Boko Haram: A Clueless Gang

Ask any parent their worst nightmare, and you find abduction of their children is high on the list. Many parents in Nigeria are currently living that horrific reality: On April 14,  under the cover of darkness, 230 schoolgirls were abducted by Boko Haram – a clueless, Islamist terror group operating in Nigeria and Cameroon (Abubaker et al, 2014). As the parents of these girls wait and pray for their release, Nigeria’s government seems to be having great difficulty grappling with a terrorist group that has gotten more brazen and radical. The country’s army has, so far, proved that they lack the clout to implement a coordinated, calibrated and effective response to Boko Haram’s activities in Northern Nigeria. 

What’s in the Name?

In the local language, the name “Boko Haram” translates to “Western education is sin”(Giovanni, 2014). Founded by the Muslim cleric Mohammed Yusuf, Boko Haram was influenced by a telling phrase from the Koran, which stated thus: “Anyone who is not governed by what Allah has revealed is among the transgressors”(Chotia, 2014). This means that taking part in any social and political activities associated with the West is forbidden. Simply put, Boko Haram is promoting a version of Islam which makes it “haram”, or forbidden for every Muslim to participate in any political or social activity associated with Western society, including secular  education, election, and wearing shirts and trousers, among others. Thus it is not surprising that this terrorist group regards Nigerian state as being run by non-believers, who should be removed from power at all costs.

It should be acknowledged here that the group’s official name  is “Jama’atu Ahlis Sunna Lidda’awati wal-Jihad” which, in Arabic means “People Committed  to the Propagation of the Prophet’s Teachings and Jihad” (Chotia, 2014). It is the residents of the north-eastern city of Maiduguri(a city in Northern Nigeria), which is where the group’s headquarters is located, who called them  Boko Haram. 

The big question, of course, is why Boko Haram chose northern Nigeria as their stronghold. Historical evidence documents that there has always been resistance among the area’s Muslim to Western education since the Sokoto  Caliphate - which ruled part of what is now northern Nigeria, Niger and Cameroon – fell under  British control in 1903(Chotia, 2014). To this day, the residents of that part of Nigeria still refuse to send their children to what they believe to be government-run “Western Schools.” Unfortunately, the politicians from the northern Nigeria compounded the problems by not  seeing education as a priority for the region.  While there are some Muslim families from across Nigeria who enrolled their children in public schools, Boko Haram abhors education.

Yet by rejecting Western education, Boko Haram is merely exposing their ignorance, for two reasons. First, Islam was once the north star of Western science and education: Between the eight and the 13^th centuries, science thrived in Muslim lands while Europe stumbled through the Dark Ages. During that time, the Abbasid caliphs showered money on education and learning.  The 11^th century “Canon of Medicine” by Avicenna, a Persian doctor(who is also a Muslim), was a standard medical textbook used in European universities and by European doctors for hundreds of years. In addition, Muhammad al-Khwarizmi, a ninth century Muslim scholar, laid down the principles of Algebra, which is actually a word derived from the name of his book “Kitab al-Jabr”. Another Muslim scholar, by name Al-Hasan Ibn al-Haytham, transformed the study of light and optics, while Abu Raihan al-Biruni(a Persian Muslim scholar) calculated the earth’s circumference within 1%. Furthermore, Muslim scholars did much to preserve not only the intellectual heritage of ancient Greece but also helped spark Europe’s scientific revolution(Saliba, 2007; Economist, 2013). Besides, the weapons of mass destruction being used by Boko Haram are the products of Western education. 

The second reason, which Boko Haram members are too ignorant to ignore, is that some of the tenets  and practices of Islamic religion actually  encourage scientific learning. Many astronomers of the Renaissance era were motivated by the Muslims’ skills in accurately calculating the beginning of Ramadan(determined by the sighting of the new moon). Even the Islamic popular Hadith(the sayings of Prophet Muhammad) exhort all Muslims to seek knowledge everywhere, even as far as China(Saliba, 2007; Economist, 2013). And in this modern era, the King Abdullah of Saudi Arabia, Islamic Holiest country, is one of the crusaders of modern education. In 2009, he opened King Abdullah’s University of Science and Technology, which has an endowment that even rich American universities would envy - $20 billion endowment. 

Given these simple facts, it becomes very difficult to understand or explain Boko Haram’s seemingly innate hostility to Western education and science. The group is obviously suffering from an inherent conflict between belief and reason – which is actually the hallmark of Islamic fundamentalism worldwide. 

Nigerian’s Lessons:   The Short Arm of the Law

If Nigeria’s experience of the past few years teaches us anything, it is that its President, Mr  Goodluck Jonathan, has publicly shrugged off deaths of thousands of people, mainly in the north-east of the country. Across the country, the general belief seems to be that he portrays “death-by-Boko Haram” as the unfortunate but unavoidable result of a fanatical insurgency for which his government cannot be blamed. But the plight of the 230 school girls abducted from a school by Boko Haram has served as a wake-up call for President Jonathan and his government since it has put them under an international spotlight, exposing how their incompetence and callousness is hurting Nigeria’s reputation at home and abroad(Economist, 2014b).

This surge of national  horror due to Boko Haram’s activities was particularly embarrassing for Nigeria, which recently celebrated  the  international re-evaluation of  its economy as being by far the biggest in Africa, well ahead of South Africa,  during the the World Economic Forum held in Abuja(Nigeria’s capital)  on May 7, 2014(Copley & Sy, 2014). And in response to the outrage, which spread beyond Nigeria’s borders, President Obama and other Western leaders who had, until April 14, been  watching more or less silently from afar, felt obliged to offer help to the country, which they believe to be in political distress. The U.S. government, for instance, flew in experts in intelligence, hostage negotiations and victims assistance  in its effort to help find and return the kidnapped girls(IBN Live, 2014) while the British offered to send surveillance aircraft along with soldiers from its special forces.  Leaders from other West African countries, led by Ghana’s president, also pledged their support and solidarity for Nigeria. 

On the positive side, it is really a welcome relief that there is no slightest sympathy for Boko Haram and its  current maniacal leader, Abubaker Shekau. While the ongoing speculation is that some of the girls may  already have been forced to marry their abductors  for a bride-price equivalent to $12, as Abubaker threatened in a video released on May 5^th, the United Nations made it clear to the group they would be committing war crimes if they carried out their leader’s threats(Economist, 2014b). 

Whisky for My Men, and Beer for My Horses

In the past, Nigeria’s government often refuse such help, perhaps  because they are wary of perceived encroachments on their sovereignty.  As a matter of fact, it is on record that the United States has operated drones from a base in neighboring Niger since 2012(Economist, 2014b). So it is really very unclear why, until this incident,  Nigeria’s government continued to decline  American requests to be allowed to do the same from Nigerian territory. One plausible explanation  may be that while Nigerian’s government is proud of its  army – which is not only the biggest in Africa,  but also has a long history of contributions to peace-keeping missions, with the most recent one being in Mali – they are notably secretive as well as prickly about its operations and the low standards of soldiery which  foreign experts would see. For instance,  the Nigerian army has dismally failed to defeat Boko Haram in the north-eastern Nigeria despite the fact that President Jonathan declared a state of emergency in that region a year ago.

Given that the Nigerian army has perpetrated numerous atrocities against civilians suspected of harboring or lending sympathy to Boko Haram members, most of whom  thrive among the embittered young Muslims in the north – the poorest part of Nigeria – it makes sense that they are being criticized nationwide. For instance, the Nigerian army was widely castigated after a Military counter-attack  on March 14 following a failed attempt  to escape from the jail by the suspected members  of Boko Haram who were detained at a barracks in Maiduguri. During this counter attack, as much as 500 people lost their lives, mainly at the hands of the Nigerian soldiers. This explains why Western governments were leery about offering to join the fray: They are concerned that such human right abuses by the Nigerian Army will make them to be deemed complicit if they offer to join the fray as they did in other countries with similar issues in the past (Tundo, 2014).

Another reason why foreign military advisers chose to keep their distance is corruption, which is considered to be Nigeria’s greatest scourge. According to an unconfirmed statements and testimonies from some Nigerian soldiers, their commanders tend to pocket the bulk of their salaries, which they sometimes keep in their private accounts in banks where they yield interests. This acts of the commanders of the Nigerian army naturally do not provide any incentive for the soldiers to fight a well-equipped guerrilla movement(such as Boko Haram) that knows the rugged terrain and forests in northern Nigeria. Thus for the Nigerian soldiers, it is not worth it to risk death at the hands of Boko Haram for no reward. And given this prevailing attitude and conditions, it can be an uphill task for outsiders to raise Nigeria’ troops’ morale(or even improve their military skill) to a level that can effectively flush out Boko Haram from Nigeria’s territory.

The Nigerian government’s seeming indifference to the plight of the kidnapped girls’ families is perhaps the 

 worst aspect of its handling of the abduction. Here is a cruel part: President Jonathan refused to address the matter in the public until two weeks after the abduction. So Nigerians should be applauded for staging protests in several cities across the country as a response to President Jonathan administration’s sluggish response and its failure even to clarify how many girls had been abducted.

How Nigeria Can – and Should – Destroy Boko Haram

The latest crises caused by Nigeria’s Boko Haram simply highlights the failure and weakness of the government of President Goodluck Jonathan. Now more than ever, the Nigerian people should not make the mistake that all it takes to eradicate Boko Haram insurgency is a strong president or a strong government, for the simple fact that just because one have a hammer does not mean that every problem is a nail. As a matter of fact, the weaknesses of President Jonathan’s government are mere reflections of Nigeria’s corruption-infested capitalist system – a system that lacks the necessary clout needed to spark a period of urgently needed change in the country.

It should be noted here that for more than half of its history since independence from Britain, elites from the north dominated Nigeria’s politics and government. Unfortunately, very little has been done to develop formal education, healthcare and employment opportunities in the whole of Nigeria, especially in the northern part of the country. So why should it surprise anyone that Boko Haram emerged in the north with the goal of questioning the legitimacy of Western education, especially given that the corrupt elite is largely western-educated?

Faced with death, most people will do almost anything, including committing murder. Boko Haram are evidently aware of this kind of weakness in people of northern region. Thus they offer more than religious vitriol: The group also condemned social and economic injustice and corruption, and offered Sharia Law as the solution. This kind of religious fundamentalist teachings tinged with some kind of radicalism can draw support among the huge swathe of poor and mostly uneducated youth in northern Nigeria since there is no alternative mass working class active organizations or socialist ideas on offer. Besides, to the poor and dispossessed youths who flocked to it,  Boko Haram also offered shelter, food and other means of sustenance.

Corruption and economic sabotage by the Nigerian politicians had ensured that over 80 percent of Nigeria’s oil wealth is cornered by a few. Meanwhile, as much as 100 million Nigerians are jobless(Okechukwu, 2014). The bottom line here is that insurgencies like Boko Haram will end if, and only if, the root cause – corruption and massive impoverishment of the populace – is tackled.

Examined against this background, it can be inferred with considerable confidence that neither increased militarization of the northern part of the country nor the intervention of the security experts and troops from the United States and Europe will solve the problem of Boko Haram. We all are living witnesses  to the fact that all militarization strategies adopted by Nigeria’s government – including the declaration of a state of emergency in north-east Nigeria – has only achieved one outcome: a large scale destruction of lives and properties as well as a clampdown on the democratic rights of both the working masses and the lower class citizens. As we are all aware, Nigeria government now routinely bans protests and break up any “unauthorized gatherings,” under the guise of fighting terrorism. 

This is thus the chance and the time for the people of Nigeria to make their politicians realize that the days of such lordly arrogance described above  must come to an end. In other words, the only effective strategy for tackling both Boko Haram and corruption in Nigeria is for the country’s labor unions and trade unions to mobilize workers and the oppressed masses to take their destinies in their hands. They can send a clear message that they need a country that is governed by laws, not by people. The country’s labor movements can send the right signal to both the corrupt ruling elite and Boko Haram that the people are prepared to defend themselves against the onslaughts from both  by organizing days of general strikes across the states of the country. They can also take the lead in those areas threatened by Boko Haram raids by sensitizing and mobilizing working class to begin to take of the responsibility of securing their communities and neighborhoods. Given that Nigeria is a multi-ethnic country, setting up democratic multi-tribal as well as multi-religious self-defense committees can be an effective way of doing this. There is no way a small gang that calls itself Boko Haram can be stronger than 168 million people – which is Nigeria’s population. Power, actually belong to the people, and Nigerians need to realize that. This strategy has been proven to work - both the U.S.  and France did this with great success in the 18^th century – and Nigerians have reason to get on board. It is only this way can Nigerians can ensure that the huge wealth of the country is used to better the lives of its citizens, regardless of ethnicity or religion.

References

Abubaker A., Karimi F & Pearson M.(2014): Scared But Alive – Video Purports to Show Abducted Nigerian Girls. CNN World. Retrieved May 21, 2014 from http://www.cnn.com/2014/05/12/world/africa/nigeria-abducted-girls/

 

Chotia F.(2014): Who Are Nigeria’s Boko Haram Islamists? BBC Africa. Retrieved May 21, 2014 from http://www.bbc.com/news/world-africa-13809501

Copley A., Sy   A.(2014): World Economic Forum on Africa – Stark Contrasts of Economic Growth and Security. Brookings. Retrieved June 3, 2014 from http://www.brookings.edu/blogs/africa-in-focus/posts/2014/05/08-world-economic-forum-africa-growth-insecurity-sy

Economist(2014b): Kidnappings in Nigeria. Retrieved June 2, 2014 from http://www.economist.com/news/middle-east-and-africa/21601839-incompetence-nigerias-president-and-government-hurting-countrys

Economist(2013): Islam and Science – The Road to Renewal. Retrieved May 29, 2014 from         

http://www.economist.com/news/international/21570677-after-centuries-stagnation-science-making-comeback-islamic-world-road

Giovanni J.(2014): The Deadly Mission of Boko Haram. Newsweek. Retrieved May 21, 2014 from http://www.newsweek.com/2014/05/30/deadly-mission-boko-haram-251505.html

INB Live(2014): US Deploys Nearly 80 Military Personnel to Help Find Nigeria Girls. Retrieved June 3, 2014 from http://ibnlive.in.com/news/us-deploys-nearly-80-military-personnel-to-help-find-nigerian-girls/473454-2.html

Okechukwu N.(2014): 80 % Nigerian Youths Are Unemployed – CBN. Punch. Retrieved Junes 8, 2014 from http://www.punchng.com/news/80-nigerian-youths-are-unemployed-cbn/

Saliba G.(2007): Islamic Science and the Making of the European Renaissance. Cambridge, MA: MIT Press.

Tundo A.(2014): Nigeria’s Forgotten War. GB Times. Retrieved June 5, 2014 from http://gbtimes.com/world/nigerias-forgotten-war

No longer at ease: The Rich Countries’ high corporate tax

The US  and OECD countries should realize that high corporate taxes are not a painless way to raise money: they creates an arms race in which companies either lobby politicians for exemptions, or find a way of not paying it.

 

During the reign of King Louis XIV of France(1638-1715), his then finance minister once said  that “the art of taxation consists in so plucking the goose as to obtain the largest possible amount of feathers with the smallest possible amount of hissing”(Rothbard, 2010). When it comes to taxing U.S. corporations, this should mean getting the largest possible amount of tax revenue without discouraging  business investment and entrepreneurship. Unfortunately, available published evidence has revealed that among the countries that made up the Organization for Economic Corporation and Development(OECD), the United States has the highest income tax rate. At 39.1percent, the U.S. corporate income tax rate, which is a combination of the 35 per cent federal rate and the average rate levied by the individual states, put its corporations at a competitive dis advantage(Pomerleau & Lundeen, 2014).

 

Broadly speaking, those countries that try to squeeze their firms too hard with high corporate tax often have larger black  market(or informal market), which, in turn cause significant amount of economic and political damage to their economies. Simply put, given that different governments offer a choice of rates and ways of taxing businesses, high taxes may lead companies to move to places that  offer more tax breaks, especially  for activities such as prospecting for natural resources, research and development. At a time when America is struggling to generate economic growth, the politicians at Washington and state legislatures too often behave as though the business sector is the enemy. Instead of competing with other OECD  members to attract good companies and stimulate them to create jobs, innovative products and revenues, they have tended to sought  their scapegoats more widely to include the finance sector, energy companies and technology giants. These companies were often blamed for tax avoidance and for being the begetters of inequality.

 

The American high corporate tax regime seemed to have inspired copycats in Europe: In late 2012, the executives from Amazon, Google and Starbucks were brought before a parliamentary committee and berated for paying little in the way of profit tax. Starbucks was so embarrassed that it promised to pay an additional amount of tax that the committee deemed to be legally required in that country – specifically an additional $32 million voluntary payment to the British tax authorities(Bullough, 2012; Economist, 2014).

 

How Much is Enough?

 

The unhappy truth is that, even though  companies in U.S. and in other OECD countries, on average, pay more tax on labor(such as employers’ social security contributions) than on profits, it is still widely but wrongly believed that the only tax they pay is corporate tax, which is the one levied on their profits. According to the available published evidence, the average global company, in addition to paying property taxes, sales taxes, environmental taxes, and so on, also pays as much as 43.1 percent of its commercial profits in tax, of which 16.1 percentage points is profit-related, 16.3 is labor-related and 10.7 are  others(Economist, 2014).

 

Today, the tax revenue from corporate profits of the OECD  countries, including the United States,  has declined since the economic crises. According to OECD  figures, the average member country now  raises about 2.7 per cent of the GDP in the form of profit taxes. This is less than the pre-crises value of 3.5 percent raised in 2007(Economist, 2014). Across the political and financial spectrum, officials and experts agrees that the current value is probably just a reflection of the lower profits being reported  by corporation since the crises, and not a structural shift. The upshot is that this value seems to have held fairly steady.

 

A growing body of evidence suggests that the current tax regimes in OECD countries including U.S. were developed when global trade has a smaller share of the GDP:  At the time when companies were more national  in character and the local economies were largely concerned with the exchange of physical products made and sold in physical locations. But today, the trade arena has changed a great deal. From an entirely practical standpoint, individual American states and most OECD  countries are finding it difficult to impose sales taxes in this modern economy that is increasingly and heavily dependent   on services and intangible goods traded over the internet.  This do partly explains the decline in corporate tax revenue since the economic crises.

 

It should be observed here that the three main approaches to taxing corporate profits include residence(where the company’s owner lives), source(where the goods and services are produced) and destination(where the goods and services are consumed).  So, if an American company, for instance, produces computers in a Chinese subsidiary which are sold in Britain, China is the source, United States is the residence  and Britain is the destination. The bottom line is that all the three countries – America, China and Britain – can claim a share of the tax revenues in this example. In this case, a sales tax or value-added tax system would obviously focus on the destination which, in this case, is Britain. In contrast, a tax regime that is based on personal income tax that is charged when the shareholders receive dividends or make capital gains, would raise money in the residence which, in this case, is America. Finally, a profit based tax regime will concentrate on China, which is the source. In a practical sense, the elements of all the three systems are being used among the advanced nations of the world.

 

Given that the subsidiaries of multinational companies trade with each other all the time, the biggest challenge arise when it comes to deciding where profit is generated. The main concern here is that, in order to maximize the profits generated in low tax jurisdiction, subsidiaries in these jurisdictions may start getting  involved in activities that would distort the market such as  overcharging subsidiaries in high tax countries – a practice known as transfer pricing. To get around this problem thereby ensure that the prices are similar to those a company might pay if dealing with an unrelated business, tax authorities in America and other OECD countries  often ask for intra-company transactions to be made on an “arm’s-length” basis. With standardized goods such as commodities, this principle is easy to apply. However, it becomes much harder to apply when it comes to more specialized products, such as a multinational retailer  who uses a franchise system in which the parent’s brand is considered to be an intellectual property. In this case, all the individual franchises of the parent company – wherever they may be – are obviously dependent on the parent’s brand and hence must pay a fee to the latter  for that privilege. Note that the intellectual property of the parent company can also be held in  a subsidiary  that is located in low-tax country – a perfectly legal way of reducing the company’s tax burden.

 

Another legal way for reducing the tax burden is to load up subsidiaries in high-tax countries with lots of debts, with most of the loans borrowed from subsidiaries located in low tax regimes. This approach will lower the affected company’s overall tax bill because interest payments are tax-deductible. 

 

The availability of the above strategies, and the fact that many U.S. and OECD  corporations are using them, has led to a series of cat-and-mouse  games as governments try to crack down on such strategies and companies devise ever new approaches to exploit tax rules to the full. Hence it is a self-evident truth that the current corporate tax system in both U.S. and OECD countries have resulted in both high compliance costs for multinational corporations as well as a very high administrative costs for the tax authorities. In the U.S in particular, the corporate tax system leaves a bad taste since it  hobbles the country in global competition. In addition, it does little or nothing to promote equality, which is considered to be its original and still recited justification. Besides, it is rife with distortions that erode efficiency – distortions that promises to get much worse in the future(Institute for International Economics, n.d.; Economist, 2014). It would be logical, therefore, to suggest that, the corporate tax system in these countries is in urgent need of reform.

 

It should be acknowledged that U.S.’s companies have not been sitting on their hands waiting to be fleeced. One of the approaches  which many of them are adopting is to form business structures  such as partnerships that act as ‘pass-through’ vehicles. A rise in these form of structures has become one of the biggest change in U.S.’s corporate governance in 21^st century. And such structures generally avoid corporate income taxes provided that all profits are remitted to investors each year. But, across the political spectrum, politicians and experts agrees that this leads to a three-tier tax system: First, the partnerships escape the tax on profits. Second, the multinational corporations cut down their tax bills by shifting  both production and profits  to countries with low tax regimes. Third, the smaller companies – the losers, since they have less room for maneuver – will be left ‘carrying the baby alone.’

 

The Way Forward

These simple explanations are easy to square with the fact that five of the ten biggest worries of the small businesses are tax-related. From a practical perspective, the tax code is bound to be more and more complex as governments  try crack down on the multinationals’  strategies. There is a slight possibility that time may help reduce the problem. With some governments lowering their tax rates to attract multinational corporations, and with many businesses already escaping  the profit tax, the world may very slowly  be moving away from corporate profit tax. Many scholars believe that it would  be a sensible reform if corporate profit tax is allowed to disappear altogether in, say, 50 or 100 years’ time.

 

The trickiest issue is that countries may end up creating a new form of  tax avoidance  if they abandon the profit tax in isolation. In every country, there’s always people and corporations who are willing to take advantage of any government policy, provided that they will gain from it. Thus, abolishing corporate tax will give people the incentive to shelter their money  in companies – an option that would, in the long run, might undermine income tax. Because a profit levy acts like a withholding tax, the loss of revenue  might be substantial  if it becomes abolished. Added to this problem of revenue loss is the fact that many shareholders, including pension funds, might make no contributions at all to the revenue pool since they are either based overseas(often in low-tax centers) or have a tax-exempt status.

 

Both the United States and OECD  countries don’t find it funny to be stuck in this spiral. Many of them do realize that, the corporate geese that are plucked too much won’t just hiss: they will either fly away or they will find a way of not paying it by lobbying for the best deals. For the United States, the solution to the problem is simple: lower tax rates, few exemptions,  and a tax system that focuses on individuals  not companies.

 

 

 

 

 

References

 

Bullough O. (2012): Coffee Break. Latitude. Retrieved April 29, 2014 from http://latitude.blogs.nytimes.com/2012/12/12/after-avoiding-taxes-for-years-starbucks-has-become-a-target-for-london-protesters/?_php=true&_type=blogs&_r=0

 

Economist(2014): Special Report – Companies and the State. Retrieved April 29, 2014 from http://www.economist.com/news/special-report/21596667-relationship-between-business-and-government-becoming-increasingly-antagonistic

 

Institute for International Economics(n.d.): Replacing the Corporate Income Tax. Retrieved April 29, 2014 from http://www.iie.com/publications/chapters_preview/3845/5iie3845.pdf

 

Pomerleau K., Lundeen A.(2014): The U.S. Has the Highest Corporate Income Tax Rate in the OECD. Tax Foundation. Retrieved April 29, 2014 from http://taxfoundation.org/blog/us-has-highest-corporate-income-tax-rate-oecd

 

Rothbard M.N.(2010): Jean-Baptiste Colbert and Louis XIV. Ludwig von Mises Institute. Retrieved April 29, 2014 from http://mises.org/daily/4540

 

 

 

Business Regulation in America - The Wages of Sin

To encourage business, America needs to cut red tape. 

Worldwide, the United States is known as the home of laissez-faire. But at the home front the country is being suffocated by excessive and badly-written laws. The list of business regulations in America is endless:  Dodd-Frank law of 2010, Sarbanes-Oxley Act, Clean Air Act and Patient Protection and Affordable Care Act (otherwise known as Obamacare), among others (Gattuso & Katz, 2013).

The problem here is that, while the rules may sound reasonable on their own, they do impose huge burden collectively on American businesses. Ideally, unlike the Europeans whose lives have long been circumscribed by meddling governments and politicians from Brussels, America is meant to be the home of laissez-faire where people are free to make their own choices, whether those choices are good or bad.  From ever indication, America appeared to have strayed from this ideal within the last decade (The Economist, 2012).

For instance, the aim of the Dodd-Frank law of 2010 is to prevent another financial crisis – a noble goal. While the strategy for implementing this law is simple, it contain 848 pages (covering such issues as improving transparency, stopping banks from taking excessive risks, and putting an end to “too big to fail” syndrome by authorizing regulators to seize any big, tottering financial firm and wind it down) and hence is about 23 times longer than the  Glass-Steagall , the reform that followed the Wall Street Crash of 1929. This makes it too  complex  to understand and explained why those few people who have read it struggle to make sense of it. Consider the “Volker rule”, which is one bit of it that is aimed at curbing risky proprietary trading by banks. Its 383 questions that breakdown into  an additional 1420 sub-questions means that the financial firms in America  struggle to comply with a law that is partly unintelligible and partly cumbersome(Public Law, n.d.; Markovich, 2013). 

Too Complex for Comfort

The fact that the government of the two ruling parties in America had kept adding stacks of rules, most of which are retained, means that Dodd-Frank is merely one part of a wider trend. Broadly speaking, while the Democrats make rules to expand the welfare states, the rules written by the Republicans to thwart terrorists has made flying to America an uphill task and, as a result, have prompted legions of brainy migrants to choose Canada and Western Europe instead.  Barack Obama’s healthcare reform of 2010 also illustrates the regulatory perils facing companies in America. As a practical matter, the healthcare law does little to reduce the system’s staggering and increasing complexity even though it has many virtues, especially given that it attempts to make health insurance universal in America. Going by the provisions of the healthcare law, every hour spent in treating a patient in America will require at least 30 minute to one hour of paperwork. And by the end of 2013, the hospitals in the country faced news rules which increased the number of federally mandated categories of illness and injury for which they may claim reimbursement from 18,000 to 140,000(Anderson, 2014; The Economist, 2012).

The American laws are too complex for two main reasons. First, the lawmakers are extremely proud and they believe that they can govern every eventuality with laws and regulations. This important fact may be clarified by some their laws that are both delusional(for example the Dodd-Frank law with which they believe can help them anticipate and ban every nasty tricks which financial institutions will dream up in the future) and annoying(such as the once proposed Colorado law that specifies how many crayons each box of crayon must contain). The bottom line here is that when rules become too complex,  they seldom prevent abuses. Instead, they create loopholes which the shrewd and the unscrupulous can abuse with impunity(The Economist, 2012). 

American laws are also complicated due to the activities of the lobbyers.  In a broader sense, when a government like America strives to micromanage so many activities, they, unfortunately, creates huge incentives for lobby groups to push for special favors. Hence, it is not hard for  the politicians at Washington to slip in clauses that benefit their campaign donors and friends when a bill is hundreds of pages long. It is thus not surprising that Obama’s healthcare law and the Congress’ bill to regulate greenhouse gases included ton of favors for the pushy(The Economist, 2013). 

What the US Congress should realize is that complex rules costs money too. For instance, America’s share of initial public offerings(IPOs) fell from 67% in 2002 when Sarbanes-Oxley law was passed to 16% in 2011 because the law, despite some benign tweaks to it, made it so difficult to list shares on the country’s stock markets – a development that  forced firms to look elsewhere or to stay private. According to America’s Small Business Administration, overregulation can add as much as $10,585 in costs per employee – the kind of cost that businesses will be glad to avoid(Feulner, 2012; The Economist, 2012). 

Simplifying the Rule Book

From a political standpoint,  it appears that the Obama administration and the Democrats at Capitol Hill has a bias towards overstating benefits and understating costs and, as such, pay lip service to the need to ensure that new rules are cost effective. Even the Republicans give only a sketchy idea of how they would slim the rulebook and repeal Obama Care and Dodd-Frank law, even though they repeatedly  claim that they would do so.  For a country in desperate need of jobs, there’s no doubt that America needs a smarter approach to regulation. First, before any rule is enacted, they should be subjected to cost-benefit analysis by an independent watchdog that will, in turn, make the result public. Second, the legislators should pass simple rules that will have sunset clauses and leave regulators to enforce them so that they(the legislators) can re-authorize them when they expire after, say, ten 15 years. Simplicity in this regard means that all big regulations should be watered down to broad goals that prescribe only what is strictly necessary to achieve them, and not their  very familiar ‘all-purpose’ instruction manual in which the important dos and don’ts are lost in an ocean of verbiage(The Economist, 2012).  Finally, to mitigate the real danger of regulation crushing the life out of America’s economy, those regulators who made bad decisions should be made more accountable and easily sack-able, and any unreasonable judgment by the bureaucrats should be subjected to swift appeal. 

References

Anderson A.(2014): The Impact of the Affordable Healthcare  Act Healthcare Workforce. Heritage Foundation. Retrieved April 4, 2014 from http://www.heritage.org/research/reports/2014/03/the-impact-of-the-affordable-care-act-on-the-health-care-workforce

Economist(2012): United States Economy – Overregulated America. Retrieved April 4, 2014 from http://www.economist.com/node/21547789

Economist( 2013): Legislative Verbosity. Retrieved April 4, 2014 from http://www.economist.com/blogs/democracyinamerica/2013/11/legislative-verbosity

Feulner E.(2012): Onerous Effects of Overregulation. Heritage Foundation. Retrieved April 4, 2014 from http://www.heritage.org/research/commentary/2012/02/onerous-effects-of-overregulation

Gattuso J., Katz D.(2013): Red Tape Rising – Regulation in Obama’s First Term. The Heritage Foundation. Retrieved April 4, 2014 from http://www.heritage.org/research/reports/2013/05/red-tape-rising-regulation-in-obamas-first-term

Markovich S.J.(2013): The Dodd-Frank Act. Council on Foreign Relations. Retrieved April 4, 2014 from http://www.cfr.org/united-states/dodd-frank-act/p28735

Public Law(n.d.): Dodd-Frank Wall Street Reform and Consumer Protection Act. 111 Congress Public Law 203. Retrieved April 4 2014 from http://www.gpo.gov/fdsys/pkg/PLAW-111publ203/html/PLAW-111publ203.htm

What’s the Matter With Russia?

If both Washington and EU wants a world order in which states by and large respect international agreements and borders, then they need to do something to stop Russian’s intransigence.

The crisis in Ukraine is a sobering reminder of the character of Vladimir Putin: he is the kind of leader who always think about the past. Unfortunately for the Russians, the hard cold fact remains that, by focusing on history, Putin is bound to impoverish them in the long run. Start with Crimea(Zakaria, 2014).

The current Russia-Crimea crises spurs a recollection of some lessons from Russian history. In 1783, the Russian wrested  Crimea from the Ottoman Empire. This feat marked the rise of Russia to great power status. By taking control of Crimea during that era, Russia enjoyed a privilege it never had: a direct access to the Mediterranean and the rest of the wider world. Even though Russia lost the Crimean War in the 19^th century(1853-1857), it maintained its hold on the Crimean region. In addition, it controlled the region’s growth after it claimed it from the Nazis in early 1944 – almost a century later. Then came the strange and fateful twist in 1954 when the Soviet Premier Nikita Khrushchev – a self-styled Ukrainian – created the Autonomous Crimean Soviet Socialist Republic and transferred legislative control to the Ukranian SSR,  basically giving Crimea  to Ukraine (Lonely Planet, 2014; Zakaria, 2014).

The above simple explanation is merely history. According to Henry Ford, and American industrialist who was the founder of Ford Motor Company,  history is nothing but bunk(Lockerby, 2011).  When he said that, he meant that the people of the world – particularly the world leaders – should not allow themselves to be trapped by history. This doesn’t imply that history is unimportant. It simply means that people should think and look forward to future instead of going backward. Henry Ford’s exact words are as follows:

History is more or less bunk. It’s tradition. We don’t want tradition. We want to live in the present, and the only history that is worth a tinker’s damn is the history we make today(Chicago Tribune,  1916).

By taking over Crimea last week, Russia’s Putin seems to be still trapped by history, tradition and geography. The natural question to ask at this time is this: What has Russia gained by this political stance? To this very day, Russia has continued along its path as an oil-dependent country.  Russia’s action during the past two decades also indicates that it has remained an authoritative state which has failed to develop its economy and civil society. It is thus not surprising that it had continued to bully almost all the former Soviet countries, particularly, Ukraine.

The West’s Reactions

During the  cold war which lasted for 45 years, from 1946 to 1991 (National Archives, 2006) the politicians in Europe and United States worried that their countries were at a disadvantage because they are not willing to put up with the inconvenience victory might require at the time.  Russia’s annexation of Crimea (a   Ukraine’s territory) last week – a behavior that is typical of the former Soviet Union – brought with it a revenant of the same feeling from both the neighboring  European countries and the European Union in general:  That the West is not willing to pass meaningful sanction against members of Vladimir Putin’s government because they are too greedy for Russian’s money. This is true because Russia has close economic ties with Britain and the rest of the European Union(EU), as can be seen from table 1. With the EU ranking as Russia’s number one trading partner – accounting for almost 41 percent of all Russia’s international trade(see Table  1) – any trade and financial sanctions are likely to hurt both sides. This explains EU’s lukewarm attitude to the issue of enforcing trade and

Table 1 – Russia’s Top Trading Partners, 2012

Country	Value(€ Billions)
European Union	267.5
China	64.1
Ukraine	24.3
Belarus	24.1
United States	18.9
Japan	17.0
Turkey	17.0
South Korea	16.1
Kazakhstan	15.5
Switzerland	7.9

Source: BBC, 2014

political sanctions on Russia.  More evidence of this European attitude abound. For instance, the EU  did nothing when all evidence was pointing to Russia’s involvement in the murder of Alexander Litvinenko in a London sushi restaurant in November 2006. In addition, there was a lack of response from the EU  to the war in 2008 between Russia and Georgia. The unhappy truth is that the targeted measures taken by the EU after  Russia’s annexation of Crimea has yet to banish the suspicion that the former are unserious about punishing the later.

In line with its argument that the pro-Russian referendum in Crimea has no legitimacy, the US government announced sanctions against 11 prominent Russians and Ukrainians  on March 17. The EU was less aggressive than US  in going after the members of the Russian government even though they issued a longer list consisting of 21 people. Those named on each list will have all the assets they hold in US and EU frozen. In addition, they will be unable to travel  to US and EU. According to the US Treasury Department, this strategy  will  also hurt those Russians who do not have assets in United States, for two reasons. First, they will be unable to use dollars in any transactions. Second, international banks will become wary of attracting the attention that may come from trading with them(The Economist, 2014).

More important, though, is that the lukewarm attitude of the EU  do reflects the union’s internal divisions. For instance, EU countries like Poland, Sweden and the Baltic States are hawkish. Cyprus position is very understandable – it is still in recession after the collapse of its offshore banking system, which caters heavily to wealthy Russians. For a country like Greece, the prospect of economic sanctions that might keep Russian tourists away is a cause of much worry because it is desperately seeking new growth to revamp its economy.

In Europe and the United States, the current popular views among the politicians and policy makers is that the above measures are just a start and hence can be extended, depending on Russia’s reactions and future actions. But what is clear is that even if the European Union and United States lengthen the lists to include the families of the main targets, the effects of the sanctions on Russia’s economy may not be as harsh as that of a similar sanction imposed on Iran,  for the simple reason that they were comparatively easy to put in place  on the later, at the time it was already cut off from the world economy.  Unfortunately, this is not the case for Russia: Imposing tough sanctions on Russia means saying to corporations  like Siemens, Boeing, Shell, Exxon, BP, Chevron, and others that they can’t do business in Russia. According to the available published evidence, this will damage both western governments as well as their companies(The Economist, 2014). But then, that doesn’t mean that the EU should do nothing: They should not allow Putin’s  illegal annexation of Crimea. Otherwise Putin will become more emboldened to be a force for instability and strife, bending international agreements and ignoring borders at will.

It is really a  shame that there is no certainty that the EU will impose tougher measures that would rein Russia’s intransigence. It is ridiculous that Western governments are not willing to sacrifice much for Ukraine. For the moment, the feeling in Washington, Brussels and Berlin appears to be that registering a serious protest over Crimea does not worth it since isolating Russia would do real harm to the world economy. However, if both Washington and EU wants a world order in which states by and large respect international agreements and borders, then they need to do something.

 

 

 

References

BBC (2014): Russia’s Trade Ties With Europe. Retrieved March 30, 2014 from http://www.bbc.com/news/world-europe-26436291

 

Lockerby P.(2011): Henry Ford Quote – “History is Bunk”.  Science 2.0. Retrieved March 30, 2014 from http://www.lonelyplanet.com/ukraine/crimea/history

 

Lonely Planet(2014): Crimea – History. Retrieved March 30, 2014 from http://www.lonelyplanet.com/ukraine/crimea/history

National Archives(2006): The Cold War – An Eye Witness Perspective. Retrieved March 30, 2014 from http://www.archives.gov/research/foreign-policy/cold-war/symposium/cleveland.html

The Economist(2014): The West’s Sanctions – Follow the Roubles. Retrieved March 30, 2014 from http://www.economist.com/news/briefing/21599409-how-america-and-europe-hope-put-pressure-russia-follow-roubles

 

Zakaria F.(Producer).(2014): Global Public Square[Motion Picture]. Atlanta, GA: CNN

A Scorecard for the British Commonwealth, Seven  Decades Later

What’s the point of having a Commonwealth, anyway?

Our world is teeming with people or agencies who fail to practice what they preach:  doctors who smoke 40 cigarettes a day; teachers who cheat on grades; politicians who accept bribes; accountants who forget to file their tax returns; financial institutions that launder cash for terrorist organizations; and the UN Security Councils that fails to intervene decisively in a political crises. The British Commonwealth of nations is no different.  When people talks about the British Commonwealth they are usually referring to the association of countries consisting of the United Kingdom and several former British colonies  who still pay allegiance to the British Crown even though they are now sovereign states(The Commonwealth, 2014; The Royal Household, n.d.). With fair justification, the  only remarkable thing about the club of former British colonies is that it exists at all. It is important to note here that the countries who are members of the British Commonwealth(which comprises of almost a third of the  world’s population) are 53 in number,  excluding Burma and Aden.

 

The big question, of course, is whether the citizens of its member nations actually knows its purpose. For instance, when asked who is the head of the Commonwealth, about a quarter of Jamaican citizens will reply that they are ready to bet  that it is Barack Obama(The Economist, 2013). Even some of the enlightened citizens of the member nations would probably cite the Commonwealth games, which is normally held every four years, as a proof of the club’s active involvement in the affairs of its members.  From a functional point of view, the club member nation’s most important concessions was that it runs a good scholarship program and development projects for its poorest members, particularly those of them in Africa, Caribbean  and Asia. The British Commonwealth also runs a tangled and ineffective bureaucracy, including the Secretariat, Commonwealth Foundations, Royal Commonwealth Society, and 67 other organizations, which appears to exist  mainly to provide extravagant trips and celebrations for a well-heeled Commonwealth elites in Britain, Canada and other rich member nations.

 

If the experience of the past five decades teaches us anything, it is that the British Commonwealth has, in most cases,  actually failed in fulfilling its obligations to its member nations. The facts speaks for themselves:  The organization has a poor record of enforcing  its members’ commitment to human right and the rule of law. The latest embarrassment for the organization occurred when it allowed Sri Lanka’s abusive regime – a regime that has the autocratic and corrupt  President Mahinda Rajapaksa as its Tsar – to host a biennial Commonwealth leaders’ meeting in November 2013(The Telegraph, 2014). There are, however, similar instances that showcases the organization’s failures with respect to ensuring that its member nations follow its rules. For instance, even though the Commonwealth partially suspended Nigeria in 1995 after it hanged Ken Saro-Wiwa  - a human rights activist - on that year, it showed little interest on the abuse of the Ogoni people who were doomed on an oil-rich Niger Delta area of Nigeria,  and whose plight motivated Ken Saro-Wiwa’s human rights campaign(BBC, 1995). Also, the organization suspended Pakistan in 1999 after the coup that occurred that year but showed little interest about the habitual abuses against religious minorities and women in that country.  In spite of these, the club do share some beneficial British legacy: The members are bonded by a common language – that is, English – a common legal code and aspects of shared cultural norms. In a sense this advantages had , to some extent, helped some of the members, particularly those African members,  to prosper: the African members of the clubs, including Nigeria and Kenya, are conspicuously better-off than their non-commonwealth neighbors, such as Central African Republic, Liberia and Sudan. This, more than anything else, explained  why a country like Rwanda, which was not colonized by Britain but by Germany and Belgium, chose to join the Commonwealth in  2009(The Royal Household, n.d.).

Commonwealth’s Future – Back to Basics

It would be logical to suggest here that a more focused and agile Commonwealth could do more to reinforce those advantages within the member nations. According to the available published evidence, some right-wing Eurosceptics in the British Conservative Party are suggesting that the club be transformed to become an alternative free-trade zone to the European Union(The Economist, 2013). Even though this type of “Commonwealth Dream” may never come to pass, it will definitely be a good idea to gear the club towards trade and economic development. When done the right way, the two would become mutually reinforcing in the long run. From an entirely practical standpoint, achieving this important feat will take better leadership than the Commonwealth has so far enjoyed during its eight decades of existence.  What is certain is that insidious post-colonial  politics means that Britain and other rich members, such as Canada and Australia, are not be willing to provide this kind of leadership. Hence the onus is on the developing countries who are members of the club, chiefly  India, South Africa and Nigeria, to push for this kind of Commonwealth reform. The unhappy truth, however, is that they, on their current political state and  form, are leery about taking on such a role in a club that they appear to find not only endearing and somewhat useful, but also faintly embarrassing. But that does not alter the basic fact that the British Commonwealth needs to implement serious reforms in these key area – reforms that can be induced by agitations from the developing member nations .

References

BBC(1995): 1995 – Nigeria Hangs Human Rights Activists. Retrieved March 3, 2014 from http://news.bbc.co.uk/onthisday/hi/dates/stories/november/10/newsid_2539000/2539561.stm

The Commonwealth(2014): About Us. Retrieved February 27, 2014 from http://thecommonwealth.org/about-us

The Economist(2013, November): The Economist Explains. Retrieved March 2, 2014 from http://www.economist.com/blogs/economist-explains/2013/11/economist-explains-12

The Royal Household( n.d.): Commonwealth Members. Retrieved March 3, 2014 from http://www.royal.gov.uk/monarchandcommonwealth/commonwealthmembers/membersofthecommonwealth.aspx

The Telegraph(2014): Britain “Timid” Allowing Sri Lanka to Host Commonwealth Summit. Retrieved March 3, 2014 from http://www.telegraph.co.uk/news/worldnews/asia/srilanka/10383546/Britain-timid-allowing-Sri-Lanka-to-host-Commonwealth-summit.html