The swing away from Bush: How far to go?
American foreign policy swings like a pendulum. Under President George W. Bush, U.S. foreign policy promoted a democracy agenda, used force readily to buttress and at times even displace diplomacy, championed free markets, and risked if not relished unilateralism. Under President Barrack Obama, U.S. foreign policy has swung decisively in the opposite direction. Now, U.S. security interests matter more than democracy, force is a last resort, substantial regulations are needed to end the booms and busts of global capitalism, and multilateralism is the sine qua non of U.S. diplomacy.
After more than a year, it is not too early to evaluate the pendulum swings in American foreign policy and ask whether or not Obama is likely to stop the pendulum this time around.
Successful American presidents have stopped the pendulum to achieve novel and lasting contributions to American security and ideals. Franklin Roosevelt and Harry Truman ended pendulum swings between ambitious internationalism under Woodrow Wilson and isolationist nationalism under Harding and Coolidge. Roosevelt blended internationalist and nationalist concepts to commit the United States to multilateral participation in the United Nations while reserving sovereign veto rights for the United States and other great powers on the un Security Council. When the un system failed, Truman adapted Roosevelt’s formula to regional security and created the Western institutions of nato, the U.S.-Japan Security Treaty, the European Community, and Bretton Woods that defended and rebuilt postwar Europe and Japan.
Ronald Reagan stopped Cold War pendulum swings between containment and detente. He rejected both the balance of power antics of Richard Nixon and human rights initiatives of Jimmy Carter. Like Roosevelt and Truman he combined realism and idealism to confront and reassure the Soviet Union at the same time. Reagan’s military and economic buildups upped the ante in a competition the Soviets could not win while his diplomacy of expanding freedom and reducing reliance on offensive nuclear weapons offered a cooperative alternative the Soviet Union and its satellites could not resist. The effect of Reagan’s strategy was to narrow Soviet economic and military options and encourage Soviet domestic reforms. In that sense Reagan helped bring reformers like Mikhail Gorbachev to power in Moscow. He and Gorbachev then ended not only the Cold War but also the Soviet Union. As John Lewis Gaddis points out in Strategies of Containment, “no administration prior to Reagan had deliberately sought to exploit those tensions [in the Soviet Union] with a view to destabilizing the Kremlin leadership and accelerating the decline of the regime it ran.”
Since Reagan, American presidents have been less successful at stopping the pendulum. George H.W. Bush in the first Persian Gulf War, and Bill Clinton in Somalia, swung American policy decisively toward the un and assertive multilateralism. Then, after the un flopped in Bosnia and Kosovo, George W. Bush pushed the pendulum in the opposite direction. In response to 9/11, he eschewed un multilateralism altogether and disdained nato help in invading Afghanistan and Iraq. He made a virtue of unilateralism and lost worldwide credibility. All three presidents suffered reversals, tacking back and forth between engagement and withdrawal without a clear sense of where the pendulum stops.
Will Obama experience the same fate? The chances are good that he will. He has swung the pendulum decisively against George W. Bush. After more than a year, he continues to blame Bush shamelessly for every problem he faces. This reactive tendency is not just partisan; it is part of a broader intellectual and management style. As a self-proclaimed pragmatist, Obama takes on problems as he inherits them. He reacts to what history serves up and sees the world as a complex system in which everything is interconnected. Problems have to be addressed comprehensively, or, like squeezing a balloon, progress in one area will only distort progress in others. He thinks and acts systematically, puzzling about how things fit together; he does not think and act strategically, identifying key problems that cause or unlock other problems. His style is oriented toward “fixing” the world, rather than “shaping” it.
In his first year Obama addressed every conceivable foreign policy crisis on the globe. He reset relations with Russia; visited China; agonized over Afghanistan, Iraq, North Korea, and Iran; reached out to the Muslim world; attempted to regain Europe’s trust; tried to jumpstart the Middle East peace process; and promoted economic recovery, climate change, and energy independence. He rarely indicated which problem was more important than another and bounced from topic to topic and region to region. 1 In this sense, Obama is clearly pragmatic. He is, as he told a Republican congressional audience in January, no ideologue. But his pragmatism is ideological. He has a coherent worldview that highlights “shared” interests defined by interconnected material problems such as climate, energy, and nonproliferation and deemphasizes “sovereign” interests that separate countries along political and moral lines. He tacks away from topics that he believes divide nations — democracy, defense, markets, and unilateral leadership — and toward topics that he believes integrate them — stability, disarmament, regulations, and diplomacy. He has been called a president for the post-American world, but he may actually be a president for the post-sovereign world. He is a policy pragmatist in response to a worldview of shared community interests that transcend sovereign national interests.
Given his worldview, Obama is unlikely to stop the pendulum. Successful presidents stopped the pendulum because they understood that there are no trade-offs between shared and sovereign interests. Common outcomes — stability, diplomacy, regulations, and multilateralism — depend upon competitive alternatives — democracy, defense, markets, and leadership. There is no lasting stability without progress toward democracy. Diplomacy is not effective without strengthened defense and the threat of the use of force. Regulations need markets to avoid the sclerosis of statism, and unilateralism or aggressive leadership is often the only defense against the malaise of multilateralism.
Let’s look more closely at the four areas in which American foreign policy swings, and at where Obama seems to be heading.
Security not democracy
George w. bush staked his presidency after 9/11on ending tyranny and promoting democracy, especially in the Middle East and Southwest Asia. In his second inaugural address, he declared, “it is the policy of the United States to seek and support the growth of democratic movements and institutions in every nation and culture, with the ultimate goal of ending tyranny in our world.” Now, Obama is clearly pulling back from this freedom agenda. The objective is no longer to transform domestic society and establish democratic states in unstable countries but to prevent al Qaeda or other extremist elements from regrouping in these countries to plot and carry out violence against the United States. Obama put it bluntly in March 2009 when he announced his first new strategy for Afghanistan and Pakistan: America has “a clear and focused goal: to disrupt, dismantle, and defeat al Qaeda in Pakistan and Afghanistan, and to prevent their return to either country in the future.” He narrowed this goal even further when he announced his second new strategy for Afghanistan and Pakistan in December 2009: “We must deny al Qaeda a safe haven. We must reverse the Taliban’s momentum and deny it the ability to overthrow the government.” The goal is no longer defeating al Qaeda but denying it a safe haven and denying the Taliban the ability to overthrow the Afghan government.
Obama has downsized America’s goals elsewhere as well. In every instance, security interests trump human rights and democracy promotion. In major foreign policy speeches in 2009, he mentioned democracy either belatedly or abstractly. In Prague he declared that “freedom is a right for all people, no matter what side of a wall they live on, and no matter what they look like.” But in Cairo, he mentioned democracy fourth in a list of seven issues and in Moscow fourth in a list of five issues. In both Cairo and Moscow he started his talks with apologies for American democracy. In Cairo: “I know there has been controversy about the promotion of democracy in recent years, and much of this controversy is connected to the war in Iraq.” In Moscow: “By no means is America perfect.” In Ghana, he mentioned democracy first but made it clear that there was no urgency or special role for America to spread democracy. “Each nation,” he said, “gives life to democracy in its own way, and in line with its own traditions . . . [and] America will not seek to impose any system of government on any other nation.” Indeed, earlier in France, he disowned the idea that America had any unique role whatsoever: “I believe in American exceptionalism, just as I suspect that the Brits believe in British exceptionalism and the Greeks believe in Greek exceptionalism.”
At the Nobel Prize ceremonies in Oslo, Obama made his most elegant defense of human rights: “So even as we respect the unique culture and traditions of different countries, America will always be a voice for those aspirations that are universal.” The pragmatic president acknowledged for the first time that there may be philosophical and moral divisions in world affairs. “Make no mistake,” he declared, “evil does exist in the world.” Obama even backtracked on some of his views about American exceptionalism: “Whatever mistakes we have made, the plain fact is this: The United States of America has helped underwrite global security for more than six decades with the blood of our citizens and the strength of our arms.” These were unadorned Reagan-and-Bush-like words spoken to an audience that was not inclined to appreciate them. But which message is the true Obama? He did not pledge specific help for dissidents in Burma, Zimbabwe, Iran, and elsewhere. And in none of these speeches did he mention, let alone confront, the oppressive policies of a new wave of authoritarian powers stalking the world — Russia in Europe, China in Asia, Iran in the Middle East, and Venezuela in Latin America. Instead he turned to many of these new autocrats as principal partners to pursue shared global interests of disarmament, economic recovery, climate change, and nonproliferation. Consider the following:
The pattern is too persistent to be an accident. Ever the pragmatist, Obama deliberatively mutes the rhetoric of democracy and human rights in favor of fixing global problems.
>George W. Bush clearly went overboard with his pledge to seek democratic institutions “in every nation and culture.” What’s wrong with the pendulum swinging back? Only that security and democracy are not opposite ends of a pendulum; they depend upon one another. Dialing down the decibels on democracy has costs. It undercuts democracy advocates around the world, creates a vacuum that autocrats fill, discourages democratic allies, and ultimately alienates the American people.
Autocrats in Moscow and the Middle East use the opportunity to crack down on dissidents. In March 2009, the chair of the Moscow Helsinki Group petitioned the Obama administration to pay more attention to freedom: “Democracy in former Soviet areas needs a friend.” And in October, Ayman Nour, a prominent opposition leader in Cairo, warned: “His [Obama’s] reduced talk of democracy is giving these non-democratic regimes the security that they won’t face pressure. And that’s having a negative impact on democracy in the Arab world.” The Mubarak government imprisons Muslim opposition leaders, and protestors in the streets of Iran cry out: “Obama, Obama, either you’re with them or with us?”
Autocrats step into the vacuum. In July 2009, the g8 met to condemn Iran’s elections. Russia’s foreign minister, Sergei Lavrov, seized the microphone: “No one is willing to condemn the election process [in Iran], because it’s an exercise in democracy.” Grotesquely, Russia tells the world what democracy is. As Obama insists, American democracy has faults. But compared to what? Malpractices at Abu Ghraib pale in comparison to starvation, mutilation, and murder that take place daily in the gulags of Russia, Iran, North Korea, and China. By undressing in front of foreign despots, Obama weakens his moral authority and promotes a perverse equivalence between democracy and despotism. Obama got his only applause in Oslo when he mentioned closing Guantanamo.
By downgrading democracy, America also discourages and distances itself from democratic allies. Instead of nurturing allies to pressure autocrats, Obama extends an open hand to autocrats to pressure American allies. Washington embraces Tehran as it throws democratic protestors in the streets under the bus; presses an Arab-Israeli agreement with a militantly divided Arab world as it alienates Tel Aviv over building new settlements; and draws closer to Russia on arms control as it snubs Polish and Czech allies on missile defenses. A more subtle cost is weakening allies’ commitments to democracy. Germany’s support for the war in Afghanistan is lukewarm, to be sure. But, as Eric Chauvistre writes in the Atlantic Times, “without the high moral ground [of democracy building], the [German] Bundeswehr mission in Afghanistan would never have started.”
Finally, there are political costs at home. How long will the American people, especially Obama’s own party, accept the stepped-up fighting in Afghanistan if the goal is mere stability?
Perhaps Obama plans to talk less about promoting democracy but do more. Maybe, but his talk is revealing. He does not see the battle between democracy and despotism as the great struggle of our times. He sees the world in comprehensive, mechanistic terms, not in competitive, political terms. At the un General Assembly in September, he discussed “four pillars” of future engagement: nonproliferation and disarmament; the promotion of peace and security; the preservation of our planet; and a global economy that advances opportunity for all people. Democracy is missing. The reason apparently is that, in Obama’s mind, the spread of democracy is not a shared global interest or task. It is rather a task and struggle for each country. “The essential truth of democracy,” Obama said, “is that each nation determines its own destiny.” America will assist, but history will decide. And, as he repeated in Ghana, Oslo, and at the un, “history is on our side.” Apparently, the spread of democracy is only a matter of time.
Is this the Obama doctrine? The goals of foreign policy are mutual and material, not competitive and moral. Shared interests trump sovereign ones. Countries of any political persuasion can and must cooperate with one another to deal with problems of common interest. Those common interests include getting rid of arms, restoring economic growth, and saving the planet. While all nations tend to these tasks, individual nations cultivate their own political ideology. History takes over from there. In the Obama doctrine there is no global struggle for freedom that parallels and limits the prospects for cooperation. Cooperation emerges from shared interests not from shared values.
But what if ideological differences impede global cooperation? What if regime types — democracies vs. despots — matter more than shared interests? Then the cause of democracy is as much a global task as arms control or climate change. Bill Clinton believed that “democratic enlargement” was the best national security policy for America because democracies do not fight wars against one another or even threaten one another with military force. The more democracies America can midwife, the more secure and stable the world will be. The best proof of that proposition is modern-day Europe and Japan. Imagine what the world would be like today if there were as few democracies as there were in 1900. Promoting democracy enhances American security.
That’s not to say that democracies and despots do not and cannot cooperate. Countries always share interests, especially in a nuclear world. But shared interests with despots cannot be the centerpiece of American diplomacy. Such cooperation is inevitably short-lived and always morally compromising. What’s more, it is never enough. The Cold War did not end when détente and shared interests shaped some grand compromise. It ended when freedom prevailed and the Soviet Union disappeared. Obama goes too far downplaying the universal struggle for freedom. Not only may dissidents languishing in jail wonder how long it will take for history to prevail, but history shows no significant gains for security until democracy gains. Security and democracy are hooked at the hip.
Paradoxically, Obama’s Afghanistan policy proves the point. He touts his strategy as more practical and less costly than democracy promotion. But he can’t really establish a more practical order in Afghanistan without confronting the moral issues of democracy. The flawed elections in August 2009 proved that the ideological legitimacy of the Afghan government matters. While that government does not have to be a Jeffersonian democracy, it has to be sufficiently representative and open that the America government can trust it and the U.S. public support it. As Zalmay Khalilzad, former U.S. ambassador in Afghanistan, pointed out in February in the International Herald Tribune, four conditions on the ground have to be met: security, a more effective government in Kabul, a regional solution that includes Pakistan, and the perception that the United States is in the region for the long run. The Obama administration, he concluded, “appears to have a plan for the first of these points . . . but . . . not . . . for the other three.”
Thus, seeking security in Afghanistan and Pakistan does not do away with the need for democratic reforms; it reinforces that need. Any stability that America can trust in southwest Asia necessarily involves more not less democratic governance. Will Obama stop the pendulum? If he sticks with narrow security goals, the voices calling for withdrawal from Afghanistan will escalate. Some leaders, including Vice President Joe Biden, already advocate a strategy to punish rather than prevent terrorist attacks. They call for an offshore strategy of counterterrorism to retaliate after an attack rather than an in-country strategy of counterinsurgency to prevent such attacks. The logic is as follows: Since going in at any level implies some need for democracy promotion and nation-building, just don’t go in at all.
The tocsins of retreat are growing louder. Obama will be driven one way or the other — to more emphasis on democracy promotion or out of Afghanistan altogether. Even if he withdraws from Afghanistan, the issues won’t go away. They will simply shift to Pakistan.
Force and diplomacy
The pendulum in American foreign policy also swings between force and diplomacy. Ronald Reagan and George W. Bush, it is said, emphasized the use of force at the outset of their administrations but eventually came around to acknowledge the need for diplomacy. Conversely, Democratic presidents, such as Bill Clinton and Jimmy Carter, emphasized diplomacy at the outset of their administrations and later came around to acknowledge the need to use force (in Clinton’s case, in Bosnia and Kosovo; in Carter’s case, in a military rescue operation in Iran). Getting the right balance between force and diplomacy eludes many if not most American presidents.
Will it elude Obama? George W. Bush clearly emphasized “military surges,” responding to 9/11 with a “war against terror” that led to two ongoing U.S. military engagements in Iraq and Afghanistan. Obama, on the other hand, emphasizes “diplomatic surges,” seeking to exit militarily from Iraq, shift the focus from war to counterinsurgency in Afghanistan and perhaps counterterrorism in future interventions, and find regional diplomatic solutions for Pakistan, Iran, North Korea, and other trouble spots. In his first year, he dispatched an army of diplomatic envoys throughout the world — to the Middle East (George Mitchell), Iran (Dennis Ross), North Korea (Steve Bosworth), Sudan/Darfur (Scott Gration), and Afghanistan-Pakistan (Richard Holbrooke).
Obama talks more about the limits of power than the uses of power — the need to reduce arms, especially nuclear arms, and the importance of nonviolent action to oppose oppression. In his world of shared interests, threats come from arms and other material sources, not from ideological adversaries that arm to pursue conflicting objectives. In fact, as he said in Prague, “when nations and peoples allow themselves to be defined by their differences, the gulf between them widens.” Obama subscribes to what political scientists call a constructivist view of threats. Threats do not stem from real differences which provoke armaments for self-defense but rather from constructions of our minds which we are free to shape in significant measure — deciding whether to see others as enemies or friends and having it be so. He shies away from differences and confrontation, and the armaments they provoke, because, in his worldview, these things create or exacerbate but do not resolve conflicts.
The most useful force is nonviolent protest. In Moscow, he said that the Cold War ended when the people of Russia and Eastern Europe “stood up and decided that its end would be peaceful.” And in Prague, he said that the Prague Spring of 1968 “shamed those who relied on the power of tanks and arms to put down the will of the people” and taught us the value of “peaceful protest” — that “moral leadership is more powerful than any weapon.”
That’s an odd way to explain the end of the Cold War and the Prague Spring. The Cold War ended in 1991, not because people protested peacefully but because the Soviet Union lost a material and moral competition with the United States that left it bankrupt and discredited. And the Prague Spring did not shame those who relied on tanks and arms; Soviet tanks and arms crushed the Prague Spring. Where is the role of weapons and deterrence in Obama’s understanding of history? In Prague referring to the onset of the Cold War, he said, “after communism took over Czechoslovakia . . . we came together to forge the strongest alliance that the world has ever known. And we stood shoulder to shoulder — year after year, decade after decade — until an Iron Curtain was lifted, and freedom spread like flowing water.” But where is the mention of Berlin, Korea, Cuba, Vietnam, and nuclear weapons competition right up to the very end of the Cold War? A military coup in Moscow in August 1991 almost perpetuated the oppressive regime.
In Obama’s account, a few peaceful protestors stood up and the walls came tumbling down. In his version of history, outcomes are meant to be. There are no struggles, no close calls, no Cuban Missile Crisis, no showdowns. If all nations disarm and every nation minds its own “democratic” garden, history will bring peace to all.
Shared interests not only reign; sovereign interests end. In Moscow Obama declared that great power interests are no longer zero-sum:
The pursuit of power may not be a zero sum game (and probably hasn’t been since the beginning of the industrial revolution), but it is still a relative-sum game. The United States and Russia may both gain but one may gain more than the other. Russia understands this arithmetic in the region of the 14 former republics of the Soviet Union, which it refers to as the “near-abroad.” In this region, Russia claims a “sphere of privileged interests” — yes, a 19th-century sphere of influence — and seeks to claw back influence from the United States. It attacks Georgia, fuels separatists in Moldova, launches cyber attacks against Estonia, and intervenes in Ukrainian elections. Sovereign not shared interests matter most to Moscow, and Russia pushes even shared interests such as arms agreements with the United States to achieve sovereign gain, namely parity with the United States in Europe and diversion from Russian aggression in the Caucasus. Without push-back and vigilance, the United States could quickly lose the edge that makes it the dominant power and guardian of freedom in Eastern Europe.
From 1986 to the present, nuclear weapons have been cut from 24,400 in the United States and 45,500 in the Soviet Union to 9,400 in the United States and 12,000 in Russia and are on track under existing agreements to drop to less than 2,500 for each superpower. Obama argues, nevertheless, that the nuclear powers must disarm more deeply still in order to inspire nonnuclear nations not to proliferate more widely. Yet while the superpowers reduced nuclear stockpiles in recent decades, the number of countries acquiring nuclear weapons rose. Perhaps the incentives work the other way. As nuclear powers disarm, the benefits for nonnuclear states to acquire nuclear arms increase. Now, at increasingly low levels of nuclear arms, some experts worry — as Keir A. Lieber and Daryl G. Press did in the November-December 2009 issue of Foreign Affairs — that cutting further is too risky, especially before we think through the macabre yet necessary scenarios and capabilities that might be needed to deter future powers that insist on spheres of influence.
It is probably too early to label Obama a dove like Jimmy Carter. His first full defense budget raises expenditures by 4 percent for fiscal year 2010-11 and then holds them flat over the next ten years adjusted for inflation. While it cuts a number of significant weapons systems, including missile defenses, it increases outlays for counter-insurgency operations.2 And Obama has committed significant additional forces to Afghanistan twice — 17,000 after the first review and another 30,000 after the second. What’s in question is his understanding of the role defense policies play as leverage to arm his ambitious diplomatic undertakings.
All negotiations are partly matters of understanding (outreach) and partly matters of leverage (relative power). Frederick the Great said it best: “negotiations without arms are like music without instruments.” Richard Holbrooke, Obama’s envoy to South Asia, boasts that “diplomacy is like jazz — an improvisation on a theme.” If so, Obama may be gambling that diplomacy is all about improvisation and not much about concussion — all about understanding, empathy, reaching out, and compromising and not much about building up forces, pushing back on the ground in regional disputes, narrowing an opponent’s options away from the bargaining table, and standing up for one side or the other when conflicts break out.
At three levels, Obama seems unaware of the leverage that military power exerts in foreign policy. He does not identify with his defense budget, an important source of background leverage; he agonizes over deploying forces as ground leverage to narrow an opponent’s options away from the bargaining table; and he depends primarily on un sanctions for negotiating leverage at the diplomatic table. In all three areas, Ronald Reagan was a master at exerting military leverage: using his defense budget to challenge the Soviet Union to an arms race, deploying inf missiles and freedom fighters to raise the costs of Soviet military actions on the ground, and dangling his Strategic Defense Initiative at the negotiating table — all for the purpose, as Martin and Annelise Anderson show in their breathtaking book, Reagan’s Secret War, of negotiating a peaceful end to the Cold War and a shift from offensive to defensive weapons for deterrence.
Here’s how one Soviet official, Alexei Arbatov, assessed the impact of Reagan’s first-term defense policies on perceptions in Moscow: “Reagan’s course in the early 1980s sent a clear signal to Gorbachev and his associates of the dangerous and counterproductive nature of the Soviet Union’s further expansion, which was overstretching its resources, aggravating tensions, and provoking hostile reactions across the globe.” Gorbachev made the same point himself. Speaking to the Politburo in October 1985, a mere six months after taking office, he said:
Obama wields none of these advantages. He sees force as a last resort after diplomacy fails, not as a pervasive and parallel resort throughout the diplomatic process. He withdraws U.S. forces unconditionally from Iraq when keeping them there might narrow Iranian options on the ground as negotiations proceed to stop Iran’s nuclear program. At West Point, he announces the dispatch of additional forces to Afghanistan and in the next sentence gives a date to begin their withdrawal, when allies in Pakistan question precisely America’s commitment to stay in the fight. As of this writing he is working on a fourth set of un sanctions for Iran. In all likelihood, he is heading toward accepting and then hoping to contain the acquisition of nuclear weapons by Iran. But containment too cannot work without a credible threat to use force.
It’s still early, but Obama needs to stop the pendulum swing from force to diplomacy and recognize that diplomatic outcomes reflect the balance of forces in negotiations as well as the goodwill and mutual understanding of negotiating partners. Force and violence play a continuing role in world affairs, not because the United States wants them to, but because autocratic countries use force daily against their own citizens and will use it more readily against foreign countries, no matter how understanding the United States may try to be. In Oslo, as he accepted his Nobel Prize, Obama spoke for the first time about the justified use of force: “There will be times when nations — acting individually or in concert — will find the use of force not only necessary but morally justified.” And he emphasized the limits of diplomacy when he noted that despite his reverence for Martin Luther King and the doctrine of nonviolence, “a nonviolent movement could not have halted Hitler’s armies . . . [and] negotiations cannot convince al Qaeda’s leaders to lay down their arms.” But, again, which Obama is the true Obama?
Obama’s diplomacy is flaccid. He packs few arrows in his quiver. He is content to downplay force, even as Iran, North Korea, and other extremists use force and show no sign of being “shamed” into honoring international norms and principles to stop proliferation or the use of violence. And when he supports the use of force, it seems to be only when force is “absolutely necessary” meaning apparently after America has been attacked (Afghanistan) but not before (Iraq). He assumes that if America does not use force, others will not either. But there’s the problem. If the United States does not push back to stop nuclear proliferation in the Middle East and Asia, others may. Israel is close to that point already, and, if North Korea acquires nuclear weapons, Japan may demand more extensive U.S. nuclear protection or decide to acquire nuclear weapons on its own. The use of force only when it is absolutely necessary does not minimize risks; it leads to much bigger risks later on.
Markets and regulation
There is no doubt that we are witnessing a major swing in U.S. foreign policy away from markets toward global regulation. The question, again, is will the pendulum swing too far. Will it stop before the rush to regulation strangles a world economy that in the past 30 years has produced unprecedented global growth? On economic policy, George W. Bush pushed tax cuts, deregulation, and free trade agreements. Now Obama pursues higher taxes and more stringent regulations, and he shows little enthusiasm for existing or new free trade agreements.
First, one needs to be clear about the past from which Obama now wants to swing the pendulum. The era of the so-called Washington consensus, which enshrined market policies from the Reagan years (see my account in The Myth of America’s Decline), has been extraordinarily successful. Here are some of the main accomplishments:
None of this extraordinary prosperity would have been possible without the liberalization and growth of global financial markets. The freeing up of capital flows is the big untold success (yes, success) story of the past 30 years. Open global financial markets did not exist before 1980. The early Bretton Woods system controlled exchange rates and private capital flows to encourage trade liberalization. The advanced countries began to liberalize capital and exchange markets only in the 1970s, accelerating this effort in the 1980s and 1990s as the Washington consensus spread. The resulting global financial markets mobilized massive unused savings, especially from China and India, which fueled the unprecedented economic expansion between 1980 and 2010.
Now, global financial markets stand indicted as the causes of the great economic recession. And the current crisis is vastly overblown to discredit the Washington consensus and market policies. Obama pledges to end the boom and bust cycle of capitalism and compares the present crisis to the Great Depression. In truth, the current slump comes nowhere near the levels of the Great Depression (which led to real gdp losses of 30 percent and unemployment rates of 25 percent) and does not even equal the Reagan recession of 1981-82 in either maximum unemployment (10.2 compared to 10.8) or inflation rates (2 percent compared to 13 percent). So far, by only two measures, the decline of industrial output and number of jobs lost (not unemployment rate), has the current recession exceeded the Reagan downturn. And, ironically, this result is a consequence of the fact that the current recession started at much higher levels of production and employment than in 1981-82, a testament to the success of economic policies over the past 30 years.
By hyping the current crisis and pandering to populism on such issues as bank bonuses, Obama risks overreacting to the current economic crisis, encouraging the pendulum to swing completely out of control. Of course, mistakes were made during the Washington consensus era by all administrations — the Reagan years left behind massive budget deficits, the Clinton years blessed the unregulated growth of global banking and derivative markets, and the Bush years compounded errors of excessive spending as well as unmonitored financial markets.
Yet the benefits remain for all to see, and now the trick is to correct the errors without reducing the benefits. The real economy in the United States today — the industrial and productivity base — is solid and does not require a major overhaul. Not only are anti-market regulations unnecessary; they were a major cause, along with private banking, of the current crisis. Government housing agencies — especially Fannie Mae and Freddie Mac — added $5 trillion to the national debt, and they too awarded “fat cat” bonuses and received bailout funds that exceeded $100 billion and are still climbing.
So governments fail, just as markets do. Obama needs to stop the pendulum of anti-market sentiment before we overregulate and recreate the twin specters of slower growth and higher inflation, the scourges of the 1970s which the Washington consensus ended. Make no mistake: Reducing excessive risk in financial markets is necessary to sustain long-term growth. But reducing risk means reducing growth over the short run, and increasing regulations means raising prices over the long run.
The main challenges for Obama are threefold. First, can his overall economic program work? On its premises, it seems doubtful. The program raises costs to the private sector while expanding investment in the public sector. Small businesses, which provide most private sector jobs, face higher taxes (rescinding tax cuts for annual incomes above $250,000), increasing energy costs (new cap and trade legislation), more employer mandates (health care), escalating labor costs (card check), and expanding consumer regulations. Meanwhile, federal, state, and local governments spend more to sustain and expand social services, build infrastructure, manage bankrupt industrial companies (gm and Chrysler), and create green jobs. At the margins, government bureaucrats, not business leaders and entrepreneurs, make more investment and production decisions.
The American economy is massive and resilient. Maybe the public sector can grow at the margins without reducing growth. But, bear in mind, Obama’s budgets call for government spending to expand from around 20 percent of gross domestic product, where it has hovered for the past 30 years, to 26 percent by 2020. That’s a 30 percent jump at the margins. And the claim that government spending creates more and better jobs (e.g., green jobs) and offers necessary competition where the private sector fails to do so has to be treated with some skepticism, especially given the financial performance of the government’s housing agencies and its two flagship entitlement programs, Social Security and Medicare.
Second, can Obama stem a disastrous protectionist trend which is rapidly accelerating and will become another major factor adding to the costs of private sector entrepreneurs? Global Trade Alert reported in December 2009 that just since the financial crisis in fall 2008, g20 countries slapped on 184 significant protectionist measures. “Buy American” provisions in Obama’s stimulus package purge Canadian, Mexican, Chinese and other products from U.S. public and private sector projects.3 Labor unions, which with government now control American automobile companies, call for industrial policies to shut out foreign imports. And politicians advocate penalizing multinational companies that invest abroad.
Thus far, Obama has been silent on free trade. He quietly walked back campaign pledges to renegotiate nafta and designate China as a currency manipulator. But he did nothing to stop provisions in the stimulus package that banned Mexican trucks from U.S. highways, perpetuating a 14-year dispute in which Mexico won a wto ruling against the United States. Most importantly, he has coddled protectionist supporters on the Hill and stalled free trade agreements with Panama, Colombia, South Korea, and other countries. And he has potentially doomed the Doha Round negotiations by saying in summer 2009 that resumed negotiations cannot take up where they broke down but must be “reset” to include greater tariff reductions by developing nations and additional commitments to negotiate in specific manufacturing and service sectors. Obama has no congressional authority to negotiate “fast-track” trade agreements and no intention to ask for it — nor, given his party’s preferences, would he be likely to get it if he did ask. Meanwhile, according to early estimates, world trade dropped by 10 percent in 2009.
Third, can Obama lead a sensible effort to regulate risks in new global financial markets without strangling competitive markets which mobilized capital for unprecedented expansion after 1980? In short, can he create a regulatory regime for global finance like the one the General Agreement on Tariffs and Trade created for global trade in the 1950s and 1960s? The gatt regime greatly expanded, not restricted, international economic exchanges.
While financial regulation is complex, two choke points seem crucial. The first is leverage ratios. Leverage ratios specify the amount of capital financial institutions are required to hold to support lending. Domestic banks have been regulated in this area since the 1930s, and international banks came under similar regulation after 1980 through the Basel Accords. But nonbank institutions including investment houses, insurance companies, pension funds, hedge funds, and structured investment vehicles (sivs) set up by banks off their balance sheets have never been regulated, and they now account for a larger and larger share of global trading and lending. Leverage ratios at some nonbank institutions such as the American International Group went ballistic in the recent financial crisis. Clearly, nonbank institutions have to be brought into this regulatory regime.
A second choke point in the financial system is transparency. Governments audit banks and in turn provide help in times of crisis, including orderly dissolution if banks fail. Banks can’t fail on their own because their collapse might trigger wider systemic failure. Should governments now also audit and, if they get in trouble, supervise the orderly dissolution of nonbank institutions? In the 2008 crisis, nonbank institutions like Goldman Sachs became bank holding companies to benefit from government support. But these institutions engage in far riskier lending activities than banks. Can governments cover such risks? And if they do, won’t that just encourage more risky behavior by these institutions?
To keep the regulatory system light, one alternative is to use leverage ratios to distinguish between normal bank trading and riskier trading by hedge funds and private equity funds. Thus, if hedge funds or private equity funds create instruments that are riskier and less transparent, as they did in recent years, these instruments should carry higher leverage requirements. That should place a rough cap on high risk operations. If these institutions still get into trouble, they should be allowed to fail, again under some orderly government process.
Sadly, little has been done to enhance transparency since the recent crisis. The original Treasury bailout was supposed to create markets to clean up the high risk “toxic” assets that had been created and sold privately by nonbank institutions. Instead the bailout was used to replenish bank capital. Toxic assets still sit on nonbank books, and financial authorities are gambling that a revival of growth will suffice to redeem these underwater securities. Once again the Obama administration, which announced a plan to remove toxic assets in spring 2009, has addressed an issue and then failed to follow through.
Any level of regulation requires alert regulators. In the last crisis, regulators were caught sleeping at the switch. So just adding more regulators is not likely to make things better. Regulating at choke points and maintaining focus offer a smarter answer. The massive collateralization of mortgage and other debt in recent years was excessive, to be sure, but up to a point it was also very helpful to put Chinese and Indian savings to work in the global economy, particularly in the housing sector.
Unilateralism and multilateralism
The fourth area in which American foreign policy cycles is between unilateralism and multilateralism. George W. Bush became the poster child for unilateralism and assertive American leadership. Obama is now the global rock star for a new era of multilateralism. The tension between unilateralism and multilateralism is not a trade-off; it is a matter of leadership. How aggressively does the United States act, sometimes without the full support of domestic, allied, or international partners, and how often does it defer to a consensus from domestic and international opinion before it acts? The objective in either case is to bring other partners along. Bush tripped the wire toward debilitating unilateralism. Obama may trip it toward paralyzing multilateralism.
So far Obama has gone the extra mile to solicit the support of the American people, allies, and the international community. To his credit, he has improved America’s standing abroad. According to Pew polls in July 2009, Europe’s confidence that America will do the right thing soared from below 20 percent under Bush in 2008 to well over 85 percent under Obama in 2009. If such polls mean anything, Obama should now get something in return. So far he has gotten very little.
What if Obama cannot get un agreement on tougher sanctions against Iran? What if the nato allies balk at supporting the Afghanistan-Pakistan campaign? What if the Chinese decide that they have no real interest in stopping North Korea’s nuclear weapons program, especially if it threatens North Korea’s domestic stability (a position that some believe the Chinese have always held)? What if Russia meddles successfully to weaken and eventually replace nato-friendly governments in Georgia and Ukraine and perhaps even to extend its influence in the Baltic nato states?
Where will Obama stop the pendulum between assertive American leadership, which involves some degree of unilateralism, and accommodating American multilateralism, which risks action too late or no action at all? On many issues, as we see in his deliberations on a second strategy for Afghanistan, he struggles to find a middle ground which satisfies everyone a little bit and dissatisfies no one too much. He often defers to other partners, as he does to the un on Iran or to Congress on the stimulus and health care legislation. He likes to “wait to see how the dust settles.” But deferring to international institutions is usually a prescription for delay if not default.
Soon, the heat will be turned up on Obama and his numerous diplomatic initiatives. Will he be willing to pull the trigger and act without consensus if necessary? Or will he instead define his objectives down, disarm his diplomacy, default to nationalistic economic forces, and defer to multilateral solutions? We have little to guide our speculation. His Afghanistan policy offers some evidence of resolve, but the test is yet to come, both from the left wing of his own party and from entrenched extremists in the Afghanistan-Pakistan region. His redlines for acting alone or with less than majority support are well concealed. This is perhaps the biggest mystery about a man who has always led by community more than by conviction.
Swinging which way?
Like clockwork, american foreign policy cycles between democracy and security, force and diplomacy, markets and regulation, and unilateralism and multilateralism. For most of his term, George W. Bush trumpeted democracy, military force, markets, and assertive U.S. leadership. Obama now reverses course in all four areas.
Obama argues that this was the hand he was dealt. But he’s not the first president to initiate or justify a pendulum swing. According to national polls dating back to the 1950s, voters opposing the party that occupies the White House become more dissatisfied with American foreign policy than the president’s own party. Presidential candidates from opposing parties use this discontent to swing the pendulum away from their predecessor’s foreign policy. George W. Bush advocated policies that his critics called abc, Anything But Clinton. Now Obama advocates policies which are unremittingly abb, Anything But Bush.
Arguably, Obama has swung the pendulum further than previous presidents. He uses the past to browbeat domestic opponents, even exploiting major public forums, such as the un General Assembly, to castigate his predecessor’s years “as a time when many around the world had come to view America with skepticism and distrust.” Like previous presidents, however, Obama will be judged not by how far or long he swings the pendulum but by whether and where he stops it. Will he grasp, like successful presidents before him, that the crucial aspects of foreign policy are not opposite ends of a continuum but integral factors that depend on one another? At what point will he refresh America’s commitment to freedom as the foundation of security, an effective diplomacy backed by military leverage, a world market that accepts risks to achieve higher growth, and a style of leadership that is not subordinate to the slowest camel in the caravan?
Leadership is much more than pragmatism to solve problems that somebody else has created. It has to define those problems in the first place. In this process, sovereign principles of free peoples matter much more than shared interests with despots who espouse very different principles. Leadership is proactive not reactive, clarifying differences of principle, setting the agenda, pushing preferences, and preempting alternatives. Bush did that part well. But leadership is also bringing along the majority of people, both at home and in the free world, or it can hardly be called democratic. Bush did not do that part very well. Obama has a proven ability to bring people along but an unproven record of where he wants to lead them. To be successful, he needs to stop the swing of the pendulum and chart a clearer course that champions the ongoing struggle for freedom and markets in a world in which despots still prefer to use force and regulations.
Henry R. Nau is professor of political science and international affairs at the Elliott School of International Affairs, The George Washington University. A more extensively footnoted version of this article can be requested by writing to firstname.lastname@example.org.
1 He has displayed the same pattern on the domestic front, addressing multiple issues simultaneously and lacking focus.
2 For example, Obama capped production of f-22 stealth fighter planes and delayed plans for a next-generation long-range bomber. He made deep cuts in missile defense and did little to expand a navy fleet that is down to roughly one half its size at the end of the Cold War. Such decisions have consequences. Containment of China, for example, depends heavily on American air and sea power. Since 1995, China has increased the number of its submarines by 38, while the U.S. has cut the number of its submarines by 25.
3 One typical example: Duferco Furrell Corporation near Pittsburgh, Pennsylvania, manufactures steel coils from imported slabs not sold in the U.S. After the stimulus package passed, its largest client canceled orders so it could buy from companies with 100 percent U.S. production. Duferco Furrell, which employs 600 people, furloughed 80 percent of its work force.