Ignoring The Facebook in The Room

A great post popped up on Fareed Zakaria's GPS blog today. In it, Anne-Marie Slaughter opined about how Public/Private Partnerships are playing a larger and larger role in foreign relations and how their new importantce seems to be transcending domestic US politics.

"The political argument for PPPs is that they stretch scarce government resources and ensure that they leverage other contributions of money, expertise and other in-kind resources. The initial emphasis on PPPs came from the Reinventing Government initiative under the Clinton administration, but the George W. Bush administration was also enthusiastic."

A really nice piece (Zakaria's blog is always fantastic place to find intersting takes on what's going on in the world), but I think that it completely ignored the biggest reason why this evolution is occuring: Social Media.

I think that public-private partnerships are going to continue to grow in importantce when it comes to the "heavy lifting" of foreign policy (i.e. nuclear proliferation, etc.), but this is coming out of a reality that has existed for several years but has only recently snuck up on the career politicans and the diplomatic corps: Governments already matter less when it comes to foreign relations.

Sites like Facebook and Twitter allow people to maintain relationships regardless of geographical or political borders. Other sites, such as Couchsurfing, encourage and facilitate real-world interaction and relationships, which Facebook and Twitter then help to maintain/deepen. The role of government in defining or shaping a person's iteraction with a country (or its people/culture/economy) is shrinking. Fast.

For instance, China's relationship with the US has little real effect on me here in Beijing. I don't interact with the government nearly as much I interact with people. Whether or not Obama moves troops to Australia or if Vietnam invites US naval vesels into their sections of the South China Sea has very little influence over mine and my friends' relationships. Whether Putin and Medvedev actually hold fair elections in the coming months doesn't effect my relationship with my girlfriend or our good friends in Moscow.

Sure, there are measures that countries can take to cut off peoples' access to one another or to social media and money, but these are extreme cases and outliers (North Korea, Iran). Travel has never been more accessible and the flow of information and capital has never been so proliferate.

In the near future you'll see governments sliding towards placing a greater emphasis on two items in their foreign policy stances: 1) The tracking of interactions between their citizens and another country's (not necessarily in a nefarious way, but in a similar way that they currently track financial transactions - see this fabulous map for an example of how this could work) and 2) a focus on interacting with another country's people directly. Even today the US is having more of an influence in Iran and Syria than it has had in decades by dealing with the PEOPLE there instead of the strongmen.

In the near future foreign policy will be directed more by people's interactions than the policies of governments.

Another Brick in the Pay Wall

The journey from free news to pay sites is well underway. The latest media giant to make the switch is my hometown paper, The Boston Globe, and I'm dreading it.

Boston.com has been my go-to site for news from home ever since I moved overseas. It's not my homepage (hello, Google!), but it's always the first site that I hit every day after checking my e-mails. The new pay system will essentially sequester all of the newspaper content behind a paywall leaving Boston.com with AP wire stories, bloggers and the Sports section, which will remain free and fully accessible. In addition, Boston.com will be able to feature up to 5 stories from the newspaper each day on the free site, but that's all.

This is frustrating for me because I've been a regular Globe reader since the 4th grade and I was even among the last generation of paperboys for them I the late 80s. Today it remains one of my last links to my hometown and what's going on there. Maybe I should have cut the cord years ago, but I've never been able to walk away from it completely. This may do the trick, though.

I'm a bit of an unusual case since I live overseas (I doubt that the folks at Boston.com have a very large expat demographic that they're worried about), but I'm not even sure if I could justify the cost of paying for the "paper" version if I was still living in Boston. Frankly, it doesn’t pass the smell test for me: Access will cost $3.99 per week, but you can subscribe to the Sunday paper for $3.50 per week and get in that way; it's a pretty obvious ploy to increase Sunday circulation.

Everybody knows that newspapers need to make more money somehow, but this paywall doesn’t feel like the right way. It's basically a retrenchment to the physical paper; it's a step backwards when I think that they should be expanding into different forms of media. They should re-open their Washington bureau and align with outfits like GlobalPost. They should produce more video. They could start broadcasting. They could buy into NECN and produce content with them. They could put some of that behind a paywall. Make the stuff that lives back there premium somehow. Don't make me pay for the same-old, same-old.

Boston's Paper of Record is (insultingly) a subsidiary of the New York Times (which also owns the Worcester Telegram-Gazette), which instituted its own paywall several months ago and, to my own surprise, I have actually come to like it. I even posted on Facebook that I would probably end up visiting the site much less as a result of it, but I'm eating crow now, as I read it just as much as I ever have. It allows for easy circumvention so leeches like me can get onto it for free, but is just annoying enough to get some folks to pay for it, and it has the benefit of helping their circulation, too.

Last month Wired's Felix Salmon wrote a great piece on the success of the Times' rather porous paywall. He posited that letting people get limited, but not exclusive, access to their content makes the Times a more attractive destination than, say, the Wall Street Journal.

If you hit the paywall on a regular basis and barge past it, eventually you start feeling a bit guilty and pay up. By contrast, if you hit the FT or WSJ paywall and can’t get past it, you simply go away and feel disappointed in your experience.

He even noted that given the "gentle" quest from a valued institution to pay a little or make a donation, people tend to actually do it:

Here’s the thing about freeloaders: if they value what they’re getting, a lot of them will end up paying anyway. What happened when the Indianapolis Museum of Art moved to a free-admission policy? Its paid membership increased by 3%. When the Minneapolis Institute of Arts did the same thing, paid membership increased by 33%.

Given their modest success, I wondered why the Globe didn’t just follow its daddy's model, but then I realized that the Times actually produces a shitload of content while the Globe, well, doesn’t.

The division between the website and the "paper" started last week and you can already see the difference. Boston.com has looked mighty thin of late and seems to have basically turned into an AP wire site (which I can get in a million different places in a much better-organized, cleaner format) with lots of trash (i.e. fashion, parties photos and celebrity garbage) that newshounds like myself couldn't care less about. They also seem to be putting their bloggers more front-and-center instead of burying them at the bottom of the site like they used to, turning them into low rent columnists, while the real ones are now hidden behind the paywall. (I wonder how they like the idea of going from a site with 7 million unique hits per month to a subscription-only audience of under 250,000 people.) I'm quickly finding that I have less and less reason to stop there since most of the local news content has been (or will be) put behind the paywall.

Which is, I guess, the whole point of the operation. Unfortunately, while this method may help to stabilize revenues, I don’t see it as being the foundation upon which the Globe can re-build itself into the pre-eminent news organization that it used to be. And that's a damn shame.

You Can only Remember 9/11 if You're on The List

This past Sunday my country stopped to remember the tragedy of the attacks from 10 years ago. What should have been a day for all Americans and sympathetic people from around the world to reflect and support one another was, for myself and dozens of Americans in Beijing, a day when our country turned us away at the door, refusing to let us beyond their velvet rope and forcing us to walk away in dismay.

Here's what went down.

On Friday, I was alerted to a posting in City Weekend announcing a public ceremony to observe the 9/11 attacks:

…A 9/11 memorial service led by U.S. Ambassador Gary Locke will honor the victims of the World Trade Center terrorist attacks of ten years ago. The American community is invited to come to the U.S. Embassy at 7:30pm on September 11 and light floating lanterns, a Chinese custom for mourning. Those planning to attend must arrive 30 minutes prior to the event and bring photo ID.

I'd already made plans for a private get-together with some American friends (several of whom I had not seen in a while) but decided to delay it by an hour to check this out. My only worry was the "American community" part. My girlfriend, Alya, as I often still find myself amazed by, is a Russian citizen and I was concerned that she might have trouble getting in.

I called the embassy to see if people of any nationality would be allowed to enter, and while the polite woman who answered the phone did not know right away (and could not reach the "duty officer" at that moment), she asked me to call back in a bit and said that she would have an answer then. I  dialed them up again about an hour later and the woman cheerfully told me that the duty officer had told her that it "should not be a problem" getting my girlfriend in because the ceremony was not being held inside a building; it would just be on the grounds.

[An aside: My good friend Iris also called the embassy for some information but had a much worse experience. She said that the person that she spoke with was "rude" and that the call was entirely unpleasant. The embassy has a reputation in Beijing for bad service, lousy communication and general inconvenience.]

Fast forward to 7:00pm. Alya, Iris and I walk up to the security gate and get into line. There is already a sizable crowd gathered:

There were lot of families, contingents of Boy Scouts and Girl Scouts and lots of people that I did not know. (I don’t hang out with very many Americans here in Beijing.) Between the three of us, we only recognized one face, but I could see that lots of the folks in line were of the full-Expat-package and/or Big Business Owners crowd. A warning bell in my heard started to go off. Where were the "regular" folks: the students and "Halfpats" like us?

As we moved closer we saw that there was a table with 4 people seated behind it, each holding a list of names in front of them. When we got to the front, we were asked for our names and if we had RSVP'd. I said that we hadn't and that we'd had no idea that an RSVP was required.

The way it was explained to me, the event at the embassy was by invitation only. There was never supposed to have been an announcement made on the expat websites and the woman who was coordinating the staff at the gate didn’t even know who had given the information to them in the first place. The best that she could do, she said, would be to put our names onto a waiting list and let us in if some of the invitees who had RSVP'd did not show up.

This did not sit well with me. But then it got worse.

I saw a Girl Scout in uniform turned away, her mother calling out to another parent in the troop, "Did you guys register the whole troop? They're telling me that she's not on the list!"

"Sorry," came another parent's reply from the approved group. "You had to RSVP as a family."

Disgraceful.

Not only was there no mention of needing an invitation on the expat websites, but there was no mention of the event on the embassy's own site. There still isn’t, in fact. If you want to see what went on, you've got to check out an expat site or China's state news agency, Xinhua. (Really?!) Furthermore, neither I nor Iris were informed when we called to ask about admission that it was invite-only.

And not for nothing, but what the FUCK is the US Embassy doing holding a private 9/11 ceremony in the first place?! Of all of the days to encourage the local American community to come together, this was it! Hell, they should have welcomed all comers, no matter their nationalities!

At brunch earlier that day, an Italian guy that I know came over to me, shook my hand and said in a low voice, "Today we're all with you." People in the embassy should have been falling over themselves to get him, and other like-minded folks, to join the memorial ceremony. This was a missed opportunity to try to engender some goodwill among the international population here.

It seems like a trivial thing, not getting to enter the embassy for a little ceremony, but it was such a symbolic event, and I was in such a patriotic mood, that the experience made me feel absolutely disgusted.

On a day when our country could have reached out and tried to reclaim the spirit of togetherness that was squandered so shortly after the attacks occurred, the US Embassy in Beijing displayed incompetent planning, absent leadership and a laughable lack of vision by not doing so.

Our tax dollars at work.

Media "Bias" in Israel is Our Own Damn Fault

OR

Sick and Tired of Being Sick and Tired

Protests are legion and there are revolutions galore. There are a lot of good things happening in the Middle East these days.

And by "good" I mean, not "bad" on the face of it. We don't know if the nascent freedom movements in some countries will blossom into friendly, prosperous democratic societies or mad, oppressive, Islamic caliphates. Nor do we know if the protest movements in others will win out or be brutally crushed. All in all, it's a crazy time.

As you might imagine, the media has been working overtime to cover all of the happenings. At times they have shone brilliantly (like during the Libyan rebels' push into Tripoli) and at others then have been almost drowned out by social media's tidal wave of re-posted photos and videos from citizen journalists. (Think the confusion during Egypt's uprising.) And in some cases, there is little or no independent coverage because of journalist bans and media blackouts. (See: Syria)

All in all, though, I think that the coverage has been pretty good and as thorough as can be expected, especially by outlets like Al Jazeera, Sky One, the BBC and CNN. If nothing else, the sustained happenings in such an important part of the world have exposed the self-imposed deficiencies of American media as they have scrambled to keep up with events. More often than not their newscasts or cable affiliates' hourly updates are using footage and breaking news from their international competitors. Years and years of closing foreign bureaus and stripping the region of staff have resulted in a dearth of contacts and ability to react quickly to situations.

So why am I going on about the media? For one, I am very interested in the subject. (I majored in Journalism after all.) Also, I had a very interesting back-and-forth on Facebook last week with an old Frisbee buddy back in Boston.

He was upset that the media wasn't covering the hell out of Hamas' recent missile attacks from Gaza into Israel and the resulting escalation after an Israeli counter-attack ended with the deaths of some Egyptian soldiers. To a person who is a passionate supporter of Israel, who lives there or who is Israeli themselves, the sight of hordes of journalists flooding the streets of Cairo and Tripoli, and beating down doors trying to get into Syria, the utter lack of media boots on the ground in Gaza and Southern Israel has got to feel like neglect at best, or overt media bias at worst.

I didn’t like the sound of that. In today's fragmented landscape, consumers have more control than ever (some might say too much) over what gets coverage and what leads newscasts. I happen to think that a lack of media coverage/outrage over what's going on in Israel is because massive numbers of people simply tune out when it comes on in the West. Newspapers and other media outlets know exactly which headlines and stories garner the most interest these days. And while some events will always garner big headlines no matter what ratings/hit scores say, these days the seemingly-intractable dispute/conflict in Palestine no longer feels like "news".

Here's a copy of our exchange. I've omitted a few comments from people that didn’t speak to the topic and made a few edits for grammar and punctuation, but otherwise they are as-posted.

@Gideon: Why is the international press not uttering a word about the latest salvo of terrorist rocket fire out of Gaza today (let alone this week)? Oh wait I remember now... Israeli blood doesn't count.

@Joni: What even funnier is that Syria is murdering Al Falestina (ie Palestinians) by the truck load and no one is saying anything about how they're actually killing Palestinians! I guess it's only bad when the Jews are supposedly doing that (which they're not!). Syria is doing what Israel gets falsely accused of all the frikkin time!

ME: I'd go more with the fact that it's not really "news" that Hamas is attacking Israel, or that Israel is retaliating. Honestly, when faced with the choice, which would you rather pay attention to: Two children fighting incessantly and futilely over the same crap they've been fight over for ages, or the teenagers around the corner who seem to be growing up a bit and exhibiting some signs of maturity? I'm not saying that's the right attitude, (or even that the teenagers around the corner will be successful, or even that they are who we think they are) but you've got to at least admit that the desire to focus on something else is understandable. And not for nothing: Don't these Hamas attacks feel more than a little "Pay Attention to Us"-ish?

@Joni: I just think that's a bad analogy.

@Gideon: Well Mike, I totally get your perspective and would probably be merely disgruntled (rather then angry) with the media blackout if it was applied uniformly. Unfortunately it is not. This week alone the whackjob terrorists in Hamasastan have... lobbed scores of rockets at Israeli cities and sent "activists" with machine guns across the border who killed eight Israelis who were guilty of being in the wrong place at the wrong time. Yet the story is a flash in the pan. However, the moment Israel drops a bomb on a rocket squad and kills the would-be attackers, it's all across the headlines and the world explodes in furor. It's not the silence that I detest, it's the hypocrisy.

@Mike Kuznetsov: It's because Israel has a modern military that it uses to defend itself, while Hamas presents itself as a rag-tag group of "freedom fighters". I think it's similar to the propaganda from the mujahideen in Afghanistan in the 80's. This makes the Palestinians seem like the underdogs.

ME: You'll get no truck from me on that score. I think that Mike is right about the air of "underdogs"-ness that can accompany coverage of Israel bombing Gaza. But it's the same kind of undercurrent that exists when we see footage of us bombing Iraq or raiding a home in Afghanistan. It's not sympathetic; it's just stark imagery.

I want to emphasize that I think that your frustrations are REALLY misguided. And by that I mean, they are focused on the wrong people. In the West, our media is almost 100% market-driven. This means that coverage is dictated in large part by what people want to see and are interested in. Should national newscasts/cable outlets curate their news more and emphasize some judgment about what people SHOULD know rather than what they WANT to know? Of course. But that's a very different thing to be mad about than anti-Israel bias. I'm by no means an apologist for the US media (hell, I've all but abandoned them since my move overseas, save for NPR- I'm an RTV, Al Jazeera & BBC guy now), but when you get pissed off at them, you're missing the real issue: People don't care as much about this stuff anymore.

Face it, we've got 2 major wars on, multiple countries in some stage of revolution in the Middle East, a near-depression in the US and the real danger of a breakup of the EU/Euro Zone and all that implies for the Western & World economies. Oh, and China's on the march in the developing world. Straight away, Israel is up against some serious competition for (even completely unbiased) mental and editorial bandwidth.

Israel's biggest problem in terms of coverage of events in Gaza (and the West bank) is that people in the West are, generally, just fed up with things there. I know that I am. Nobody cold ever convince me that Israel doesn’t have a right to exist, that it shouldn't be defended or that it doesn’t have the right to defend itself. But you know what? In the US (and even here in Beijing) Arabs and Israelis and Jews of all nationalities live, work and socialize together with no problems whatsoever. So why can’t they do that there? (Simplistic, I know, but this is the perspective of most Americans and Westerners.)

I'm pissed that the Palestinians don’t just accept Israelis' right to live in a state of their own in Palestine and then go the non-violent route in massive ways to address specific concerns within that context. (Think thousands standing in place in an area where the West bank wall is going up, people going on mass hunger strikes, scores laying down in front of bulldozers, etc.) They'd win a lot of their arguments in short order if they did that. And if a bunch of psychos REALLY wanted to martyr themselves, there'd be plenty of ways to satisfy them… I'm also pissed at Israel for not just telling Jordan that they can have the West Bank back and Egypt that they can have Gaza back, acknowledging that it's a different world now and that the current situation is deplorable and unsustainable. I'd also like them to adopt an idea that Alan Dershowitz had 10-15 years ago: After re-establishing the 1967 borders, they pledge to re-take -permanently- some measurable plot of land for every terrorist attack or missile fired.

These are just ideas. But the point is that neither side would be willing to consider them because the extreme whack-jobs on both ends control the debate. And after a while, the sight of both parties even refusing to agree to a process for talking about things makes people like me throw our hands up and say "to hell with these fucking children!" My gods, it's been 20 years since the 2nd Intafadah and every time there are "serious" talks, one side or the other pulls out/sabotages things when measurable progress starts. How long am I supposed to carry the fire in my belly? Even the Northern Irish got sick and tired of the violence after 20 years.

So don't get sucked into the trap of blaming the media for the lackluster/unenthusiastic coverage of Israel and its environs. Blame Israel and its environs.

++++

Thoughts?

China's Madoff Scandal: The Biggest Fraud Being Perpetrated Against US Investors That You Haven’t Heard About (and why it's the best thing to happen to Chinese businesses in a decade)

Back in early February I tweeted about a phenomenon that I had noticed was gaining steam in the run-up to the 2010 year-end earnings season. I'd been noticing an awful lot of Chinese companies delaying their filings or even announcing that they would be delaying their 2010 numbers AND re-stating their 2009 numbers. A few were forced to disclose investigations into their accounting practices by their trading boards (AMEX, NASDAQ, etc.) and/or the SEC. It seemed ominous.

"Biggest story that the media isn’t writing about: The growing number of Chinese companies under investigation for fraud."

I didn’t post anything else about this, but I watched in morbid fascination as things got more and more crazy with each passing week. Company after company delayed their earnings or announced investigations. Accounting firms started dropping their Chinese clients amid allegations that they could no longer vouch for the numbers on earnings reports that they had already certified and that they were being stonewalled by Chinese CEOs and boards of directors. Markets started suspending the trading of companies.

There was even one night when one of our clients needed to get an emergency press release out to disclose the freezing of their stock, but nobody could find the US-based CFO. The CEO had NO IDEA where he was and the release couldn’t go out without his OK. It was just insane. (The CFO eventually surfaced for a few days – back in China. He has since left that company and was immediately hired on as the CFO for another troubled Chinese company. Revolving door, indeed.)

Fraud. Apparent money laundering. Payoffs. Corrupt IR firms. Losses to investors totaling in the billions. A crisis in confidence was brewing in the world's largest developing economy and it was just screaming for attention. But it was getting only whispers in investment industry trades and blogs.

Until now.

What's Going On?

This past Sunday The New York Times ran a fantastic piece on what's been happening with these Chinese companies. In it, David Barboza and Azam Ahmed spell out how dozens of Chinese companies have basically snuck onto the US markets (via "Reverse Mergers" - buying defunct or dummy corporations in the US that are already listed), their meteoritic rise and spectacular crashes once their Chinese practices ran headlong into Western accounting and disclosure requirements.

And today, Reuters ran an amazing story on the subject that spotlights the grand-daddys of Reverse Mergers: Timothy Halter and Zhihao Zhang. The process that they pioneered has lead to an unprecedented opening of the Chinese market to US investors and, ultimately, to tens of billions of dollars in losses.

These stories are very well-written and go into great detail about what has been happening but they don’t really talk about why this all happened in the first place.

Why Did This All Happen in the First Place?

China is booming. We all know this. What most people in the West don’t realize is that, for the most part, China is a pretty closed financial system and there aren’t a lot of ways for people to invest and make money in the ways that we would think of as normal in the US.

There are no mutual funds, 401Ks or brokerage firms that are available to the general public. While a majority of middle class people in the US are participating in the markets in some fashion, very few Chinese have access to what we would consider typical investment vehicles. Liquidity for domestic businesses, therefore, has to come from state-controlled banks or a small cadre of ultra-rich oligarchs.

China's domestic stock markets, excluding Hong Kong, are erratic at best, filled with companies whose SOPs are even worse than those of the companies currently being kicked out of US markets. China's regulatory system is a joke; it's inadequately staffed and funded, obsolete and so corrupt as to be completely self-serving.

Strict controls on the Yuan prevent private money from flowing out to foreign markets. Most of the major investments in American companies and real estate that you've been reading alarming press accounts of have been made by sate-owned companies, the super rich or China's government-owned foreign investment fund.

Essentially, the only way for business people and mid-level party guys (the ones who don’t control entire sectors of the economy themselves) to start really growing their wealth is to build a company that can actually succeed in China's cutthroat economy or just build something that can attract tons of foreign investment, and then set that company up in a trusted foreign market where they will then have access to trillions of dollars of private capital.

(An aside: This closed-off system is a BIG reason why China's real estate market continues to be red-hot. Middle class Chinese families really have no other way to save/make money than by buying real estate. Bank interest rates are so low as compared to inflation [4% on a CD vs. 10% inflation – food is up almost 100% in some places in the past year alone] that banks are not an option. So, since they can’t buy into foreign markets without special permission from the government, and their domestic markets are swamps of corruption, the money all flows into homes.)

As far as investors were concerned, Chinese companies showing up on Western trading boards a few years ago were like manna from heaven to nervous investors. With markets jittery about deficits, housing crises, sovereign debt and wars, money managers had been looking for better growth bets. BRIC countries (Brazil, Russia, India, China & South Africa) have been great places to go, but China has shined among them as the best place to park your dollars and make the biggest profits.

When Chinese companies started arriving onto US markets with stellar balance sheets, impeccable-looking business plans and smooth-talking executives at investment conferences, buying in seemed like a no-brainer. And with the safety net of US trading regulations, it appeared safe. So the money flooded in and nobody asked any questions. For a while, anyway. (Sound familiar?)

Hearing the Tree in the Forest

China's economy has developed almost completely independently of the West over the last 30 years. Its near-reckless embrace of capitalism has mixed with its unique culture and system of government to form a murky, near un-navigable business environment. The entities that have grown out of this swamp to reach into the markets of the West were like nothing we have ever experienced before. Consider some of the practices that are commonplace in China:

• Business here is ALL about relationships - Deals just don’t get done unless a relationship exists or is developed over time. Companies that have boards of directors will pack them with Party people or loyalists/allies/relatives of Party people. This ensures that the right relationships exist to grease the wheels of bureaucracy.

• Corruption is a part of life - There are kickbacks on top of kickbacks with just about everything that you want to do here. While that can actually provide a bit of certitude (i.e. you KNOW that things will get done once you've paid off the right people), you're also in danger of falling victim to the always-shifting political winds. If your "sponsor" is on the outs one week you could find your whole deal scuttled, no matter how good it is.

• It's all about the Benjamins – There is an unprecedented amount of cash floating around in China. This is as a result of having such a closed monetary system and it fuels he rampant inflation. It's looking for places to go and you can never be 100% sure if investments are legit or laundering schemes that the government (or some high-level official) has set up to hide their "hot money".

Enter Muddy Waters. This is a research firm dedicated to ferreting out bad Chinese companies and bringing their frauds and shady accounting practices to light. They started blowing the whistle back in November of 2010 and the drumbeat of reports kept coming all through the next few months. No incredible history of hyped earnings was safe, it seemed.

But for all of the chaos that they have caused back in China, and all of the losses suffered by US investors as a result, this collapse is really the best thing to happen to the Chiense economy in about a decade.

So What Now?

Currently, investigations are still ongoing. Many companies are slinking back into the wilds of the Chinese market by going private. Others are allowing themselves to be "taken over" by a rival, their assets swallowed up and recycled. Still others will just cease to be, their owners and backers moving on to other things, their windfalls intact and untouchable by US courts or creditors.

A few, however, are different. Some are vowing to fight the fraud allegations. Some are re-submitting earnings numbers for the past 3 years and having them vetted by large, internationally-recognized accounting firms. I've even seen a few companies submitting earnings reports for the current quarter that are pretty bad compared to what they've posted over the past couple of years. Instead of folding, they're soldering on.

These companies are the game-changers. They'll set the stage for a new era of Chinese corporate governance. In the end, it will be the companies that decide to adhere to the rules of the Western game that will be successful. Their success will breed imitators here (it's what the Chinese do best, after all) and just as Big Macs and blue jeans helped to conquer to Soviet Union (sorry, sweetie), the Chinese's own drive to get rich and access Western markets will drive them ever further towards our way of doing business.

Conversely, one hopes that investors, fund managers and financial institutions in the US will stop seeing China as a get-rich-quick scheme and just dump money into anything that waives a pretty Excel spreadsheet in their faces. As much as we need China to grow, they need us just as much. Start demanding more from them and they'll deliver. Just you wait and see.

The Garbage Polluting My Feed

I've been sitting over here in China watching with detached, mild frustration at the idiotic piling-on of teachers and other public sector workers by people who just 18 months ago were bemoaning the possibility of canceling the bonuses of bankers and investment house executives who had taken TARP money. (BTW: That program just turned a profit.)

With a busy work schedule, a Russian girlfriend and some special personal projects that I've been working on I haven’t had too much time or inclination to get too fired up about what's been happening back in my homeland.

Also, I have lots of TV and movies to catch up on.

But today something changed. My friend Sandra posted a column from the Wall Street Journal by Stephen Moore in her Facebook feed and it really pushed my buttons. I'm not sure why, but it turned out to be the proverbial straw.

Something like this only contributes to the demonization of public sector workers by implying that they're well-off or that what they do is inherently wasteful and it really bothers me that people actually read this and think to themselves, "Right on!"

I started picking it apart point by point in my head and couldn’t stop my fingers from flying over the keyboard. Strap in for a wonky ride, 'cause here I go…

"Consider this depressing statistic: Today in America there are nearly twice as many people working for the government (22.5 million) than in all of manufacturing (11.5 million). This is an almost exact reversal of the situation in 1960, when there were 15 million workers in manufacturing and 8.7 million collecting a paycheck from the government… It gets worse. More Americans work for the government than work in construction, farming, fishing, forestry, manufacturing, mining and utilities combined. We have moved decisively from a nation of makers to a nation of takers."

1) The reduction in manufacturing jobs in the US has nothing to do with the "growth" of government. Comparing the number of workers in government to the number of manufacturing jobs is a red herring. One has nothing to do with the other and changes in their numbers over time explain nothing. It even has little to do with the switch from "giving" to "taking" as the entire economy has shifted to being services- and information-based. That's what happens when you get really prosperous.

So right away the entire premise of the column is flawed. But wait. There's more.

2) US population in 1960: 179 million. In 2010: 309 million. That's a 42.1% increase. Federal government workers in 1960: 1.81 million. 2009: 2.10 million. That's a paltry 13.9% jump. Clearly, the government has been adding services since 1960. Medicare. Medicaid. The Great Society programs. Yet it is growing at a VASTLY slower rate than the population as a whole. Can it possibly be that government is actually efficient? When this writer asks later, "Where are the productivity gains in government?" I would simply point to those statistics.

Even that doesn’t tell the whole story. When you discount Homeland Security (a division of government that didn’t exist before 2002 and few would argue that you can get rid of) and added Veterans Affairs workers (needed to handle the massive influx from two wars), the total number of federal workers goes down to 1.89 million in 2009 which is actually just a 4.3% increase from 1960.

In essence, almost all of the growth of the federal workforce over the past 50 years can be traced to 9/11 and the US's involvement in 2 wars. Which, I might add, were championed by the Right and certainly benefit international contracting companies and arms suppliers (not to mention mercenaries) more than they do the US economy.

"Iowa and Nebraska are farm states, for example. But in those states, there are at least five times more government workers than farmers."

3) This should be a call to arms about the ravages of big agribusiness and not of the dangers of increased government payrolls. Any small/family farmer will tell you that massive supply chain inequities and disparate populations that cluster in far-flung cities are the reason that small farms can’t hang on. That's why there are fewer farmers. But nobody who writes for the WSJ will want to talk about that. They'll just throw out those numbers to pull at your middle-America-loving heartstrings.

"Surveys of college graduates are finding that more and more of our top minds want to work for the government. Why? Because in recent years only government agencies have been hiring, and because the offer of near lifetime security is highly valued in these times of economic turbulence."

4) I don't know which survey he's talking about because he doesn't cite any, but college students haven’t traditionally looked at government work as being very promising. (That trend has been changing of late, however; many reasons are given, including a desire to serve and "give back".) It's a lot more complicated than he makes it seem.

Though he is not completely wrong. As recently as 2005, government wasn’t seen as such a great place to end up, with 57% saying that the pay and benefits weren't good enough. I wonder what happened between then and now to make a steady paycheck with health and pension plans look so good? Either some huge salary increases were enacted, or maybe it's the fact that companies simply don’t offer pensions anymore and health care is nigh-unaffordable. That seems to be more of an indictment of corporate greed during a time of record profits than of government spending.

And there was also the whole recession thing.

"Mass transit spends more and more every year and yet a much smaller share of Americans use trains and buses today than in past decades."

This is REALLY bothersome. In cities with subways ridership is at or near record levels! But, as everybody knows, the population has been growing the most in areas of the country where there are few or no mass transit options so OF COURSE "a much smaller share" of the population is using rail. What he doesn’t mention is that in places like Phoenix or Denver or Minneapolis where new light rail projects have opened in recent years (only after overcoming, in some cases, 15 years of opposition), the useage numbers are way above forecast. Build it and they will come. And economic development is not far behind. Is that wasteful?

I'm stopping there. If you read the full piece then you now that I've skipped the two other big points: That schools are crappy even though spending has gone through the roof, and that cities should explore contracting out their public safety services (police, fire & EMS) to save money. Each of those points are so inflammatory that they need posts of their own. I could go on for 20 pages about the state of American schools alone. Do they suck? On the whole, yes. Is it the "fault" of them being run by government? Of course not.

But that's another angry blog post for another slow work night.

I wish that my friends would stop reading this simplistic garbage.

My So-Called Democracy

Arianna Hunnfington posted a great column today that touched on what I think is the single greatest problem that faces America. It's the "poisonous tree" from which all of our politically rotten fruits come from: The "two party system".

First off, can we please stop using the term "two-party system"? Our system makes no allowances at all for any parties. They're not mentioned anywhere in the Constitution, nor are there any allowances made for any political processes at all other than dates for voting and vague dictates about states organizing their own election systems.

Parties are merely tools that we have invented as a means to organize ourselves. The fact that we have traditionally chosen to only allow two "major" parties at a time to vie for our attention/support is a reflection on us as a people and not our "system". Even the term "third party" is derisive and suggests that there should only be two; as if a "third" is somehow an anomaly.

Arianna quoted the brilliant P.J O'Rourke from an event that she attended where they debated this subject and I think that his comments are spot-on:

"Republicans and Democrats don't have ideologies. They just have these vague platform planks made of rotten wood of political expediency. If American party platforms were backyard tree forts, you would not let your children climb in them."

Then Arianna went over the litany of issues that a limited debate exacerbates:

Why are the too big to fail banks still too big to fail? Why is there still so little emphasis on jobs at a time when 26 million Americans are unemployed or underemployed? Why did our system recently fail us in three spectacular ways: the financial meltdown, the Upper Big Branch mining disaster in West Virginia where 29 miners died, and the BP oil spill in the Gulf?

On issue after issue -- education, our crumbling infrastructure, the rising costs of health care, the deficit, the steady decline of the middle class, foreign policy (where the two parties marched arm in arm into invading a country that did not after all have WMD or pose a threat to our national security) -- our current two-party system has failed us.

We definitely need new voices in our political dialogue. The media perpetuates a constant "A" vs. "B" narrative because it's cheap, easy and it has a nice hook. It's an ongoing soap opera that would get infinitely more complex and less inherently soundbite-y if 3 or 4 or even 5 groups needed to be included in any of their staged face-offs.

Most importantly, WE are to blame for this. We've let ourselves be brainwashed by the two major parties. We buy their line about how we can't "waste" a vote on somebody who doesn't have a "D" or an "R" next to their name. We nod our heads when somebody says that they can't vote for that level-headed Green/Libertarian/Reform Party candidate because they "can't win."

(Such a preposterous notion, that somebody on a ballot "can't" win. All you need is the most votes! And since when do we care more about backing somebody who "can" win over our desire for governance by people who we feel are most qualified and/or best represent our views and interests? It's just stupid!)

For all of our claims of loving a free market, we seem pretty content to let a bunch of political hacks impose lots of controls on the marketplace if ideas.

Kicking our addiction to just two parties will take a lot of work. Think twelve-step program instead of just waking up and smelling the coffee. Because while our "system" doesn't care how many parties we have (if any), our abdication of our responsibilities as citizens has let the "Ds" and "Rs" hijack our government and effectively choke off the avenues of opposition from any other organized groups.

Here's where we need to make some major changes:

1) Redistricting - This is the key to everything. So long as politicians who are beholden to their parties are in charge of the decennial redrawing of political districts, there'll never be a chance for other groups to mount a serious, sustained effort to break through. California's Citizen's Redistricting Commission is a great example of how this might be accomplished and the next 18 months will serve as a great test case of how other states might implement their own non-political system.

2) Elections - Abolish party primaries. The state should not be funding intra-party elections at all. Let them have their own conventions. What we need is a primary system that does not force people to choose which ballot they get to weigh in on when they go to the voting booth. During the first round, everybody who has qualified should appear on the ballot. The candidates with the top two vote totals then get to square off during the general election. "But what if the top two are from the same party?" you ask? Well, too bad. Who says that we need to have opposing parties squaring off? You think that there aren't enough ideological divisions within parties to provide for spirited debate in that scenario? (Hello, Tea Party!)

3) Ballots - While I would personally like to see party labels disappear from ballots entirely, I am a realist and understand that people like them and that parties DO serve useful functions. Sometimes. So instead of deleting parties from ballots, why not open them up to more? In Oregon last year voters saw a list of candidates with multiple parties listed next to their names. Parties who did not nominate or qualify candidates in the election were allowed to register their "endorsement" of candidates. This lets them participate in the process and lets voters measure the breadth of support (if any) from outside of entrenched parties a candidate has.

Yes, that was only 3 steps, but each one of them has lots of mini-steps. (I haven't done the math but hope that it averages out to 4 steps each, otherwise my "12 step program" analogy looks pretty dumb.) They'll take a long time to implement, and they'd have to be done state-by-state. And while in a time of economic uncertainty and relative decline in the US, this kid of reform can seem unimportant, it is, I think, the single most effective thing that we can do as a country to revitalize ourselves.

Reading List for January 5, 2011: I is Educated

One of the recurring themes for all of these articles is, of course, the massive cultural differences between Western and Chinese education systems. The shorthand description, seen over and over again, is that China's schools emphasize standardized test prep and the learning of facts via memorization, while the in the US we stress creativity, research and collaboration. These are fairly crude simplifications of what's happening, but they serve the purpose of providing an easy to understand shorthand in the context of a short blog post or news item.

I'm no education expert, but some of the advantages and disadvantages of each system are fairly obvious. In China they may teach to tests and there may not be a lot of emphasis on teaching kids how to form opinions and how to explore alternate ways of reaching conclusions, but just about ever kid will finish school, they will be literate and they will know how to work in an academic setting. Focusing on a task, no matter how mundane, and working it through to its completion, is not a problem for them. In the US we foster creativity and strive to help each individual reach his or her own potential and we shy away from standardized tests, but we leave massive numbers of kids behind as legions of students don’t complete high school and a sizeable share of those who go on to university fail to get a degree.

But more than just offering an interesting study in contrasts, I think that the strengths of these systems offset each others' weaknesses. Can we find a way to combine the best elements of both systems? Is the Holy Grail of education a model that somehow fuses necessary memorization of facts and dates with in-depth analysis and debate? And how, in the end, do you measure success? Is there a single test that can be developed? Or do you need a series of tests combined with other measurements? And how many tests is too many before you are only teaching to them?

Like I said, I'm no education expert, so I'll leave curriculum development to the eggheads (and take potshots at their ideas from the sidelines). But what I am is living proof is that education is the silver bullet to economic advancement. I could never have risen up from where I started out without a sold educational footing beneath me. The Chinese understand this all too well but we in America seem to have forgotten it… or we just don't care too much if people in the next town over have.

And THAT is what should scare us about Chinese advancements in education – Not that they're may be starting to score better or whether they graduate more engineers and mathematicians, but that collectively as a country they care more about education and are DOING soothing about it.

"Chinese Top in Tests, But Educators Call for Reform" from NPR – Some insight into how and why the students in Shanghai were able to dominate on the international standards test last fall. More focus on the Chinese style of leaning and it's emphasis on memorization. The highlight for me? When the Chinese high school student who is interviewed says that she thinks that the Chinese way of learning and the Western way of learning should be combined. Out of the mouths of babes.

"The China Boom" from The New York Times – An emerging middle class will obviously want to send their kids to great schools and will have the money to pay for it, but as China continues to grow and more and more kids graduate from universities in China (they are building new schools at a prodigious rate), the One Child Policy will also play a role: Families who can not depend on government social safety nets as they age, and who traditionally depend of their children to care for them as they age, must place all of their hopes in a single progeny. And with fierce competition for a limited number of non-manufacturing jobs, a US degree is a big plus… This increase in Chinese students is a boon to universities because Chinese kids almost always pay full price; they don’t qualify for any federal aid. What's really ironic is that as Chinese families that can now afford US schools are striving to send their kids across the Pacific, we may see more and more American kids head to China. With tuition skyrocketing and family incomes stagnant, and with many families' home equity being shredded over the past 2 years, cheaper Chinese education options can be very enticing. It's true that most of the schools in China can't hold a candle to our universities in the US, but there are places that are comparable to American schools, especially if you want to study economics or international relations. And the prices for some of these schools, including full room and board and two tickets back home each year during holidays, are less than half - around $12,000 per year - of most liberal arts schools. And to say that learning Chinese and having experience/connections in China will give you a leg up is a huge understatement.

"Life as an International Student: Cultures Colliding" by Yeran Zhou – a direct response piece to the New York Times article, this goes into much deeper details about the cultural problems that Chinese kids often face when they come to the US for school. According to the writer, the Times article glossed over the problems and the sometimes serious unease that the Chinese expats experience. My favorite part was when a student talked about how hard it is to get work done in a US college sometimes:

Nai blames his lack of discipline on the American culture. “There is too much freedom in American colleges,” he complains. “I think I need stricter supervision.”