Salafi Jihadism and US Grand Strategy Part III – The Avenging Angels

War is a terrible thing.  Even when it is just and properly executed, war means death and destruction.  Worse, many brilliant and experienced warriors have observed that wars never follow the original plan.  Worse still, the politicians who plan and begin wars, and who are responsible for explaining the reasons and need for support to the people, are generally lacking in both comprehension and fortitude in their duty.  This is not to say that wars should be rubber-stamped for approval, but once the decision is made to enter war, it must be seen through or else the cost will be much worse and the results disastrous.  This is the lesson from history.

Jihadism comes from Islam, but does not represent the whole of Islam.  I don’t say this to excuse the apathy most Muslims display when asked about Jihadists (indeed, most Muslims should condemn Jihadism on moral and religious grounds, since the greatest number of Jihad victims always come from Muslims murdered and tormented by these monsters).  Rather, it should be understood Jihadists have popped up like snakes from the ground several times in history.  Muslim extremists created the Hashashin, the men trained and drugged to believe that Allah would reward them for murdering selected political targets.  Jihadists warred against India as early as the 14^th Century, specifically for refusing to convert to Islam (the Jihadist leader Tamerlane was particularly infamous for public torture and murder of Hindus).   In the 15^th Century, Jihadists led a mob in Fes (Morrocco) which murdered thousands of Jews in a wave of unprovoked killing.  Jihadists took over Afghanistan in the 18^th Century by fighting a bloody war with the Hindu majority in 1761.  The Barbary pirates were Jihadists intent on destabilizing regional governments and plundering trade vessels (the U.S. response led to the creation of the U.S. Marine Corps).  Jihadists in the Sudan killed British citizens and reinstituted Slavery in the 19^th Century.  Also in the 19^th Century, Jihadists invaded and claimed the cities of Kabala and Najaf, slaughtering thousands of Muslims in the process.  These are by no means the only examples of a long, bloody history of fanatical mass killing,.

As stated in the last post, Jihadists are created and supported to destabilize target governments, but do not, as a rule, gain nominal authority themselves.  When terrorists do gain political power, they end up eschewing terrorism officially, and often there are efforts to wipe out the remaining members of operational cells as well, to prevent embarrassments to the new regime.  This is not surprising, if you consider that the nature of Jihadists is chaos, which is never useful to stability.  By definition, then, all  Jihadist groups exist for either foreign applications, or for limited duration.   Jihadist leaders, as well, are often victims of purges because if they become popular or influential, they can destabilize the regimes of their own patrons.  This is just one reason why old groups fade from view (Islamic Jihad, for example) and new groups show up with new faces.  This is also why Jihadists are not overly dismayed when leaders are captured or killed; a martyr often serves their purposes better than someone building their own sect.   In terms of grand strategy, Jihadism has lacked specific long-term goals, focusing on removal of targets and enemies.  It is for this reason that terrorism has caused more death, suffering and damage to Islamic nations than to non-Islamic nations. 

The Salafi brand of Jihadism seeks to evolve terrorism into a more constructive goal; creation of the Islamist super-state, to reinstate the Caliphate.  This goal, however, is still very much in its infancy, because before 1995 terrorism depended on splinter sects for its recruiting and organization.  One suggested reason for the name of Al Qaeda (‘The Base’ or ‘Foundation’ in Arabic), was to build a global Islamic organization with Sunni leadership and direction, to claim broad general support in Islam for restoration of the Caliphate.  This is also consistent with Jihadist strategic thought, which incorporates three stages:  Da’wah, Hijrah, and Medina.  The Da’wah stage establishes Jihad leadership, the Hijrah stage recruits members and creates action cells, and the Medina stage focuses on creation of the Caliphate.  Within that grand strategy, the same thinking applies to operational planning.  At that level the Da’wah stage establishes cell leadership, the Hijrah stage deploys cells to the targets, and the Medina stage activates the mission.

Salafis are distinct for five ideological rules: 

• Tawhid (the unity of God) expresses the universal or global reach of their mission, which is why Salafis, unlike earlier terrorist groups, seek targets anywhere in the world.
• Hakimiyyat Allah (God’s Sovereignty), which rejects all human law on the ground that God’s law is perfect and absolute.  Therefore in service to Allah, a Salafi may violate any code or statute.
• Bid’ah, which rejects all innovation to Islam, especially any argument that tolerates non-Muslims or is in variance to original teachings and customs
• Takfir, or the rejection of a Muslim from the Umma with no trial or hearing, to declare him or  her to be apostate on the accusation alone, for which the accused must either repent and show penance, or be executed as Kufr.
• Jihad as the central commandment from God against regimes deemed infidels

These rules not only shift terrorist ideology from a regional perspective to a global perspective, the ruthless violence against all dissent allows Salafis to enjoy disproportionate influence in terrorist activities.  It should be worth noting at this point, that Salafis do not cooperate with either the Muslim Brotherhood (whom they regard as too moderate and likely to give up the Jihad) or Shiites (meaning they do not trust the governments of Iran or Syria, which they consider apostate).   Salafis represent less than one percent of all Muslims, but they are well-organized, tight-knit (forget about infiltration), and well funded.

Regarding the United States, the U.S. has four general pillars of Grand Strategy:

·        Defense against attack from enemies, foreign or domestic

·        Protection of American citizens and interests worldwide

·        Support for democratic republics which protect individual freedoms

·        Discourage/Defeat rogue regimes

While methods and tactics have differed, these values have been supported by both major political parties for more than eight decades now.  With regard to the Jihadists, the pillars may be described as follows:

• No more 9/11-style attacks (which is why the Obama Administration kept pretty much all of the Bush counter-intelligence structure)
• Government support for private security firms and coordination with businesses to prevent violence and international incidents
• Advocacy for the nascent Afghan and Iraqi republics, even if they are not ideal in structure or ideology
• Strong diplomatic and economic efforts to address Iran, Syria, Libya, and Egypt

Unspoken on the surface, but a very real aspect of the implementation of U.S. policy in the Middle East, is the Avenging Angel tactic.  During the Bush Administration, this was most often represented by the teams hunting down Al Qaeda leadership, while the Obama Administration has preferred Special Forces in the military, most notably the SEAL teams.  Each method has seen advantages and costs, but both were chosen by professionals as the best option for the extant conditions.  More on this in a little while.

The careful reader may note a key flaw in the Salafi strategy – the lack of a comprehensive grand strategy.  Sure, they want a Caliphate, but there is no clear means to attaining goal.  Worse for the Salafis, each group leader considers himself an Amir, but in most situations there is no simple means to choose an overall leader.  Bin Laden tried to sort that out by creating Al Qaeda, which posited a clear hierarchy, but Bush answered effectively by using his Avenging Angels to take out leadership at every opportunity.  Obama is doing the same thing but is pursuing figureheads and logistics experts, where Bush focused on financial and training providers.  The lesson learned by the Jihadists is to have leadership identified only at local levels, but by definition this works against their long-term goals.

The Salafis have also seen their assumptions collapse in the Middle East.  This should not really be surprising, since the Middle East itself has rarely enjoyed stability since the fall of the Ottoman Empire at the end of World War I.  Dissidents have been common since the boundary lines were first drawn, and over the years the matter has simply become more contentious.  And, as noted above, violence from Muslims has been around for as long as Islam has been around.  Jihadists end up working against their own interests, by attacking Muslims even more often than non-Muslims.  The Salafis hope to correct this by striking global targets outside Dar Al-Islam, but their rejection of Shiites and other radical Muslims damages their ability to build a long-term consensus. 

The chief mistake of the Bush strategy was not in attacking Afghanistan and Iraq, but in staying too long, giving Jihadists a focus for cooperation.  His greatest success was in destroying network cohesion and the supply chain for Jihadists, especially the Salafis.  President Obama, conversely, erred badly in not confirming permanent support for US interests in the region, and in displaying apparent confusion in response to Jihadist attacks.   The Obama strategy should be to demonstrate resolve to protect Americans and US interests, to keep US forces mobile and emphasize command and control by Afghan and Iraqi defense forces, while focusing on regional stability.  Regimes in Iran, Egypt and Lebanon, while not aligned with the United States, will find value in suppressing Jihadists.   Insurgents may not be completely eliminated, but destruction of both finance and logistics chains will prevent major attacks and allow the regional governments the chance to control the threat. 

Follow-up steps by the United States should be clear advocacy of regional governments which respect individual rights.  While this clashes directly with radical Islamists demands for uniform application of Sharia, the majority of Muslims may be expected to support authority which does not represent either capitulation to American dominance or to radical dissidents, who in any case are a small minority.    

The trump card for the United States, however, remains its ability to strike anyone, anywhere.  This does not condone escalation of drone strikes, because the U.S. must avoid civilian casualties, but effective use of air and information supremacy assets has produced notable strategic advantages.  The well-deserved reputation of US covert forces to take out high-value targets regardless of defenses gives the US an ‘Avenging Angel’ trump card which, simply by existing, forces enemies to change operational methods, communications, and logistics.   These agents appear superhuman in their ability to know what the enemy is planning and to thwart operations in early stages.  This ability comes through the combined effort of US interagency communication, an example of which follows:

The NSA tracks electronic communication and determines the subject is high-value.  The FBI Financial Crimes unit (FIFU) works with banks and similar institutions to interdict financial support.  The NRO creates a virtual profile showing home, work and travel locations for the subject.  ISA begins formation of the supplies needed for direct action teams, while the CIA works up a threat profile for executive review.  The State Department is briefed and policy impact is discussed.  JSOC creates an action team while executive review decides on a course of action.  From discovery to action decision, the timeline may be as little as six hours, in the case of a previously unknown subject.  Once a profile is in place, action may be deferred until optimal conditions are reached, trigger events occur, or a threat warning changes the paradigm.  A daedelus condition may be maintained. 

This example is not a static template; a range of options exists depending on the urgency of the condition and the value of the target.  The example demonstrates, however, the ability of the US to bring multiple resources to bear on a target, to do so quickly, and to do so virtually anywhere.  This ability is significant not only in individual cases, but also makes reduction of military force possible without loss of credibility.  Further, integrated operations between such agencies is infeasible in Middle Eastern countries and is difficult for rival powers in China or Russia to duplicate for political reasons.  I’m not talking just about the ability to assassinate or apprehend a target, but also the ability to disable financial and supply chains, disrupt operations, find and destroy data, or otherwise prevent undesired behavior by enemies.  The strategic value of this ability is commonly undervalued by orders of magnitude, in part because non-American agencies are reluctant to admit their limits in this regard.  That is, any professional intelligence group is able to kill people or steal information, but the ability to take strategic action without leaving evidence of the action, or to do so in a manner which denies enemies the ability to retaliate, is competence of a completely higher order.  When this ability is employed by an agency operating for the common good, such as removing threats to the general population or debilitating the ability of a rogue regime to attack neighboring countries, the added moral value magnifies the credibility of that agency.     

Salafi Jihadism and US Grand Strategy Part II – The Grand Illusion

We live in an age of morons.  Unfortunately, many of them now hold high office.  As an example of this foolishness at the top, consider articles like this nonsense from Foreign Policy magazine:

http://www.foreignpolicy.com/articles/2013/01/09/a_new_US_grand_strategy

Arrogant socialists imagine that key strategic goals for US foreign policy in the coming decades will depend on impractical economic whims, chicken-little scare tactics about the environment, denial of the US role as world leader, and dependency on central government.  Yet the hubris is similar to that displayed by conservatives not so very long ago, due to a similarly distorted view of the world.    In the case of the conservatives, at least they were not alone in their fantasy.

The Soviet Union appeared poised to dominate the Eurasian continent by 1980.  Europe was in upheaval, the US had somehow lost a war in Vietnam to a band of primitive thugs, the US economy was mired in both high unemployment and high inflation at the same time, and most self-proclaimed experts in the media announced the US was done.  Then a lot of things changed.  The Soviet invasion of Afghanistan turned into a disaster, the US revived under Reagan on all fronts, and American exceptionalism returned to favor not only in the US, but in many other nations.  This reached an apogee in 1991, ironically after the US made mistakes in judging the intentions of Saddam Hussein.  Hussein sent his army into Kuwait, imaging the US would not dare try to stop what he had all but completed.  Instead, George HW Bush directed a masterful campaign of diplomacy, influence, and military power to destroy Iraq’s military and make clear the US’ ability to obliterate any enemy of significance.  Unconfirmed reports from the intelligence community in 1991 generally relayed the same message at the Politburo:   

“о дерьмо”

AirLand battle doctrine was not only superior to anything on the books anywhere in the world, the Gulf War demonstrated not merely superiority but absolute supremacy of US training, logistics, and weapons systems.  Since 1991, only Iraq has been rash enough to plan for any kind of direct confrontation with main battle forces of the United States.  Even today, twenty-two years after the Gulf War, most strategic textbooks in China, Russia, or other potential opponents make clear that the only sort of warfare which may be waged against the US with any hope of survival (let alone victory) is asymmetric warfare.  This, by the way, was the reason for the sponsorship of the PLA’s propaganda piece, ‘Unrestricted Warfare’, in 1999. 

The success of the Gulf War led to a number of mistaken assumptions, by both Democrats and Republicans.  Bill Clinton used the success to justify a scale-down of military force, but also drastically increased the number of troop deployments, such as into Bosnia and Somalia.  George W. Bush was misled into believing that an invasion of Iraq would enjoy success similar to Desert Storm, although conditions and objectives were very different.   The limited goals of Desert Storm, the overwhelming unanimity of support, both domestically and internationally, and the restraint after freeing Kuwait, all combined to make Desert Storm a very different conflict from prior and future engagements.  If anyone had paid attention to Clinton’s blunders in Somalia, Haiti, and Bosnia, the errors of assuming easy victory could have provided important lessons.  Ironically, the US was far better prepared for the war against the Taliban in Afghanistan than in occupying Iraq.  The reason is that the United States always understood that occupation of Afghanistan was impossible, the only viable strategy being to help Afghans rule themselves.  In Iraq, the lack of a coherent exit strategy has made the campaign bloodier and less decisive than it might have been.

Switch now to the Jihadist perspective.  Before 1972, Americans were largely out of sight and out of mind to the Arabs, Persians, Jews and other Middle Eastern people.  World War 2 made it clear that the US was formidable when angered, but few nations tried to build strong friendships with the US before 1972, with four notable exceptions:  Israel, Saudi Arabia, Kuwait, and Iran.  Muslims in general found it easy to ignore the US, except for business deals. 

When Britain withdrew from the Gulf in 1972, the US was by default the referee for the region, which led to the rise of four general groups:

• Pro-US nations, especially Israel, Saudi Arabia, Kuwait and Iran
• Soviet client states, like Iraq, Yemen, Syria and Egypt (before 1979)      
• Arab nationalists, usually starting as NGOs to test the climate
• Neutrals like Algeria, which rejected diplomatic ties with the US and USSR but did business with both

Without going too far down the rabbit hole of splinter groups from these four general groups, we can recognize that there is a fractal effect from major changes in global policy, and this in turn created the opportunity for Jihadist groups to grow in size and influence in the Middle East.  At first, most of these groups followed the pattern of European terrorist organizations – indeed, the IRA and Baader Meinhof Gang both operated training camps in Middle East countries in the 1980s, and their influence colored thinking in PLO, Fatah, and Islamic Jihad operations and strategy.  The Jihadists, however, rejected Soviet connections from the start, basing their funding and ideology on strict Islamist principles.  This home-grown methodology limited the growth of the Jihadists early on, but also kept the American and Soviet agencies from infiltrating them and identifying leadership.  There is some evidence that certain European agencies were able to gain access through funding, most notably the DGSE of France and a number of Balkan organizations, but far more that recruitment through madrasas and funding through mudarabha were the means of building such groups.  The Jihadists commonly used tactics of planning and logistics that focused on mosques and Islamic communities for early staging, then abandoning all direct connections to nominal Islamic associations when activating a cell.  This demonstrates the desire to decentralize operations as much as possible, and to partition Jihadists from official government offices.

This point brings up a key aspect of Jihadist goals – while there are several nations supportive of Jihadist actions and ideals, there is no currently nation under Jihadist leadership, including Iran.  Jihad by nature is insurrection, and therefore all establish political hierarchies seek to dismantle domestic Jihad activity , preferring instead to sponsor foreign actions which destabilize enemies; there is no actual desire to establish the supreme Caliphate, as this would deprive these officials of power and influence in the region.  Even in theocratic states like Iran, sponsorship of terrorist groups is meant entirely as a weapon to attack foreign enemies, not establish a Jihadist state.  This is why, for example, wealthy donors from Saudi Arabia support terrorists – it’s a form of danegeld to send the monsters somewhere else than their own front door.

Next:    Salafi Jihadism and US Grand Strategy Part III – The Avenging Angel 

Salafi Jihadism and US Grand Strategy - Part I

In 1972, Great Britain essentially ceded its role in the Middle East to the United States.  The move was one of political expedience, as the UK's leaders hoped to cut their costs supporting long-time allies by passing the duty off to America.  The thinking was that the U.S. was already committed on a global scale because of its many alliances and international commitments at economic, military, and diplomatic levels.  Also, in 1972 the United States enjoyed strong approval by most Mid-East nations, specifically because the United States had never broken a promise to an ally in the region, and had never held colonies there.  However, the move radically altered the world power structure, as the Middle East has always served as a fulcrum for regional domination in Europe, Africa and Asia.  The Soviet Union could not afford an American-dominated Middle East, as this would  make Soviet domination of Eurasia impossible.  Therefore, while careful to avoid direct military confrontation in the Middle East, the USSR continued its proxy strategy by supporting client states in Iraq, Afghanistan and Yemen (among others) and creating disruption in US client states like Egypt, Iran and Jordan.  The Soviets' efforts were often ham-handed, but they gave inspiration to other nascent groups seeking to gain power through asymmetrical conflict, such as the Muslim Brotherhood in Egypt and (ironically) the Baathists in Iraq.

The United States intelligence community was aware of the Soviet actions, but could not generally oppose them in like fashion.  Also, with the US global focus on Asia at that time (the Vietnam conflict and building the China buffer especially),  the US felt that the Soviet actions in the Middle East were strategically disruptive but not an imminent threat, a decision proven wrong by the events in Iran at the end of the decade.

The combination of the Shiite revolution in Iran and the Soviet debacle in Afghanistan led to an explosion of radical movements in the Middle East, especially those which used terrorism.  This was because government efforts, whether regional or global, had failed to wipe out such groups, because such groups could act with little logistical support and because such groups appeared to gain credibility in short time.  These groups early on fell into three types:

• Secular groups seeking political power, which generally failed due to limited popular support and because they were seen as direct sedition by the governments;
• Islamic groups based on nationalism, which achieved limited success but had trouble gaining support outside their demographic membership; and
• Jihadists which proclaimed loose versions of Jihad, in support of 'umma' or similarly broad and vague ideals.

The secular groups were seen as direct threats by most governments, yet also had some of the least public support, so most of these were eradicated quickly.  The nationalist groups were more successful, but could not continue in strength once their main objective was gained.   The third group learned from the first two, and   made sure their membership was spread out across several nations, that they did not directly oppose any host government in their actions, and that patronage was built through extant political, financial, and religious structures.   Terrorism therefore evolved from the fairly primitive PLO and Fatah, to Islamic Jihad and Hamas, to more elaborate constructions.

U.S. Grand Strategy was not well-considered for most its history.  Until FDR's election, U.S. Presidents were disinclined to think in global terms, preferring to avoid fights if possible and raise forces as needed.  Roosevelt agreed with Churchill even before Winston was Prime Minister that the Nazis represented a grave threat to the free world, and also that the Fascists in Japan were a threat to the Pacific region.  But even Roosevelt could not prepare U.S. forces for the war in advance, a lesson not lost on later Presidents so far as Europe and Asia were concerned.  But while Harry Truman supported the nation of Israel in part to stabilize the Middle East, and Eisenhower cultivated the Saudis to give the US a key Arab ally, no formal grand strategy for the U.S. included a Middle East plan.  Aside from standing by allies and opposing the Soviets, the rest was ad hoc.

After the Soviets withdrew from Afghanistan, humbled by their defeat, and with the U.S. stinging not only from the loss of Iran to Shiite extremist revolutionaries, Islamist groups had reason to believe their strategy was succeeding.  Lost in the noise for most people was the fact that the terrorists made up a very small portion of Muslims - Shiites, Wahhabists and the newly arrived Salafis.  With Soviet sponsors removed, terrorism became a domestic product and internal sponsors directed the flavor and character of the movements.

The U.S. also gained from the events, as sponsorship of the Afghan mujahadeen demonstrated that indirect support could achieve strategic results.  While the Islamists made effective use of asymmetric warfare, the U.S. was discovering that unconventional warfare could be more effective for them than nominal doctrine.    

Next - The Gulf War

The Fear of God

It's difficult to talk to a lot of people about God.  Some refuse to admit He exists, and others will only accept God if He happens to be soft and cuddly, a dispenser of material pleasures and comforts.  Some might be bold enough to allow God to care about Justice, but only in a politically correct manner which is consistent with humanism and social fashion.  What would Brangelina do, in a phrase.

Try to point out that this thinking puts God in a box, tries to make Him a puppet, and you will be accused of all sorts of evils, especially of being judgmental and a hypocrite.  Never mind that anyone making such charges would - by definition - be guilty of the very same offense.  I really have come to believe this is why so many people do not have a relationship with God; they have absolutely no sense of the God who truly exists.

So what does this have to do with the fear of God?  Well, for one thing, God is not tame.  I pray to God every day, but with more energy and focus on some occasions.  Like in 2008, when my family and I were in our house while Hurricane Ike roared past.  Not a big hurricane by most standards, but the power and the threat from the storm was very real.  I don't even think 'storm' is the right word.  A storm passes by in a couple hours, and varies in intensity, but a hurricane roars for half a day, with high wind and heavy rain, knocking out power and the phones before it even starts so you feel completely alone and helpless, and you spend more than a little time worrying about whether the plywood you put up over your windows was thick enough, put up securely or otherwise might fail to protect your house and family. At such moments you grasp how small we humans are.  The same when your child is seriously sick, or you wife was in a car accident, or when you lose a job, and so on.  The world is much bigger than we are, and the God who made the world and everyone in it, is great beyond measure.

But God is not just good because of power.  He is also pure goodness.  To some folks, that makes God seem like Santa Claus, but authentic good is scary.  Imagine someone who never lied.  Someone whose word was always sure to be good.  Someone who never spread rumors, who never exaggerated, who never took anything that was not theirs.  Someone who was not only the best student in the class, but who set aside time to help the slowest students improve.  Someone who made statements that seemed like assumptions, but in fact were always completely right.  Someone who could look at you and know everything there is about you.  Someone, in short, who never made a mistake, never got an answer wrong, and in any disagreement proved to be right.

Now imagine that this perfect person lived with you, so that everyday you saw the huge difference between your own ability and theirs, your own character and theirs, your own blunders and their perfect results.  Wouldn't you be intimidated?   Now consider that God is omnipotent, omniscient, and omnipresent.   Still think He's someone to mess with?

But God is also scary good in His essence.  I have been privileged to know some people who lived lives of great service and work, who were humble yet confident,  I could see God at work in such people, and friends those people scared me.  People like that are very, very different from ordinary folks, and as much as I want to hear God say 'well done, thou good and faithful servant' when I stand before Him, I am well aware that my actual results are likely to cause Him to comment 'get a mop'.  

God is scary.  Like a strong parent is scary, or a good wife.  Like a teacher who is top in his field, or a coach who means to make you a champion.  You do your best, knowing it needs to be done better and better every day.  It's not about fear of punishment, but fear of missing the mark, of turning out to be less the man than you hoped you could prove you were, in fact.  It's about learning there is a perfect piece of music or art you are meant to make, but you are afraid you won't do it properly.  It's about wanting to be the person you were meant to be, to reach full potential rather than make mistakes.

The fear of the Lord is the beginning of wisdom.  We would do well to remember.  

Really Stupid Ideas In History Part Four: Karl Marx

I first learned about Karl Marx back when I took a course in Economics.  The professor sort of glossed the theory of Marxism, because Marxism is as much about Politics and Sociology as it is about Economics.  I was, therefore, left with the sense that Karl Marx was a generally smart person who applied his knowledge to try to create a better strategy for money and employment.  After all, with so many governments declaring themselves ‘Marxist’ to one degree or another, there had to be something rational about his theories, I supposed.

But having finally read ‘Das Kapital’, I realize now that Karl Marx was not only unable to understand basic economic facts, he was remarkably stubborn in ignoring glaring blunders in his own theories.  I read that he took thirty years to write the first volume of ‘Das Kapital’ (Engels, a singularly inept theorist in his own name, forced the second and third volumes through the publishing process and onto an unsuspecting public), but I suspect what really happened was it took Marx three decades to find a publisher doltish enough to put his rant into print.  I mean, just how dull does a student or scholar have to be to actually take Marx seriously?  A man whose formulae never once seriously addressed the risk of investors and business owners?  A man who actually tried to promote the idea that a product’s value depended on how hard someone had to work to make it?   That innovation, globalization, process improvement and logistics were somehow undesirable?  Karl Marx got more than half of basic economics wrong, and crippled the better part of three continents with his notions for half a century.

The professional success of Rosanne Barr in the late twentieth century proves that people sometimes back incredibly poor choices, but one might wonder just how Marx reached the conclusions he did.  Marx was born into a wealthy family in Germany, and as soon as he got out of school (with very poor grades at first) Karl began to punish his parents every chance he got.  Kicked out of Germany, then France, Karl finally settled down in London, where his personal application of economics left his family destitute and nearly starving.    Like most narcissists, Marx believed that the only solution to economic disparity and poverty was the scientific application of revolution and Socialism, specifically using his model for class warfare and stealing wealth from the people who made it.  By 1850, Marx had settled into finding ways to sell his rants as some kind of science, for which purpose ‘Das Kapital’ was written. 

Marx made his money through his writing and in organizing socialist groups in Europe and the U.S.  That is to say, Karl had learned what sold in the popular newsstands and took care of his family’s finances in a manner far different from his proposed solutions in his essays, speeches and books.  By the time he died in 1883, Karx had mastered the art of political hypocrisy, selling with full voice a political theory he had personally abandoned long before.    

The China Debt

The Wall Street Journal has an interesting article up this week, about the coming Debt Crisis in China.

http://online.wsj.com/article/SB10001424127887324338604578325962705788582.html

Mr. Sharma appears to have the credentials to speak on this, not only in his role at Morgan Stanley, but also as a published author on national economies.  Forbes also had a recent article about China’s debt,

http://www.forbes.com/sites/kenrapoza/2013/01/28/is-china-next-to-suffer-a-debt-crisis/

with similar warnings although somewhat less dire.  I found it interesting from a personal perspective, because it echoes impressions I received in my own, admittedly amateur, consideration of the situation.   
  

To put it bluntly, everything has to be paid for by someone.  There may be such a thing as a free lunch for you, but only if you get someone else to pay for it. This is where all risk consideration starts, the fact that someone has to pay for things and by definition if you are involved in a transaction with someone who may not pay, then you are at risk of paying for something used or taken by someone else.  As a credit manager, I am well aware of customers who aren’t good credit risks, and it should really not be a shock to consider that most governments are none too trustworthy on that count.  After all, most government contracts of which I have been involved in or knew about, involved poor performance by the government, in many cases because the government is well aware that you can’t do much about it if they pay slow or give themselves discounts not allowed in their contract.  What are you going to do, after all?  Sue them?  Give them a bad credit reference?  Actually, there are reasons that the government ought to be better at paying its bills, but that shows up only at the high level consideration.  If the government fails to pay in a reasonable time to its suppliers and service contractors, those companies will stop doing business with the government, out of a need to survive as much as anything else.   But in the short term, governments tend to be poor-performing customers. 

And as you might guess, in a government which is based on both a single political party in a strong central government, and an economic philosophy that the people have no individual rights, government spending is unlikely to be criticized at all, let alone challenged.  So China has basically done whatever it pleased for the last sixty-four years, with sometimes disastrous results.  They seem to have good intentions this time, building roads, bridges, and power plants for infrastructure, but they have planned no better for this than they have anything else in their past several decades.  The problem is that basic question of how they pay for the things they want.

 President Obama made many blunders in his first term, largely because he did not understand how things work, nor did he really seem to care.  It should be obvious that throwing trillions of dollars around is bound to have an impact, though it will do more damage than good if you are not very careful with it, since all that money comes from the wealth of the nation.  Too much spending by a government is, in essence, eating your seed corn and dooming the future.  But at least in the U.S. there is the potential for an elected official to be held accountable for his decisions, and for all the gloom and doom from the media, the U.S. is far and away the most productive nation on the planet.  China, on the other hand, is not equipped to handle a debt crisis, neither on the political front nor in economic terms.

The political dimension for China would seem to be apparent. The problem is that following the Sichuan Earthquake, China found itself facing serious criticism for the failure of basic systems and the deaths of children and elderly people.  On the surface, China handled the crisis much the same as they have addressed previous disasters, but there are indications the Central Committee demanded more than face-saving gestures this time, in part due to the sense in many parts of the country that coastal regions have received much better capital support because of foreign investment and China’s high-tech PR spin, while rural and highland areas have been ignored, to the point that lives have been lost.  To allay these rebukes, China’s Politburo has spent unprecedented monies on infrastructure, especially roads, bridges and construction of housing.  Funding for high-profile projects (such as aircraft carriers, a China-only hypernet system, or new resort communities along the east coast), however, has not been changed, so China is spending money in larger amounts than it can justify in the long term, partly because neither alternative is politically palatable.  While unthinkable in the West, the potential for catastrophic events like a civil war or a military coup attempt have been quietly voiced by intelligence analysts, possibly as soon as 2018.

The economic facts are even more harsh.  The WSJ article noted a figure of $2.7 trillion budgeted for these projects in FY2013, which is roughly comparable to the entire federal budget for the United States, a nation which has the GDP to support most of such spending.  China, bluntly, cannot come close to producing the revenue needed to support such spending.  China’s GDP is still about half that of the US, and that does not even consider the purchasing power of the two currencies.  China, essentially has built its economy with a combination of sound principles and financial tricks.  The most obvious of those tricks would be the combination of China’s tight controls to keep the RMB low and to manipulate all financial data sent outside the nation.  To truly compete for global economic domination, China would first need to either embrace GAAP or a similar international accounting standard, then create effective internal controls statutes, instill transparent reporting practices in its public markets, and then – only then – could China hope to present its products and services with a reasonable expectation to challenge the US, Europe, Japan, or any other established major economic power on level ground.  It is, essentially, impossible for China to do so and continue to operate as a Communist regime, not least because the central government would face the irreducible conflict between state control of information and  power, and the necessary decentralization required for a national economy to be truly responsive to economic opportunities and dangers.  China 2013 is no more prepared for the global arena than Russia was in 1985.

The short explanation is that there will not be a soft landing.  When China realizes its debt cannot be hidden or simply transferred to perceived ‘wealthy’ businesses or citizens, probably between 2015 and 2017, the crisis will be sharp and almost certainly lead to bad decisions, like the initial 1997 decision to punish Hong Kong with debilitating tax rates.  Hong Kong is again likely to be hit with high tax rates on everything Beijing thinks it can charge, but this time Shanghai and other major coastal cities and regions will also be hit with taxes and sanctions, as punishment for non-communist behavior in creating business opportunities.  Companies may expect to see a streak of nationalizations, especially if the business engages in any technological industry where intellectual property is a major part of the company’s competitive advantage.  While a return to the Cultural Revolution of a half-century ago may not occur, a similar desire to punish the ‘greedy Gwai-lo’ is certain to show up again, especially when China experiences sharp inflation and high unemployment, which will be the hallmarks of the debt crisis.     

The Performance Review

There are good ideas, bad ideas, and good intentions which don't work out in the real world.  An example of the third type is the Annual Performance Review.

Most medium-to-large companies try to operate as meritocracies.  That means they generally want to promote and reward the best-performing employees.  The problem is how to identify the best  and worst employees, and how to identify problems and areas of possible improvement.  As a concept, the annual performance review serves to identify employees who should be terminated, given remedial training, considered average, rewarded for superior performance, or groomed for executive futures.  In practice,  it just doesn't work out well.  This post examines the reasons for that disparity.

The first mistake is how companies define job performance.  Reviews basically come in two flavors - the personal opinion of direct superiors, or a standard form used as a rating system, again primarily judged by the direct superiors.  In both cases the judgment of managers can be far too subjective a measure, and the standardized review form is often biased by focus on certain qualities which may be easier for some employees to demonstrate than others.

To make matters worse, many managers are focused on key group performance metrics, making it difficult to track individual performance, especially since individuals are not always able to demonstrate empirical results.  And if that were not enough, most HR departments seem to set deadlines for turning in evaluations which don't give managers enough time to really do much thinking on their grades, especially since managers still have to do their regular jobs and meet their deadline for work and reports.

But it gets worse.  Most companies want employees to write up self-reviews, then managers need to write up their own reviews, get them approved by their superiors and HR, then meet with employees to discuss them.  Again, as I said, while still doing their regular duties with no time or resources set aside for the reviews.  It's not hard to see how doing the performance reviews will, in fact, hurt actual group performance/

Another problem is the scoring of reviews.  Rather than just allow managers to say whether someone is dong a good job or not, most HR departments require managers to score employees on a wide range of categories, supporting with examples and comments.  This just makes it harder for managers to identify and reward the truly exceptional employees, because managers have to spend same amount of time and effort on every employee, and even exceptional employees can come off as just slightly-above-average if they are graded on qualities not essential to their job along with those which do matter.  The weighting of categories is another blunder.  Just ask any department or group manager if they were asked about the ways their employees should be judged, about the competencies which should be used to grade how employees perform, and you'll hear that HR never asks for opinions from the people who best understand what competencies should be measured, and how they should be identified.

I'm fifty-two years old going on fifty-three, and I have never come across a performance review standard that was anything but a waste of time.