Posts Tagged ‘ GDP ’

Why They Get Pakistan Wrong

By Mohsin Hamid for The New York Review of Books

Nearly ten years after the terrorist attacks of September 11, 2001, and the commencement of the US-led war in Afghanistan, the alliance between the US and Pakistan is on shaky ground. The killing of Osama bin Laden by US special forces this May in Abbottabad, Pakistan, has incensed officials on both sides: on the American side because bin Laden’s hiding place appears to suggest Pakistani perfidy; and on the Pakistani side because the US raid humiliatingly violated Pakistan’s sovereignty.

As Ted Poe, a Republican congressman on the House Foreign Affairs Committee, puts it: “Unless the State Department can certify to Congress that Pakistan was not harboring America’s number one enemy, Pakistan should not receive one more cent of American funding.” Dramatic words,1 for Pakistan has been allocated quite a few cents of American funding. Yet this money has bought little love. According to the Pew Global Attitudes Project, only 12 percent of Pakistanis have a favorable opinion of the United States, and only 8 percent would like to see US troops “stay in Afghanistan until the situation has stabilized.” Why might this be the case?

The past decade has been devastating for Pakistan. The country’s annual death toll from terrorist attacks rose from 164 in 2003 to 3,318 in 2009, a level exceeding the number of Americans killed on September 11. Some 35,000 Pakistanis, including 3,500 members of security forces, have died in terror and counterterror violence. Millions more have been displaced by fighting. It is difficult to convey how profoundly the country has been wounded. In 1989, my Lahore American School classmates and I (including children from Pakistan, America, Canada, Sweden, Germany, and Korea) were able to go to the beautiful valley of Swat by bus for a weeklong field trip with no security arrangements whatsoever. In 2009, the battle to retake Swat from Taliban militants involved two full divisions of the Pakistani army and hundreds of casualties among Pakistani soldiers. (Similarly, until a few years ago, there had never been a suicide bombing in Lahore. Now one occurs every three or four months.) The Pakistani government puts direct and indirect economic losses from terrorism over the last ten years at $68 billion.

Of the $20.7 billion in US funding allocated to Pakistan from 2002 to 2010, $14.2 billion was for the Pakistani military. On paper, economic assistance came to $6.5 billion, less than a third of the total. In reality the civilian share was even smaller, probably less than a quarter, for the $6.5 billion figure reflects “commitments” (amounts budgeted by the US), not “disbursements” (amounts actually given to Pakistan). The United States Government Accountability Office reports that only 12 percent of the $1.5 billion in economic assistance to Pakistan authorized for 2010 was actually disbursed that year. Independent calculations by the Center for Global Development suggest that $2.2 billion of civilian aid budgeted for Pakistan is currently undisbursed, meaning that total economic assistance actually received from the US over the past nine years is in the vicinity of $4.3 billion, or $480 million per year. (By comparison, Pakistanis abroad remit $11 billion to their families in Pakistan annually, over twenty times the flow of US economic aid.)

Pakistan is a large country, with a population of 180 million and a GDP of $175 billion. Average annual US economic assistance comes to less than 0.3 percent of Pakistan’s current GDP, or $2.67 per Pakistani citizen. Here in Lahore, that’s the price of a six-inch personal-size pizza with no extra toppings from Pizza Hut.

The alliance between the US and Pakistan is thus predominantly between the US and the Pakistani military. To enter the US as a Pakistani civilian “ally” now (a Herculean task, given ever-tighter visa restrictions) is to be subjected to hours of inane secondary screening upon arrival. (“Have you ever had combat training, sir?”) For a decade, meanwhile, successive civilian Pakistani finance ministers have gone to Washington reciting a mantra of “trade not aid.” They have been rebuffed, despite a WikiLeaked 2010 cable from the US embassy in Islamabad strongly supporting a free trade agreement with Pakistan and citing research showing that such an arrangement would likely create 1.4 million new jobs in Pakistan, increase Pakistani GDP growth by 1.5 percent per year, double inflows of foreign direct investment to Pakistan, and (because Pakistani exports would come largely from textile industries that US-based manufacturers are already exiting) have “no discernible impact” on future US employment.

Perhaps the vast majority of Pakistanis with an unfavorable view of the United States simply believe their annual free pizza is not worth the price of a conflict that claims the lives of thousands of their fellow citizens each year.

Pakistani journalist Zahid Hussain, in The Scorpion’s Tail, his examination of the rise of militants in Pakistan, makes clear that both sides of the alliance between the US and the Pakistani military share blame for the violence currently afflicting Pakistan. A long series of mutual policy missteps led to the present bloodshed.

As Hussain reminds us, the US and the Pakistani military together backed the Afghanistan guerrilla campaign against the Soviet invasion in the 1980s, thereby bequeathing to the world unprecedented international networks of well-trained jihadist militants. For the US, as in its previous alliance with the Pakistani military in the 1950s and 1960s, the primary objective was to counter the Soviets. For the Pakistani military, as ever, the primary objective of the alliance was to lessen India’s superiority in conventional arms. The US gained a proxy fighting force in the form of the Afghan Mujahideen (literally: “people who do jihad”). The Pakistani military gained access to advanced US-made weapons, the most important of which were forty F-16 fighter aircraft: too few, obviously, to resist any full-blown Soviet air assault, but enough to strengthen meaningfully the Pakistan air force against its Indian rival.

With the Soviet withdrawal, America turned abruptly away from the region and washed its hands of its militant cocreations; in the ensuing power vacuum Afghanistan descended into a bloody civil war among former Mujahideen. The US also severed its alliance with the Pakistani military, cutting off supplies of spare parts for Pakistan’s American weapons and withholding delivery of further F-16s that Pakistan had paid for but not yet received.

The outraged Pakistani military was seriously weakened as a conventional fighting force vis-à-vis India. But it now, as Hussain shows, had enormous experience of projecting power through jihadist militants and two opportunities to continue doing so. One was in the Indian-controlled part of Kashmir (the divided Muslim-majority territory at the center of the Indian–Pakistani conflict, claimed in its entirety by both Hindu-majority India and Muslim-majority Pakistan), where an insurgency against Indian troops had broken out in 1989 following a disputed election.

The other was in Afghanistan, where the largely ethnic-Pashtun, Pakistan-backed Taliban were battling the largely non-Pashtun, India-backed Northern Alliance, consisting of Tajiks, Uzbeks, Hazaras, and others. During the 1990s, Hussain writes,

the jihadist movement in Pakistan was focused entirely on supporting the regional strategy of the Pakistani military establishment: to liberate Kashmir from India and install a Pashtun government in Afghanistan.
But following the terrorist attacks of September 11, linked to members of al-Qaeda living under Taliban protection in Afghanistan, the US returned to the region in force and demanded that Pakistan choose sides. President Pervez Musharraf’s subsequent decision to align Pakistan with the US was perceived by many militants as a “betrayal.” Still, Musharraf hoped the Pakistani military’s conflict with its infuriated, jihadist offspring could be circumscribed, that it might be possible “to drive a wedge between the Pakistani militants and the al-Qaeda foreigners.”

This plan, besides denying the extent of the militant threat to Pakistan, was also undermined by US strategy, a strategy that suffered from the outset from what Hussein identifies as two “fundamental flaws.” The first of these was a failure to understand that unless Pashtun grievances were addressed—particularly their demand for a fair share of power—the war in Afghanistan would become “a Pashtun war, and that the Pashtuns in Pakistan would become…strongly allied with both al Qaeda and the Taliban.”

As the US campaign in Afghanistan began, Hussain writes, Musharraf “warned the United States not to allow the [Northern] Alliance forces to enter Kabul before a broad-based Afghan national government was put in place.” But the US ignored this advice, and later, at the Bonn conference of December 2001, Hamid Karzai was installed as chairman (and subsequently president) as Pashtun “window dressing, while the Northern Alliance took over the most powerful sections of the government.”

By backing the Northern Alliance against the Taliban and then failing to include a meaningful representation of Pashtuns in a power-sharing deal in Kabul, the US not only sided with India in the Indian–Pakistani proxy war in Afghanistan, it also elevated a coalition of Afghanistan’s smaller ethnicities above its largest ethnic group, the Pashtuns. Conflict was inevitable, and since twice as many Pashtuns live in Pakistan as in Afghanistan, it was also inevitable that this conflict would spill over the border.

The results for Pakistan were catastrophic. Over the following decade, as Hussain describes in detail, the Pakistani military’s attempts to separate “good” militants from “bad” foundered. Instead, strong networks developed between radical groups in Pakistan’s Punjabi east and those in its Pashtun west. With each move of the Pakistani military against them, the frequency and lethality of counterattacks by terrorists inside Pakistan, on both military and civilian targets, intensified. Pakistani casualties soared.

The only way out of this trap, in which an unwinnable “Pashtun war” threatens to swamp an essential Pakistani program to neutralize militants, Hussain suggests, is to address the second “fundamental flaw” in US strategy: the “failure to appreciate that combating the militant threat required something far more than a military campaign,” namely a “political settlement with the insurgents, requiring direct talks with the Taliban.”

Equally vital, it must be added, is a push toward political settlement between India and Pakistan over Kashmir. This simmering conflict fuels the Indian–Pakistani proxy war between the Northern Alliance and the Taliban in Afghanistan, encourages the Pakistani military’s embrace of militants, and helps subordinate Pakistani civilian governments to the Pakistani military (by allowing a near-perpetual state of security crisis to be maintained in Pakistan). The outlines of a deal on Kashmir were reportedly secretly agreed upon in 2007, but progress has been frozen since Musharraf’s fall from power in 2008 and the terrorist attacks on Mumbai that same year.

As a presidential candidate, Barack Obama acknowledged Kashmir’s central role. “The most important thing we’re going to have to do with respect to Afghanistan is actually deal with Pakistan,” he said in October 2008.

We should probably try to facilitate a better understanding between Pakistan and India, and try to resolve the Kashmir crisis so that they can stay focused not on India but on the situation with those militants.
Once he was elected, however, talk of Kashmir and peace between India and Pakistan receded from President Obama’s official pronouncements, and he embarked upon an Afghanistan policy that might be described as “shoot first, talk later.” US drone strikes in Pakistan’s Pashtun belt intensified, with more—53—in 2009, Obama’s first year in office, than during the entire Bush administration—42—followed by a further sharp increase in 2010, to 118. This unmanned assault was accompanied by a tripling of US military manpower in Afghanistan, which in turn resulted in a fourfold increase in the American fatality rate, with more deaths there of US soldiers in twenty-nine months under Obama (974) than in eighty-seven months under Bush (630).

Obama has now begun to reverse his Afghanistan escalation. His June 22 speech announced that 33,000 US forces (described as those of his “surge,” but more accurately representing the second of his two roughly equal-sized surges) would begin withdrawing this summer and be gone by the end of the next. There will then, he said, be a “steady pace” of further reductions until by 2014 the change of mission “from combat to support…will be complete.” He also stated that “America will join initiatives that reconcile the Afghan people, including the Taliban.”

The following day, in an interview with the Voice of America, Obama acknowledged a US “focus shifted to Pakistan” and declared:

I think what’s happened is that the [US–Pakistan] relationship has become more honest over time and that raises some differences that are real. And obviously the operation to take out Osama bin Laden created additional tensions, but I had always been very clear with Pakistan that if we ever found him and had a shot, that we would take it. We think that if Pakistan recognizes the threat to its sovereignty that comes out of the extremists in its midst, that there’s no reason why we can’t work cooperatively….
The tone of Obama’s underlying message to Pakistan is certainly much improved from that of the US in September 2001, when Deputy Secretary of State Richard Armitage reportedly told Pakistan to cooperate with the imminent US campaign in Afghanistan or be prepared to be bombed “back to the stone age.” But implicit in Obama’s words, and explicit in his actions, is a continued willingness to escalate US armed intervention in Pakistan should Pakistani cooperation prove insufficient. The alliance between the US and the Pakistani military remains, therefore, a relationship between parties viewing one another through gunsights. Each side blames the other for putting its citizens in grave danger, and each is correct to do so.

A gunsight is not, however, the primary lens through which King’s College professor and former London Times journalist Anatol Lieven sees Pakistan. Quite the opposite: his Pakistan: A Hard Country, by far the most insightful survey of Pakistan I have read in recent years, reflects sensitivity and considerable, if clear-eyed, affection. Lieven has traveled extensively through Pakistan (dismayingly atypical for a contemporary foreign commentator), exploring all of its provinces and speaking with Pakistanis from a very broad range of backgrounds. He has also immersed himself in written sources, including pertinent anthropological research produced over a period of some two hundred years.

Pakistan’s is a diverse society, so diverse, in fact, that observers who deal best in generalizations are bound to get the country horribly wrong. Lieven recognizes this diversity and makes it central to his analysis. For him, Pakistan is a place of competing and overlapping clans, sects, tribes, beliefs, and practices. Its society, in order to function, has evolved powerful mechanisms to deal with rivalries inside shared localities. As a result, Lieven argues, Pakistan is characterized by structures—military, bureaucratic, social, political, spiritual, judicial—that are profoundly “Janus-faced,” in the manner of the two-faced Roman deity who gazes and speaks in opposite, contradictory directions. These structures, at once predatory and protective, operate to make the country both (frustratingly for reformers) very difficult to change and (bafflingly for forecasters of its demise) remarkably resilient.2

At the heart of Lieven’s account of Pakistan is kinship, pervasive networks of clans and biradiris (groups of extended kin) that he identifies as “the most important force in society,” usually far stronger than any competing religious, ethnic, or political cause. Several millennia of invasions, occupations, colonizations, and rule by self-interested states resulted in a “collective solidarity for interest and defense” based on kinship becoming paramount in the area that is Pakistan. It now, as Lieven points out, “is a cultural system so strong that it can persuade a father to kill a much-loved daughter, not even for having an affair or becoming pregnant, but for marrying outside her kinship group without permission.” Moreover it is enduring, having survived, for example, “more than half a century of transplantation of Pakistani immigrants to the very different climes of Britain.” It has done much the same in the far less dislocating shift to Pakistan’s cities, sustained, as in Britain, through constant replenishment by newly migrating kin from the countryside.

The effects of kinship on Pakistani politics are profound. Most of Pakistan’s leading political parties are dynastic, including the Bhutto family’s PPP and the Sharif family’s PML-N; even individual members of parliament are often elected on the basis of clan alliances and support. Politics is therefore about patronage far more than ideology. Furthermore, the Pakistani state is relatively weak, collecting taxes that amount to less than 10 percent of GDP.

As a consequence, Lieven notes, Pakistani governments follow a predictable pattern. They are elected (usually as coalitions, Pakistan’s many divisions making absolute majorities exceedingly rare) on general promises of higher living standards for the population and individual promises to particular politicians, families, and districts. The governments lack the resources to keep many of these promises (which are, in any case, often conflicting); their majorities ebb away; they lose power and await another turn.

Yet because of patronage, much of what politicians extract financially from official positions circulates among their kinship groups, which cut across class. Lieven believes this system, while hugely ineffective at driving real change, helps explain “Pakistan’s remarkably low inequality rating according to the Gini Co-efficient, measuring the ratio of the income of the poorest group in society relative to the richest.” By that measure in 2002 “the figure for Pakistan was 30.6, compared with 36.8 for India, 40.8 for the US, and 43.7 for Nigeria.”

The role of religion in Pakistan, a source of much hand-wringing in policy think tanks, is similarly complex. As Lieven points out: “the Islam of the Pakistani masses contains very different traditions.” Moreover, unlike in Saudi Arabia or Iran, where an oil-bankrolled state has tried to impose one monolithic version of Islam, “the Pakistani state is too weak to achieve this even if it wanted to.” Lieven describes the theological divisions among Sunnis sustained by Pakistan’s clan and kinship diversity. The Ahl-e-Hadith, heavily influenced by Wahabism, loathe saintly traditions. The Deobandis may praise saints but object to worshiping them. The Barelvis, Pakistan’s most numerous (and “fissiparous”) school, tend to embrace the intercession of saints with God. Veneration of saints is also central to Pakistan’s Shias. Because saintliness can be inherited, the heads of Pakistan’s powerful landowning “pir families remain of immense political importance.” They can actively create bridges among religious groups and they serve as major bosses in several mainstream political parties, especially the “secular” PPP.

Religiosity thus fuses with kinship networks and politics to reinforce Pakistan’s existing elite. But it also helps marginalize Pakistan’s Islamist parties, drawn primarily from the Ahl-e-Hadith and Deobandi schools, which struggle to capture more than a few percent of the country’s vote. (Away from politics and “hardly noticed outside the country,” Lieven believes Pakistan’s religiosity also softens “the misery of Pakistan’s poor” by contributing to an astounding level of charitable donation, which, “at almost 5 percent of GDP, is one of the highest rates in the world.”)

Throughout his analysis, Lieven rejects the notion that Pakistan fits somehow in a category apart from the rest of the South Asian subcontinent, a sui generis nuclear-armed “failed state” on the verge of collapse. Rather, he writes,

Pakistan is in fact a great deal more like India—or India like Pakistan—than either country would wish to admit. If Pakistan were an Indian state, then in terms of development, order and per capita income it would find itself somewhere in the middle, considerably below Karnataka but considerably above Bihar.

Indeed, even in the violent challenges confronting its state authority, Pakistan is like its subcontinental neighbors: “All of the states of this region have faced insurgencies over the past generation,” Lieven notes, and by comparison to the Taliban conflict in Pakistan, Sri Lanka’s Tamil rebellion “caused proportionally far more casualties” and India’s Naxalite Maoist insurgency controls “a far greater proportion of India.”

Lieven has evident sympathy for the Pakistani military (indeed there are points when, in referring to a uniformed ancestor who served during British rule in what is now Pakistan, one suspects Lieven may have his own feelings of kinship with the Pakistan army). But he is clear about the role the army has played in fomenting militancy, and about the deadly threat militants now pose to Pakistan, especially the potential for far worse bloodshed if the remaining militant groups that have not yet turned on the military and are therefore being kept “in existence ‘on the shelf ‘”—including Pashtun militants focused on Afghanistan and Punjabi militants focused on India—were to do so.

Still, despite the ineffectiveness of much of the Pakistani state, he believes Pakistan’s kinship groups and its stabilizing and antireformist social structures give the country a combination of diversity and toughness that makes successful revolution highly unlikely. He also writes that the Pakistani army, as it demonstrated in the “brutal but in the end brutally effective” operation to liberate Swat from militant control in 2009, is fully capable of routing guerrillas who seize territory when it sets its mind to doing so.

A key question, therefore, is whether the army itself could split. Lieven thinks not (and we must fervently hope that he is right). The army, he explains, is an all-volunteer institution with a strong shared ethos, nationalistic rather than pan-Islamic in outlook, and increasingly vigilant against Taliban sympathizers within—”after all, we are not suicidal idiots,” an officer tells him. The real risk, which Lieven argues must be avoided at all costs, is of “open intervention of US ground forces” in Pakistan. For if ordered by their commanders not to resist, “parts of the Pakistani army would mutiny in order to fight the invaders,” and in such an eventuality “Islamist upheaval and the collapse of the state would indeed be all too likely.”

In passages such as this, Lieven comes close to describing Pakistan as if through a gunsight; but the gunsight belongs to an American decision-maker on the hunt, with Lieven playing the role of preservationist guide. The best Western strategy, he counsels, would “stem from a recognition that Pakistan’s goals in Afghanistan are in part legitimate—even if the means with which they have been sought have not been”—and would “seek a peaceful solution to the Kashmir dispute, despite all the immense obstacles in both India and Pakistan.” For in the end, “not even the greatest imaginable benefits of US–Indian friendship could compensate for the actual collapse of Pakistan, with all the frightful dangers this would create not just for the West but for India too.”

Lieven’s is a vital book, with much wisdom in its advice for the West. But equally importantly, this detailed and nuanced survey offers Pakistanis a mirror in which to look hard at their country and themselves. Pakistan’s resilience is bound up with its resistance to reform, yet reform will be essential for facing the great challenges ahead, including the potentially devastating impacts of climate change on a dry and overpopulated land that is dependent on a single river and its tributaries. Pakistanis, and above all members of Pakistan’s military, would do well finally to reject their country’s disastrous embrace of militants. Pakistan must urgently mend its relationships in its own neighborhood and refocus on taking care of itself. Time is not on its side.

1
Indeed, perhaps more than just words: on July 9 the US announced it was holding back $800 million of military aid for Pakistan. ↩

2
Lieven is careful to point out that his analysis refers only to Pakistan as it has been configured for the past forty years, a territory with “more of a natural unity…[and] a degree of common history and ethnic intertwining stretching back long before British rule,” and not to what he terms 1947–1971’s “freak of history…[with] its two ethnically and culturally very different wings separated by 1,000 miles of hostile India,” a situation from which Bangladesh should have been given a “civilized divorce” but which instead “ended in horrible bloodshed.”

-Mohsin Hamid is the author of the novels Moth Smoke and The Reluctant Fundamentalist. He lives in Lahore, London, and New York. (Article originally appeared late September 2011)

Pakistanis for Peace Editor’s Note– The views expressed in this article are the solely the opinions of the writer and although interesting, do not necessarily reflect nor represent the views of Pakistanis for Peace and or Manzer Munir. 

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How to Restore the American Dream

By Fareed Zakaria for Time

The American dream for me, growing up in India in the 1970s, looked something like the opening credits of Dallas. The blockbuster TV series began with a kaleidoscope of big, brassy, sexy images — tracts of open land, shiny skyscrapers, fancy cars, cowboy businessmen and the very dreamy Victoria Principal. We watched bootlegged copies of the show, passed around on old Betamax cassettes. America (certainly the CBS soap-opera version of America) seemed dazzling and larger than life, especially set against the stagnant backdrop of India in the 1970s. Everyone I knew was fascinated by the U.S., whether they admitted it or not. Politicians who denounced the country by day would go home in the evenings and plot to send their kids to college in “the States.”

Of course, the 1970s were actually tough times in America — stagflation, malaise, the aftermath of Vietnam and Watergate — but they were brutal in the rest of the world. Hyperinflation racked most third-world countries; coups and martial law were familiar occurrences, even affecting staunchly democratic India, where emergency rule was enforced from 1975 to 1977. Set against this atmosphere of despair, the U.S. looked like a shining city on a hill.

A few years later, when I got to America on a college scholarship, I realized that the real American Dream was somewhat different from Dallas. I visited college friends in their hometowns and was struck by the spacious suburban houses and the gleaming appliances — even when their parents had simple, modest jobs. The modern American Dream, for me, was this general prosperity and well-being for the average person. European civilization had produced the great cathedrals of the world. America had the two-car garage. And this middle-class contentment created a country of optimists. Compared with the fatalism and socialist lethargy that was pervasive in India those days, Americans had a sunny attitude toward life that was utterly refreshing.

But when I travel from America to India these days, as I did recently, it’s as if the world has been turned upside down. Indians are brimming with hope and faith in the future. After centuries of stagnation, their economy is on the move, fueling animal spirits and ambition. The whole country feels as if it has been unlocked. Meanwhile, in the U.S., the mood is sour. Americans are glum, dispirited and angry. The middle class, in particular, feels under assault. In a Newsweek poll in September, 63% of Americans said they did not think they would be able to maintain their current standard of living. Perhaps most troubling, Americans are strikingly fatalistic about their prospects. The can-do country is convinced that it can’t.

Americans have good reasons to worry. We have just gone through the worst recession since the Great Depression. The light at the end of the tunnel is dim at best. Sixteen months into the recovery, the unemployment rate is higher than it was in the depths of all but one of the postwar recessions. And as government spending is being pared back, the economy is showing new signs of weakness.

Some experts say that in every recession Americans get gloomy and then recover with the economy. This slump is worse than most; so is the mood. Once demand returns, they say, jobs will come back and, with them, optimism. But Americans are far more apprehensive than usual, and their worries seem to go beyond the short-term debate over stimulus vs. deficit reduction. They fear that we are in the midst of not a cyclical downturn but a structural shift, one that poses huge new challenges to the average American job, pressures the average American wage and endangers the average American Dream. The middle class, many Americans have come to believe, is being hollowed out. I think they are right.

Going Global
For a picture of the global economy, look at America’s great corporations, which are thriving. IBM, Coca-Cola, PepsiCo, Google, Microsoft, Apple, Intel and Caterpillar are all doing well. And they share a strategy that is becoming standard for success. First, technology has produced massive efficiencies over the past decade. Jack Welch explained the process succinctly on CNBC last September. “Technology has changed the game in jobs,” he said. “We had technology bumping around for years in the ’80s and ’90s, and [we were] trying to make it work. And now it’s working … You couple the habits [of efficiency] from a deep recession [with] an exponential increase in technology, and you’re not going to see jobs for a long, long time.” Welch gave as an example a company owned by the private-equity firm with which he is affiliated. In 2007 the business had 26,000 employees and generated $12 billion in revenue. It will return to those revenue numbers by 2013 but with only 14,000 employees. “Companies have learned to do more with less,” Welch said.

Next, companies have truly gone global. The companies on the S&P 500 generate 46% of their profits outside the U.S., and for many of the biggest American names, the proportion is much higher. You might think of Coca-Cola as the quintessentially American company. In fact it is a vast global enterprise, operating in 206 countries. “We have a factory in Ramallah that employs 2,000 people. We have a factory in Afghanistan. We have factories everywhere,” explains Muhtar Kent, the CEO of Coke. Nearly 80% of Coca-Cola’s revenue comes from outside the U.S., and an even greater percentage of its employees are in foreign countries. “We are a global company that happens to be headquartered in Atlanta,” says Kent.

America’s great corporations access global markets, easy credit, new technologies and high-quality labor at a low price. Many have had to cut jobs at home, where demand is weak, and have added them in the emerging markets that are booming. They are not “outsourcing” jobs. That word makes little sense anymore. They simply invest in growth areas and cut back in places where the economy is weak. None of them will ever give up on the American market — it is too large, too profitable and too central to their businesses — but the marginal dollar is more likely to be invested abroad than in the U.S.

While businesses have a way to navigate this new world of technological change and globalization, the ordinary American worker does not. Capital and technology are mobile; labor isn’t. American workers are located in America. And this is a country with one of the highest wages in the world, because it is one of the richest countries in the world. That makes it more difficult for the American middle-class worker to benefit from technology and global growth in the same way that companies do.

At this point, economists will protest. Historically, free trade has been beneficial to rich and poor. By forcing you out of industries in which you are inefficient, trade makes you strengthen those industries in which you are world-class. That’s right in theory, and it has been right in practice. As countries have traded with one another over the past two centuries, they have prospered, and average living standards in those countries (primarily in the Western world) have soared. Those places that kept themselves protected (mostly communist and third-world nations) found that they had crappy industries, shoddy goods, massive corruption and slow growth.

And yet something feels different this time. Technology and globalization are working together at warp speed, creating a powerful new reality. Many more goods and services can now be produced anywhere on the globe. China and India have added literally hundreds of millions of new workers to the global labor pool, producing the same goods and services as Western workers at a fraction of the price. Far from being basket-case economies and banana republics, many developing economies are now stable and well managed, and companies can do business in them with ease. At some point, all these differences add up to mean that global competition is having quite a new impact on life in the U.S.

Two weeks ago, for example, I sat in a Nano, the revolutionary car being produced by Tata Motors in India. It’s a nice, comfortable midgetmobile, much like Mercedes-Benz’s Smart car, except that rather than costing $22,000, it costs about $2,400. Tata plans to bring it to the U.S. in two to three years. Properly equipped with air bags and other safety features, it will retail at $7,000. Leave aside the car itself, whose price will surely put a downward pressure on U.S. carmakers. Just think about car parts. Every part in the Nano is made to global standards but manufactured in India at about a tenth of what it would cost in America. When Ford orders its next set of car parts, will they be made in Michigan or Mumbai?

This is not a hypothetical. Steven Rattner, who helped restructure the automobile industry, tells the story of getting a new General Motors plant online in Michigan by bringing management and unions together. “The unions agreed to allow 40% of the new plant to operate at $14-an-hour wages,” he says, “which is half of GM’s normal wages. The management agreed to invest in this new plant. But here’s the problem: workers at GM’s Mexican operations make $7 an hour, and today they are as productive as American workers. And think of this: $14 an hour translates into about $35,000 a year. That’s below the median family income. The whole experience left me frightened about the fate of the American worker.”

Alan Blinder is also worried. A distinguished economist and Princeton professor, Blinder is a former vice chairman of the board of governors of the Federal Reserve. In a now famous essay in Foreign Affairs, he argues that while we recognize the pressures placed on manufacturing jobs by international competition, technology ensures that service jobs are now similarly exposed. Since the service sector is a much larger part of the economy, Blinder estimates that 28 million to 42 million jobs will be “susceptible” to being shipped offshore — jobs such as customer-service representative and stock analyst, which we tend to think of as local. Blinder understands the benefits of free trade but worries that the new wave of offshoring is so big and fast that Western societies will have difficulty adjusting. The crucial distinction for the future, he argues, might be not between highly educated and less educated workers but between those jobs that can be done abroad and those — such as nurse or pilot — that cannot.

You can divide the American workforce in many ways, but any way you slice it, you see the same trend. People who get paid a decent wage for skilled but routine work in manufacturing or services are getting squeezed by a pincer movement of technology and globalization. David Autor, an MIT economist, has done an important study on what he calls “the polarization of job opportunities” in America. Autor finds that job growth divides neatly into three categories. On one side are managerial, professional and technical occupations, held by highly educated workers who are comfortable in the global economy. Jobs have been plentiful in this segment for the past three decades. On the other end are service occupations, those that involve “helping, caring for or assisting others,” such as security guard, cook and waiter. Most of these workers have no college education and get hourly wages that are on the low end of the scale. Jobs in this segment too have been growing robustly.

In between are the skilled manual workers and those in white collar operations like sales and office management. These jobs represent the beating heart of the middle class. Those in them make a decent living, usually above the median family income ($49,777), and they mostly did fine in the two decades before 2000. But since then, employment growth has lagged the economy in general. And in the Great Recession, it has been these middle-class folks who have been hammered. Why? Autor is cautious and tentative, but it would seem that technology, followed by global competition, has played the largest role in making less valuable the routine tasks that once epitomized middle-class work.

Recapturing the Dream
So what is the solution? It’s easier to identify the wrong answer than the right one. It would be pointless and damaging to try to go down a protectionist route, though polls show a stunning drop of support for free trade, even among college-educated professionals, its usual cheerleaders. But technology is a much larger driver of the hollowing out than trade. You cannot shut down this new world. How would you stop people from sending one another e-mails, which is what a lot of offshoring comes down to these days? Nor can you help a modern economy by shielding industries from world-class competitors, which just encourages greater inefficiency. I grew up in an economy made up of those kinds of industries, all tightly protected from “foreign exploitation and domination.” It added up to stagnation and backwardness.

There are solutions, but they are hard and involve painful changes — in companies, government programs and personal lifestyles. For more than a generation, Americans have been unwilling to make these adjustments. Instead, we found an easier way to goose the economy: expand consumption. During the early 1950s, personal consumer expenditures made up 60% to 65% of the U.S.’s GDP. But starting in the early 1980s, facing slower growth, we increased our personal spending substantially, giving rise to new economic activity in the country. Consumption grew to 70% of GDP by 2001 and has stayed there ever since. Unfortunately, this rise in consumption was not triggered by a rise in income. Wages have been largely stagnant. It was facilitated, rather, by an increase in credit, so that now the average American family has no fewer than 13 credit cards. Household debt rose from $680 billion in 1974 to $14 trillion in 2008. This pattern repeated itself in government, except on a much larger scale. People everywhere — from California to New Jersey — wanted less taxes but more government. Local, state and federal governments obliged, taking on massive debts. A generation’s worth of economic growth has been generated by an unsustainable expansion of borrowing.

That is why the current economic debate between another stimulus and deficit reduction is frustrating. Right now, there is a strong case for government stimulus, since no one else is doing much spending. But then what? What happens after another year of federal spending? Consumers still might be cautious; do we really want them to spend like they did in the old days? Is the strategy simply to reinflate the housing bubble? In recent years, the left and the right in America have conspired in feeding consumption spending. The left expands government, much of which means more consumption (pensions, health care). The right focuses obsessively on tax cuts, which have a similar effect. The political system, pandering to today’s constituents, encourages both tendencies. But when will we invest for our children’s economy?

What We Need to Do Now
Ultimately American jobs are created from the bottom up by companies, not from the top down by government fiat. But there are measures we can take that will encourage the process. Here are the key ones:

Shift from consumption to investment. Fundamentally, America needs to move from consumption to investment. Everyone agrees that the best way to create good jobs in the U.S. is to create new industries and companies and to innovate within old ones. This means large investments in research, technology and development. As a society, this needs to become our strongest focus.

Despite substantial increases and important new projects under the Obama Administration, the federal government is still not spending as much on R&D as a percentage of GDP as it did in the 1950s. I would argue that it should be spending twice that level, which would be 6% of GDP. In the 1950s, the U.S. had a huge manufacturing base that could absorb millions of semiskilled workers. Today, manufacturing is a small part of the economy and faces intense global competition. The only good jobs that will stay in the U.S. are jobs related to knowledge and innovation. Additionally, in the 1950s, America was the only research lab in town, accounting for the vast majority of global scientific spending. Today, countries around the world are entering the arena. Two weeks ago, South Korea — a country of just 50 million people! — announced plans to invest $35 billion in renewable-energy projects. We should pay for this with a 5% national sales tax — call it an American innovation tax — which would be partly offset by a small reduction in income taxes. This would have the twin benefits of tamping down consumption and yielding some additional funds. All the proceeds from the tax should be focused on future generations, because we need to invest massively in growth.

The often overlooked aspect of investment is investment in people. America has been able to create the future in large measure because it has tapped into the energies and work of immigrants. It has managed to invest in human capital by taking smart, motivated people from around the globe, educating them in the planet’s best higher-education system and then unleashing them in a dynamic economy. In this crucial realm, the U.S. is now disinvesting. After training the world’s best and brightest — often at public expense — we don’t find ways to make sure they stay here by giving them a green card but rather insist that they leave and take their knowledge to another country, where they will invent, inspire, build and pay taxes. Every year, we send tens of thousands of the smartest Indians and Chinese back home, which is a great investment — in the future of those countries.

Training and education. “Most jobs that will have good prospects in the future will be complicated,” says Louis Gerstner, the former CEO of American Express and IBM. “They will involve being able to juggle data, symbols, computer programs in some way or the other, no matter what the task. To do this, workers will need to be educated and often retrained.” We need more and better education at every level, especially job retraining. So far, most retraining efforts in the U.S. have not worked very well. But they have worked in countries that have been able to retain a manufacturing base, like Germany and parts of Northern Europe. There, some of the most successful programs are apprenticeships — which cover only 0.3% of the total U.S. workforce.

There are advantages to the U.S. system. We don’t stream people too early in their lives, and we allow for more creative thinking. But the path to good jobs for the future is surely to expand apprenticeship programs substantially so industry can find the workers it needs. This would require a major initiative, a training triangle in which the government funds, the education system teaches and industry hires — though to have an effect, the program would have to be on the scale of the GI Bill.

Fiscal sanity. To pay for such initiatives, the government needs to get its house in order. The single most important aspect of this is getting health care costs under control, followed by other entitlement programs, especially pensions at the state level. Government today spends vast sums of money on current consumption — health care and pensions being a massive chunk of it — which leaves little money for anything else. We need a radical rebalancing of American government so it can free up resources to fund future growth.

Benchmark, benchmark, benchmark. There is now global competition for growth, which means the U.S. has to constantly ask itself what other countries are doing well and how it might adapt — looking, for example, at what other countries are doing with their corporate tax rates or their health care systems and asking why and where we fall short. Americans have long resisted such an approach, but if someone else is doing tax policy, tort litigation, health care or anything else better, we have to ask why.

There are things the U.S. does well. Most new jobs in America are created by start-ups and small companies, so the ease of doing business is crucial — and there’s good news there. The World Bank has a ranking of countries measured by the “ease of doing business,” and the U.S. is No. 4. That’s very good, but there’s a catch. Those rankings are divided into several categories. In most, like “starting a business,” the U.S. does well. But in one category it’s only 61st in the world, and that is “paying taxes.”

The American tax code is a monstrosity, cumbersome and inefficient. It is 16,000 pages long and riddled with exemptions and loopholes, specific favors to special interests. As such, it represents the deep, institutionalized corruption at the heart of the American political process, in which it is now considered routine to buy a member of Congress’s support for a particular, narrow provision that will be advantageous for your business.

The Work Ahead
My proposals are inherently difficult because they ask the left and right to come together, cut some spending, pare down entitlements, open up immigration for knowledge workers, rationalize the tax code — and then make large investments in education and training, research and technology, innovation and infrastructure. But the fact that it is a solution that crosses political borders should make it more palatable, not less. And time is crucial. The U.S. has considerable advantages, but every day other countries try to find ways to attract growth within their borders. People often note that America’s political system is broken. Perhaps the truth is more awkward: America needs radical change, and it has an 18th century system determined to check and balance the absolute power of a monarchy. It is designed for gridlock at a moment when quick and large-scale action is our only hope.

When I left India, the marginal tax rate was 97.5%, corporate taxation was punitive, and business was stifled or went underground. Were I to move from New York City to Mumbai today, my personal tax rate would drop, as would every other rate, from corporate to capital-gains taxes. (The long-term capital-tax rate in India is zero.) Singapore now ranks as the No. 1 country for ease of doing business, with a top tax rate of 20%. I know permanent residents working in the U.S. who are thinking of giving up their green cards to move to Singapore. To an Indian of my generation, this would have been unthinkable. The green card was a passport to the American Dream. But for young Indians, there are many new dreams out there, and new passports.

But there are reasons for optimism. The U.S. faces huge challenges, but it also has enormous advantages. “I’ve always been bullish on America,” says Coke’s Kent. “It’s the largest, richest market in the world. Look at the demographics alone. North America is the only part of the industrialized world that will be growing in people. It now has a higher birthrate than Mexico, for the first time in history.” Or listen to Alcoa’s German-born Klaus Kleinfeld, previously the head of Siemens: “I know the things that America has that are unique. The openness, the diversity, the dynamism — you don’t have it anywhere else. If you keep all these things, build on them, I still believe in the American Dream.”

The term American Dream was coined during the Great Depression. The historian James Truslow Adams published The Epic of America in 1931, in an atmosphere of even greater despair than today’s. He wanted to call his book The American Dream, but his publishers objected. No one will pay $3.50 for a book about a “dream,” they said. Still, Adams used the phrase so often that it entered the lexicon. The American Dream, he said, was of “a better, richer and happier life for all our citizens of every rank, which is the greatest contribution we have made to the thought and welfare of the world. That dream or hope has been present from the start. Ever since we became an independent nation, each generation has seen an uprising of ordinary Americans to save the American Dream from the forces which appear to be overwhelming it.”

Today, those forces really do look overwhelming. But challenges like them have been beaten back before — and can be again.

Fareed Zakaria is a journalist, author and host of his show on CNN. His special Restoring the American Dream: A Fareed Zakaria GPS Special will air on CNN at 9 p.m. E.T. and P.T. on Saturday, Oct. 30, and at 10 a.m. E.T. and P.T. on Sunday, Oct. 31.

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