Early 1942 was the low point of World War II, at least for the American newcomers. Britain was running out of men and arms. The United States had not really gotten in the game. Germany and Japan were triumphantly expanding, and it was thought possible they might link up in Iran or that region after Egypt and India fell.

Warren Buffett mentions in his new annual report that it was then that he began buying American stocks. He was 11 years old. "I made my first stock purchase in the spring of 1942 when the U.S. was suffering major losses throughout the Pacific war zone," he writes. "Each day's headlines told of more setbacks. Even so, there was no talk about uncertainty; every American I knew believed we would prevail."

Management tip: Buffett also gives his subordinates plenty of autonomy. In an aside, he notes that he voted for President Obama, but that 10 of the 12 daily newspapers his company owns that endorsed a candidate instead chose Governor Romney.

By Katherine Kidder

Best Defense office of Communist Chinese capitalist studies

China's growing role in Africa over the past decade-or-so has raised some eyebrows. Questions surrounding China's motives for investment abound: Are they purchasing U.N. votes? Simply extracting natural resources? Expanding the rhetoric of revolution, as it did in the 1960s?

Yet most of these questions presuppose state-led investment in Africa. Xiaofang Shen, a visiting scholar at the Johns Hopkins University SAIS China Studies Program and former investment climate specialist at the World Bank, said in a recent talk at SAIS that the more notable increase over the past decade has been the rise in Chinese private-sector investment on the continent.

Pre-2001, Chinese private investment in Africa was negligible; by the end of 2011, there were 879 private companies and OFDI projects registered with the Chinese Ministry of Commerce. Contrary to the image of state-led extraction, Chinese entrepreneurs focus their energies mainly on manufacturing and service industries. They increasingly are forging relationships with local management, and aware of the value of learning local customs, religions, and languages.

So, what does this mean for the West? Interestingly enough, Chinese private investment in Africa may be a hat tip to Western models of development and governance: Xiaofang Shen's study finds that going overseas to do business was much easier for up-and-coming Chinese entrepreneurs than starting a business in inland China.

Most of China's industry grew up in the 1980s and 1990s, with little-to-no regulation. By contrast, many African laws (at least on paper) were copied and/or imposed by the West through such mechanisms as Structural Adjustment Programs (SAPs). As a result, Chinese entrepreneurs find African processes more conducive to business, from obtaining licenses and navigating the bureaucratic process to trusting that the food they eat for lunch is safe. African governments face higher incentives to improve infrastructure and devote resources to political stability and regulatory efficiency in order to attract capital -- precisely the same goals reflected in SAPs.

While Tom Ricks is away from his blog, he has selected a few of his favorite posts to re-run. We will be posting a few every day until he returns. This originally ran on October 20, 2009.

For a long time I've thought that the key to economic reconstruction in Afghanistan would be restoring its traditional role of carrying goods from South Asia (full of nice cheap consumer goods) to Central Asia (now featuring oil and gas revenues). To do this, the "ring road" that connects the country's major cities and the spur roads to the borders need to be made relatively safe from bandits, Talibani, and thieving officials. But every time I've raised this, I've been greeted with eye-rolling and such.

So I was pleased to see a genuine Central Asian expert,  S. Frederick Starr of Johns Hopkins, make a similar, more considered proposal:

Both General Mc Chrystal and President Obama have affirmed the need for "economic" and "governance" measures in Afghanistan.  They're right, of course. Without them the U.S.'s stated goals -- to destroy Al Queda and cripple the Taliban-remain purely negative and not compelling to most Afghans, to the countries neighboring Afghanistan, and even to our own NATO allies. But what are these "economic" and "governance" measures? Neither Mc Chrystal nor Obama has spelled these out. It's time to do so.

To succeed, any such measures must meet four criteria. First, they must directly and positively affect the lives of Afghans, Pakistanis, and people in those Central Asian states that have become key to this region-wide project. If ordinary people across the region are convinced that they will benefit from America's effort they will support it. If not, they will stand aside.  Second, the economic measures must leave the Afghan government with an income stream. Today the U.S. is paying the salaries of all Afghan soldiers and civil servants. This can't go on forever. Third, it must be possible to pursue the economic measures simultaneously with the military effort, and in a way that enhances the military campaign. And, fourth, these initiatives must work fast, and begin to show results within the next 18-24 months.

Since 2001 the U.S. and other countries have done much good in Afghanistan, far more than is generally known. Progress in major health indicators and education are only part of an impressive record. But late in 2009 these do not suffice. To meet our four criteria a more powerful engine is needed.

Fortunately, such a force exists. The U.S. should immediately focus its energies on opening continental transport and trade across Afghanistan and the region. This will immediately open large markets to Afghan and Pakistani producers in scores of legal areas. Ordinary Afghans will be able to get their goods to markets now closed to them. The yield on truck tariffs will provide a steady income for the government in Kabul. Such trade can start immediately, for it involves removing bureaucratic impediments at borders, not vast infrastructure projects.

Some argue that this cannot happen until the stability situation improves. They may be confusing cause and effect. If only a few trucks traverse a road it is easy for bandits to interdict them. If hundreds of trucks do so, some may still be hit. But most will bore their way through. Soon locals will be providing the truckers with food, gas, storage, and repair services, as well as good for shipment. As this happens, the local population gains an interest in keeping the road open.

But can this really happen quickly? The Asian Development Bank has shown convincingly that the goods and truckers are there, waiting for a green flag. These are not just local haulers but transcontinental shippers running from Hamburg to Hanoi, Damascus to Delhi, the Urals to Hydarabad. Surveys show that the truckers themselves see the main impediments not as bad roads or the absence of physical security.  These are tough guys, used to getting through under the worst conditions. But they are stopped dead by corrupt and inefficient practices at borders, especially in Afghanistan. Remove these and the dam will break, releasing a vast force of trade that existed across Eurasia for 2,500 years but which has been blocked in recent centuries. The International Union of Roads and Transport in Geneva reports that large numbers of its members are poised to move, once the impediments are removed. And since the key to removing these impediments at borders is to improve governance and remove corruption at these points, the project provides a perfect laboratory for improving governance elsewhere in Afghanistan.

The U.S. Army's network for delivering supplies to our forces in Afghanistan provides a skeleton for the emerging network of routes crossing Afghanistan. The U.S. needs only to open the same routes to civilian traffic to get the ball rolling. Soon truckers will want to cross Pakistan as well, passing on into India and beyond. Is this a fantasy?

In spite of the Pakistan-India conflict over Kashmir, some $3 billion of goods cross the India-Pakistan land border each year legally, and another $15 billion illegally. Both are products like refrigerators and stoves, not narcotics. Given this enormous economic pressure, it is quite conceivable that Indians and Pakistani could choose to open selective routes, even as they continue to spar over Kashmir.

The biggest surge in Afghanistan will fail if it is not intimately linked with an economic program, and one that pushes Kabul to improve governance. By releasing the engine of continental trade, the U.S. can achieve this. Such a project is not against anyone, and will enable the U.S. to engage constructively with every power in Eurasia, including China, India, Pakistan, Russia, Europe, the Middle East and even Iran, for which participation in such trade could be an important carrot. 

However, Washington has yet to embrace this as a top strategic priority, let alone to organize its mission in Afghanistan and the region in such a way as to achieve it. This last is particularly important, for it requires a degree of civil-military coordination that has not existed in the U.S.'s Afghan effort since 2005. The good news is that it is not yet too late to do this.  Once such a strategy and tactics are in place, the U.S. will have unleashed a force that generated wealth across Eurasia, and especially in Afghanistan and its neighbors, over several millennia. It's time to act.

To this, I would add that a little help from the U.S. military could go a long way here. Initially, at least, I would have Afghan forces organize large convoys of perhaps 200 to 300 trucks. Also, remove most of the checkpoints and have American troops over-watching those that remains. Meanwhile, other American forces could do some route clearing. Then assign a few Strykers to every convoy and have Apaches on tap in case there is trouble. Finally, perhaps organize caravanserais every 40 miles or for overnight stays, meals, and maintenance, and also to drop off broken-down trucks. (And hire locals to work at those places, giving them a huge incentive to cooperate against local Talibani.)

Bonus fact: I just learned also that Professor Starr is a world-class jazz clarinetist.

If you haven't read it, you should. It is not often that you can learn so much in five minutes.

Nope, not the chairman of the Joint Chiefs. But yes, the coach of the Navy football team gets that salary. The Air Force coach makes $889,000, USA Today reports. By comparison, the Army coach is practically on food stamps, getting just $610,000. (On the other hand, that still works out to more than $200,000 per Army win, so far this season.)

(HT to JW)

by Matt Collins
Best Defense potential bonus marcher

Last week, the Wall Street Journal had an article about a company that had 25,000 applicants for a single position but did not hire anyone because none of the applicants were "qualified." The author, an HR expert from Wharton, cited this kind of inflexiblity, refusal to pay competitive wages, and the death of corporate training and apprenticeships as contributing to unemployment. Veterans are some of the hardest hit hit by this insanity.

While I understand that it is difficult to translate military experience into the civilian job market, this is getting out of hand. Reuters just ran a story that mentioned a medic who couldn't use his background to get a job as he would need two more years of school to get the same civlian medical qualifications he had in the military. I know one grunt with tours in Iraq and Afghanistan who bagged groceries for two years after he got out, then took a job as a defense contractor in Afghanistan. I recently applied for a job as a security guard, but didn't get it because I did not have the right credentials. I've carried a gun in Iraq, Afghanistan, and elsewhere, but I apparently need more training and licenses to carry one around an office building. 

There have been some great intiatives to try to help veterans use their military background in the civilian world. But, some skills simply don't cross over. There are no civilian artillery observers or mortarmen. My roommate at Annapolis was a SEAL. He has a degree in oceanography, speaks fluent Hindi, and is frighteningly good at swimming and shooting people. I wonder where he will take those skills in the private sector. I know of some service academy grads who don't list their time in the military on their resumes.

As the military draws down in Iraq and Afghanistan, more and more veterans are going to try to enter the workforce. The Department of Defense and others have threatened stated that defense cuts could raise unemployment another percent. I understand that I bear the brunt of the responsbility for translating my experience into civilian language. I don't expect companies to meet me halfway, but a little consideration would be nice. If firms are going to continue to expect perfect candiates to emerge fully formed from Zeus's head like Athena, a lot more veterans are going to be filing for unemployment. At least the defense contractors are still hiring ... for now.

Matthew Collins spent 10 years as a Marine Intelligence Officer, including tours with 2nd Reconnaissance Battalion, the Defense Intelligence Agency and the British Army. Now he's an otherwise unemployed MBA student at St. Louis University.

The last refuge of defense lobbyists isn't patriotism, it is arguing that defense spending means jobs. Here's a quote from yesterday's Boston Globe:

'When people are polled right now, what's their number one issue? Jobs and the economy. Defense and homeland security and terrorism are polling very, very low,' said Michael H. Herson, a lobbyist whose firm's clients include Raytheon Co., the defense titan based in Waltham. 'So how do you make this issue resonate? You talk about jobs.'

The problem with that approach is that defense spending resembles consumption more than investment -- once the money is spent, it is gone. Probably half the bridges we drive over were built during the Depression, but no one, except maybe some rear echelon Taliban, is using weapons bought then. So if the worry is how to use federal spending to create or preserve jobs, the best way to do that is to spend on infrastructure building -- roads, bridges, schools, hospitals. These all pay additional benefits. And as Joe Nocera pointed out in yesterday's New York Times, the ingredients (labor, capital and equipment) are all readily available at historically low prices.

I've been surprised at how many of the little grasshoppers think it is just fine that our upward-redistributionist tax policies are enabling the super-rich to take an increasingly disproportionate share of wealth from the U.S. system. Anyone who isn't bothered by the current extreme income inequality in this country needs to read the new piece by my friend Timothy Noah in the New Republic on the subject. Noah's an expert on the subject, but the most striking part of the column is the quotes he collects from investment bankers. To wit:

Michael Cembalest, the chief investment officer of JPMorgan Chase, wrote in July of this year . . . . that "profit margins have reached levels not seen in decades," and "reductions in wages and benefits explain the majority of the net improvement." . . . "US labor compensation," he explained, "is now at a 50-year low relative to both company sales and US GDP."

. . . "The upper classes of this country raped this country" is one of the more polite things that Morgan Stanley money manager Steve Eisman has to say on the eve of the 2008 sub-prime fiasco.

. . . "We now have a Gini index similar to the Philippines and Mexico," a Proctor & Gamble vice president told The Wall Street Journal earlier this month, referring to a measure of income distribution.

And it isn't like Tim is cherry-picking The Wall Street Journal (where I labored for 17 years, btw, back before the newspaper was taken over by alien beings.) You can find this stuff almost as random, as I did with this weekend column by Al Lewis that I read over my eggs in a diner last Sunday: "median household income is 7.1% lower than it was in 1999. . . . The clear trend-even before the recession began-is that more Americans are getting poorer."

I remember reading somewhere that Argentina was the first nation ever to move from the First World to the Third World. We should heed that example.

If you want a strong defense, shouldn't you vocally support ending the Bush tax cuts for the rich? Shouldn't you even be in the lead? I'm talking to you, AEI.

If you think the federal deficit is a problem, shouldn't you think the same? I mean in either event, spending cuts alone won't get you there.  

So yes, I think President Obama is doing the right thing.

Ezra Klein had a good summary of an economist's argument about why the current situation is not a recession, with a predictable quick recovery pattern, but rather a contraction caused by excessive debt, with a recovery that takes many years and likely is followed by slow growth.

Here's the money quote, as it were:

"Debt de-leveraging takes about seven years. That's the essence," she says. "And in the decade following severe financial crises, you tend to grow by 1 to 1.5 percentage points less than in the decade before, because the decade before was fueled by a boom in private borrowing, and not all of that growth was real. The unemployment figures in advanced economies after falls are also very dark. Unemployment remains anchored about five percentage points above what it was in the decade before."

If you are not depressed yet, try this from the Financial Times.

About half of Americans polled say that the budget can come way down. Nearly 80 percent say we spend too much defending other countries.

Whether you agree or not with those views, it is hard to disagree that the Pentagon elevator is going down fast. I am amazed at how little I am seeing written about this. I suspect the next 10 years will see a major revamping of the military establishment, in ways we hardly suspect now. Marines out of aviation? Massive consolidation of support services? Mandatory halving of headquarters, with a freeze on hiring any additional contractors, and termination of contractors upon expiration of existing contracts?

Anyone seen good work on this, looking down the road to a substantially smaller Pentagon budget?

(HT to MD)

By Elbridge Colby
Best Defense guest columnist

In a recent Washington Post op-ed article, those paladins of muscular interventionism Danielle Pletka and Thomas Donnelly argue that American conservatism calls for placing the advancement of freedom abroad at the center of our foreign policy. This is surely a policy that is stirring and vigorous and one that calls upon traditions deeply rooted in U.S. history. But is it conservative?

The answer has to be no. Of course there is no single "conservative" foreign and defense policy. But there are certain fundamentals of a conservative approach, fundamentals consistent with a conservative approach to domestic policy or the law or social life. Condensed, the conservative approach is animated by a deep sensibility for and humility in the face of the limits of what can be achieved by government and other organs of social rationality; by the central importance -- but difficulty -- of preserving and advancing liberty, order, prosperity, and good values in a complex and imperfect world; by an awareness of the often unpredictable dangers of excessive ambition; and by a profound sense that government is the servant of the people's interests, and thus should never risk its citizens' lives or resources lightly.

The Pletka and Donnelly article does not stem from these principles. Instead, their expansive policy approach emphasizing the paramount importance of promoting freedom abroad and the need to make an enormous expenditure of resources and lives in service of that goal very much resembles the aggressive liberal internationalism that President Kennedy eloquently summoned in his 1961 Inaugural Address, when he said that the United States would "pay any price, bear any burden, support any friend, oppose any foe in order to ensure the survival and the success of liberty." Conversely, whereas Pletka and Donnelly see the United States' interests as almost boundless, a conservative approach would see not all interests as vital and would be willing to make the tough choices to distinguish the vital interests of the United States from the peripheral; whereas they dismiss the deleterious impact of the fiscal burdens of wars and large defense expenditures, a conservative approach would view these huge outlays with great concern; whereas they laud the ready willingness to spend American blood for international leadership, a conservative approach would emphasize that no government should risk the lives of its citizens save in cases of necessity.

So what would a truly conservative foreign and defense policy look like? Such a policy would focus on separating the wheat from the chaff of what is truly important for protecting and advancing the vital interests of the United States rather than focusing on objectives, which, while worthy, do not have a significant impact on those interests. This would follow Dwight Eisenhower's guidance, given at the outset of World War II, that we should distinguish the essential from the merely important. (In this interconnected world, no one can credibly argue for old-school pre-World War II isolationism, both because it would be unsafe and because it would impoverish Americans financially and culturally.) This would mean giving priority to dealing with the grave threats to our security and to shoring up our long-term international position as well as our domestic fiscal and social health as opposed to seeking to expand (often vainly) the domain of liberal democracies and maximizing U.S. power and leadership today.

So, under this logic, the United States could focus on deterring and containing Iran rather than insisting on near-term regime change in Tehran, as desirable as that may be. And Washington could concentrate on minimizing the terrorist threat from Afghanistan and Pakistan rather than aiming for the wholesale political, economic, and social transformation of the region. And we could emphasize our historical support for democracy and free markets, but see their spread as a good among goods (and often in conflict with other goods) but not the sole good and prioritize its promotion accordingly. The Pentagon could focus its modernization efforts on shoring up the capabilities we need to deter the gravest threats, such as with new nuclear delivery forces; to enable our continued dominance of the high-tech battlefield, such as with appropriate conventional strike and missile defense assets; and to combat the most serious terrorist threats, such as with advanced UAVs and persistent surveillance capabilities -- rather than on those capabilities suited for spreading freedom abroad, such as those designed for long counterinsurgency campaigns. And we could press our allies to shoulder far more of the burden of our collective security than they traditionally have, including, for instance, a Japan that increasingly perceives itself as under threat from China.

Such an approach would have a distinguished pedigree to look back upon: to Washington and the Federalists opposing the commitment of the infant United States to the cause of revolutionary France, Eisenhower relying on our nuclear superiority to deter Communist aggression while sharply curtailing defense expenditures and avoiding unnecessary interventions, Nixon calling upon our allies to take up a greater share of regional defense in the early 1970s, and Powell and Weinberger enunciating a doctrine underlining that American military might would not be used without the greatest seriousness of purpose. Even President Reagan, whose rhetoric often suggested a broader conception of the United States' role in the world, in practice husbanded U.S. power and was extremely chary about intervening abroad. In all of these instances, American leaders distinguished what needed to be done for the nation's security and what did not, firmly and vigorously defending our way of life but seeking to avoid costly, unnecessary involvements.

Pletka and Donnelly have offered an ambitious vision of what the United States' purpose in the world should be. It is magnificent, perhaps, but it cannot be called conservative. In an age in which we must get our fiscal house in order, restore the sources of American prosperity, and face swiftly rising powers whose future courses are uncertain -- above all China -- a conservative foreign policy would focus relentlessly on investing our strategic effort, money, and time to serve our long-term vital interests most effectively. Distinguishing what is important from what is not and making the corresponding tough choices about commitments, spending, and our focus abroad is the heart of a conservative foreign policy. This is the essence of strategy. By contrast, confusing our own future with the fate of freedom in every corner of the world is an invitation to waste, disillusionment, and, quite possibly, disaster.

Elbridge Colby has served in several national security positions with the U.S. Government, most recently with the Department of Defense working on the follow-on to the START Treaty and as an expert advisor to the Congressional Strategic Posture Commission. The views expressed herein are his own and do not necessarily represent the views of any institution with which he is affiliated. Or of little Dustin Pedroia.

If he has the courage of his convictions, he should, because he says debt is our biggest national security problem.

Well, here's the answer, or at least part of it: Make the rich pay their fair share, or at least more of it. For the last 30 years, the top 1 percent of Americans have made out like bandits, hauling in 80 percent of the increase in American income. During that time, the national infrastructure has been crumbling, among other things, while the rich have retreated to gated lifestyles -- private schools, private security, and a general non-participation in the life of the society.  

Right now the wealthiest one percenters grab 24 percent of annual income in this country. That's even more than the 15 to 18 percent they hauled in during the robber baron era of the Carnegies, Rockefellers and Vanderbilts.

All this data comes from a fascinating new overview of income inequality done by my friend Tim Noah in Slate. Amazing that he can do this and put out all those children's albums, too.     

As long as we are talking about smart people I know, here is a list of the best recent books on education, taken from an Education Next poll. Friends of this blog should consider voting for Karin Chenoweth's It's Being Done -- a surprising study of how some schools in poor areas radically improved their quality, without necessarily having charismatic leadership.

My CNAS colleague Iranga Kahangama went to see former U.S. Ambassador to Afghanistan Zalmay Khalilzad speak at the Johns Hopkins University School of Advanced International Studies. This is his report:

While the intended purpose was to discuss what is at stake for the U.S. in Afghanistan, I found myself more intrigued by the discussion of internal economic development in Afghanistan that actually dominated the night.

Ambassador Khalilzad raised two key economic points worth examining. First, with all the talk of investing in small Afghan businesses and building the economy through local entrepreneurs, we seem to have forgotten the behemoth investment firm in Afghanistan that is the United States Military. Khalilzad stressed the importance of using the military's purchasing power, and how procurement with an "Afghan first" mentality could help build up an Afghan economy. He mentioned having to drink bottled water from Dubai and eat German fruit while serving in Afghanistan, but these goods were available in Afghanistan too, just not institutionalized.  With over 30,000 more troops headed into the country, the military can create not only major demand, but a demand significantly financed through DOD's budget to stimulate the economy.

(Read on)