic output through a conventional stimulus package, though one which continues to rely on dependence on traditional developing state model exports--agricultural products and unprocessed natural resources. "to add value to Brazilian exports. Agricultural commodities and ores still have a significant weight in the trade basket and the government wants to stimulate the sale of goods with greater added value through programs to provide incentives to innovation in companies, foster efficiency and competitiveness in the productive chain and develop alternative energies." The plan thus suggests both growing pains for the economy and a willingness to aggressively seek greater engagement in globalized markets for the purpose of evolving away from the dependence status of developing state models.

For Brazil, China is viewed as a consumer of natural resources, and agricultural products, of course. But also a potential consumer of its ethanol products. China is also viewed as a potential source of investment in Brazilian first tier industries. Consequently, Mr. Barral presented "projects . . . for investing over US$ 10 billion in the areas of infrastructure, logistics and power generation. The mission is part of the strategies forecasted in the document "China Agenda: Positive Actions for Economic-Commercial Relations Between China and Brazil," launched on Thursday last week in the Brazilian capital Brasília." And Brazil believes it has an advantage that might be exploited in the same way that English speaking countries exploit Hong Kong--the use of the former Portuguese possession of Macau as a gateway to Chinese investment--both ways. "Macau is a fundamental factor for carrying out Brazil’s objectives of increasing exports to China, the Brazilian secretary for foreign trade, Welber Barral said on a recent visit to Macau. "The cultural proximity between Brazil and Macau and the logistic possibility of the territory as a services city is being publicised in Brazil in order that it be used as a gateway for Brazilian companies into the Chinese market,” said Barral, who was in Macau heading up a mission from the Brazilian government." Macau: Macau Business Mission Travels to Brazil and Mozambique, MacauHub: Ecnomic Information Service, August 20, 2008.

But China is also interested in self sufficiency. For them, Brazil represents not merely a source of resources for consumption but a source of technology for its own programs of self sufficiency.

In conversations with technicians at the Mapa, the Chinese expressed their intention of extracting alcohol from cassava, potato and sweet sorghum, a grain with high sucrose content. "No matter what the raw material, the refinery plants remain practically the same. [The Chinese] also want to learn how Brazil handles the transport, how the mix with petrol is done, where this mixing is done, how Brazil stores alcohol and how much can be mixed without compromising older automobiles," explained Luís Carlos Job, head of the sugar and alcohol coordination division at the Mapa. According to the ministry, five provinces in China already use a 5% mix of alcohol into petrol.

China wants Brazilian technology in ethanol, supra. China is sensitive to the use of corn for the production of energy, a topic that has become politically sensitive since the Cuban propaganda machinery kicked into full gear last year to thwart American efforts in that respect. See Larry Catá Backer, Fidel Castro, Hugo Chavez, and the Response to the U.S. Brazil Deal on Ethanol Production, Law at the End of the Day, March 3, 2007 (http://lcbackerblog.blogspot.com/2007/03/fidel-castro-hugo-chavez-and-response.html). And, of course, petroleum producers are interested.

Sugar and ethanol equal political opportunity. Political opportunity is effected through economic relations. Those relations bring together nations that ought to be competitors (both offer havens of cheap labor, an abundance of resources, strategic locations and social and political systems now ready and more able to project power). But rather than both compete for the favors of developed states (though there is plenty of that, to be sure), China and Brazil evidence a new and, to the United States, what ought to be a disturbing trend--an increasingly successful proclivity to deal directly with each other rather than through the United States. Of course, the origins of these mindsets are now over a decade old. But it does suggest that neither the European Union nor the United States can retain, without some effort, their prior positions as clearinghouses of trade. And that has significant repercussions for law and the structure of global economic relations. As Brazil and China, India and Nigeria become accustomed to dealing directly to greater economically positive effect, their willingness to be led to a particular vision of a legally institutionalized world economic order to the taste of the developed states becomes less likely. The latest round of multilateral trade talks ought to have been a wake up call for developed states. Instead, especially in the United States, the reaction among political elites and their media and Hollywood running dogs, have been to resurrect a perverted version of the self hating and inward looking global escapism (except perhaps, as tourists) that marked American policy almost a century ago. Just as the Russians now assert (though less correctly) that the Americans are less relevant militarily in certain sectors of the world (Larry Catá Backer, Russia and the New Medievalism in the International Law of States, Law at the End of the Day, September 1, 2008), so the Chinese and Brazilians are demonstrating that the Americans could lose their privileged economic position if it abandons that field to those sectors of American public opinion that seek to turn the desire for personal advantage into naitonla policy within the Democratic and the Republican parties.

Democracy Part XIV: Of Political Corpses and Global Vampires

Russian President Dmitry Medvedev has described his Georgian counterpart as a "political corpse", saying Moscow does not recognise him as president. "President Saakashvili no longer exists in our eyes. He is a political corpse," he told Italy's Rai television. Russian President Dmitry Medvedev has described his Georgian counterpart as a "political corpse", saying Moscow does not recognise him as president. "President Saakashvili no longer exists in our eyes. He is a political corpse," he told Italy's Rai television.

Saakashvili a "Political Corpse," BBC News Online , September 2, 2008. Does this make Vladimir Putin a political vampire, member of the community of the undead living off the life sources of others; and thus Dmitry Medvedev serves as his Renfew? More importantly, what does it suggest about the limits of democratic choice among the peoples of smaller, or less powerful, states? I have already suggested one difference--the availability of the structure of multi-national, multi-ethnic and multi-religious organization. See Larry Catá Backer, On the Cuban View of the Russian Invasion of Ossetia/Georgia, Law at the End of the Day, August 11, 2008.

It is clear that the people of larger states may choose as they will, with little interference. The essence of democratic organization is preserved to them--however they wish to organize it. See Boris Dewiel, Deocracy: A History of Ideas 142-172 (Vancouver, BC: UBC Press, 2000) ("Democracy may be defined as an institutionalized argument over the proper meaning and relative importance of liberty, equality, and community. Certain institutions, including partisan competition, elections and legislative debates, are at the very heart of democracy. Every democeracy will have institutions of evaluative contestation." Id., at 171-172). Even the smaller states of the European Union may choose to void a process of constitutional change desired by its larger fellow Member States. But no so unconnected smaller and less powerful states. The discussion of the Russian President and his master, the Russian Prime Minister, suggests a reversion to a simpler time, when the international legal order recognized a small number of truly sovereign states, with all others lawfully subject to interference, and in extreme cases, subjugation, by sovereign act of the few supremely sovereign states.

Just as, in municipal law, [states] are regarded as the possessors of independent wills and as the entities in which are vested certain rights and responsibilities, so, in international law, they are viewed as political persons having definite rights and obligations. This status they have, however, in full effect at least, only insofar as they are regarded as members of what is known as the "Family of Nations," which Family does not include all the States of the world but only those nations which have reached a certain aegree of civilization. . . . The States which are members of this narrower group have assumed to themselves the right to determine what other States shall be admitted to full membership with themselves. . . . With reference to the States that are still outside the Family of Nations, Cobbett points out that they can scarcely be held to be altogether outside the pale of international law. He says: 'Such States may be said to occupy in the international system much the same position as persons subject to the disabilities of infancy or alienage occupy in municipal law, but their exact position is hard to define.'

Westel W. Willoughby, The Fundamental Concepts Of Public Law 307-308 (New York: The MacMillan Company 1924).

Russia is civilized and powerful. Georgia is none of those things. Russia is sovereign; Georgia is only so to the extent recognized by Russia. Russia now counts itself among the first rank of states. Georgia is definitely not first tier. It is not permitted the freedom of action of first tier states. To wage war without permission is an offense--against Russia. In the absence of adequate protection from another first tier state (in Georgia's case that would be the United States), then Georgia must pay the price. The same, of course, applies to other entities--the Palestinians, for example. A Russian understanding of democracy and its application based on a hierarchy of States sovereignty makes plausible the American and Israeli reaction to the election of Hamas to the government (and to confine it to Gaza). It might, as easily explain the Chinese reaction to the restiveness of the transnational Turkish nation on and within its claimed eastern frontiers.

As Antony Anghie has argued:

because sovereignty was shaped by the colonial encounter, its exercise often reproduces the inequalities inherent in that encounter. But the further and broader point is that sovereignty is a flexible instrument which readily lends itself to the powerful imperatives of the civilizing mission, in part because it is through engagement with that mission that sovereignty extends and expands its reach and scope. That is why the essential structure of the civilizing mission may be reconstructed in the very contemporary vocabulary of human rights, governance and economic liberalization. In this larger sense, then, the nineteenth century is both very distinctive, and yet entiorely familiar, part of internaitonal law.

Antony Anghie, Imperialism, Sovereignty and the Making of International Law 114 (Cambridge: Cambridge University Press, 2004).

Russia and the New Medievalism in the International Law of States

A short reverie on Labor Day on the labor of nations:

Today we are informed that "European Union leaders have agreed to suspend talks on a new partnership agreement with Moscow until Russian troops have withdrawn from Georgia." EU Suspend Talks on Russia Pact, BBC News Online, September 1, 2008. In return, "Russia has warned further support for Georgia would be a "historic" mistake." Id. For all that, Europe is divided. In contrast to the British, the French and Germans seek a different path:

""By pointing the finger at Russia, we isolate it and continue to trample on it," Prime Minister Francois Fillon said. "This is not the way France has chosen. It's not the way Europe has chosen... and the word 'sanctions' is not on the agenda." . . . German Chancellor Angela Merkel also said the EU should not break off dialogue with Moscow but instead "speak clearly", echoing earlier comments by Foreign Minister Frank-Walter Steinmeier. "

Id. An interesting conundrum--how to show sympathy without cost, how to assert power without appearing assertive, how to be polite in war, and how to avoid war while profiting from it both in one's internal relations within the European Union, and outside of it, against the Russians directly and the United States indirectly. Europe looks to Georgia, Russia looks to the United States, each looks to advantage while the Americans busy themselves with its periodic change in the formal holders of power. "Russia, the Kremlin leader declared, would no longer accept a situation whereby a single country, like the US, sought global domination. . . . Mr Medvedev also pledged to defend the lives and dignity of Russian citizens, wherever they are located." Id. Europe seeks to cultivate systems based on networks of relationships based on law and rule of law as an international systems device for the controlling of arbitrary conduct by any state. Russia, necessarily, is giving in to its traditional sense of inferiority, now hardwired as its political culture. For effectuating the tenets of its new political cosmology, Russia must now treat as substantially irrelevant those systems of international law and rule of law as they have come to be understood, especially after 1989, within the community of internationalists elites in the developed world.

For modern Russian engagement with the world something more ancient is required. That ancient structure substitutes a different set of law for the carefully crafted system of international relations crafted by the United States after 1945 and embraced by the Europeans thereafter. Russian jurisdiction now travels with its citizens where ever they might be located--at least if they are located in places where Russian military power might reach. That is the new basis for legality--or that is to say there is the re-institution of the old basis for sovereign jurisdiction. On the backs of its citizens will Russia now seek to project its power. Though it is ultimately the power of a paper tiger, inevitably subject to collapse on the basis of a reluctance by its privileged population (European stock Russian Orthodox believers ) to breed and an unwillingness to share power effectively among its subject peoples, except when convenient. While Russia plays at expansion through its citizens in foreign territories, it will lose eastern Siberia to the Chinese and its south central core to the Turkish peoples eventually, or be consumed by them within an empire that, like that of the Visigoth minority ion Spain, they will not be able to hold while retaining their traditional national character. But that is in the future.

In the present, the Russians have chosen to hide their weakness behind a passing technological superiority (a potential lesson to Americans seeking to become complacent on that score) and to propose the re-institution of the old pre modern system of status citizenship. In this, Russia might well be reaping first what others have been sowing. See Larry Catá Backer, On Israel's 60th Anniversary of Statehood: Views From the Empire and the Caliphate, LAW AT THE END OF THE DAY, May 16, 2008. It is ironic that this is a principle lesson the Russian establishment has learned from its Islamic fundamentalist friends in Iran and its foes in Chechnya. In place of the system of international law grounded on the customary law of the community of nations, with its sophisticated system of rules designed to instill notions of constitutional restraint through internationalized rule of law principles, Russia would have us return to the principles of politics grounded on the rights of states to project their power as defenders of citizens where ever located. Russia would have us return to a world in which states have spheres of privilege over which they are free to assert quasi-sovereign authority, or least to the extent of their power (and that, of course, is the trick here. . . no likelihood of Russian troops marching into Brooklyn to protect the dignity of Russians living there). "Mr Medvedev. . . made it clear that there were parts of the world where Russia sees itself as having privileged interests."EU Suspend Talks on Russia, supra.

This is both a pre-modern imperialist vision which the Russian national character has never overcome, and also a post modern vision that grounds of state relations in notions of supra national community based on a privileged characteristic of belonging. For the Russians it is "citizenship." For some Islamic thinkers, it is membership in the community of Islam, for others it might be membership in ethnic communities whose bonds are privileged over the obligations of citizenship in multinational states (an idea pioneered by the Germans in the last century with hints of resurgence in places like Kosovo/Albania). This framework makes clear the rationale for actions, such as those by Turkey's religious party, the leaders of whom welcomed the Sudanese president.

Sudan's President Omar al-Bashir is attending a summit of African leaders in Turkey, his first foreign trip since he was accused of war crimes. . . . Last month, the International Criminal Court's chief prosecutor asked the court to issue an arrest warrant related to crimes in Darfur. . . . Neither Sudan nor Turkey recognise the international court based at the Hague. . . . Turkey is keen to complete its membership of the African Development Bank Group, which would allow Turkish firms to compete for development contracts in Africa.. . . On Monday, Turkey's foreign minister asked that African nations back the country's bid for a temporary seat on the UN Security Council, pledging to become its "voice of Africa". Sudan's Bashir in Visit to Turkey, BBC News Online, August 19, 2008.

Wheels within wheels, formal compliance with systems masking its own undoing. Such privileging slowly undoes the delicate system of international rule of law even as it appears to be be instituted by the acclamation of those who would subvert it from birth. Now here is corruption in a more subtle, though more global, form. See Larry Catá Backer, End and Goal, Law at the End of the Day, August 28, 2008. It seems that only Europe is keen to play by its own rules, and then only when it is convenient for the French and the Germans. It seems that Europe, too, is a keen fan of its own universalist norms not as law, but as convenience. All this recalls an old poem by William Blake:

My Pretty Rose-tree

A flower was offer'd to me,
Such a flower as May never bore;
But I said "I've a Pretty Rose-tree,"
And I passed the sweet flower o'er.

Then I went to my Pretty Rose-tree,
To tend her by day and by night;
But my Rose turn'd away with jealousy,
And her thorns were my only delight.

William Blake, "My Pretty Rose-tree," from Songs of Experience, in William Blake, The Works of William Blake: Selected Poetry and Prose 44 (Roslyn, New York: Black's Readers Service Company 1953). Nations, communities, and peoples are developing tastes for the sight of Pretty Rose-trees, but especially for the feel of its thorns.

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.

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.

Moderate/Cautious:

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.


Welcoming:

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.