The Center on Democracy, Development, and the Rule of Law (CDDRL) at Stanford University is pleased to announce its new class of %fellowship1%. This year’s fellows – 26 outstanding civic, political, and economic leaders from 23 countries in transition – have been selected from more than 800 applications. They will be on the Stanford campus for three weeks, from July 28 to August 15, 2008.

Since its inception, the Summer Fellows Program has created a network of more than 90 emerging leaders from 30 transitioning countries including Iraq, Afghanistan, Iran, Pakistan, China, Russia, Nigeria, Kenya, and Rwanda. Draper Hills Summer Fellows are former prime ministers and presidential advisors, senators and attorneys general, journalists and civic activists, academics and members of the international development community. They are united in their dedication to improving or establishing democratic governance, economic growth, and the rule of law in their countries.

The three-week program is led by an interdisciplinary (and all-volunteer) team of leading Stanford University faculty associated with the center. Class sessions, however, are not only led by CDDRL-affiliated faculty and researchers but also by the fellows themselves, who focus discussions on the concrete challenges they face in their ongoing development work. In this way, fellows have the opportunity to learn from one another’s rich experiences in the field of international political and economic development.

One of the selected fellows, an opposition politician from Singapore, was prevented from leaving her home country shortly before the program began.

Heads of international organizations and foreign policy leaders from around the world met in Berlin, Germany on July 15 and 16 to discuss the future of international security and cooperation. Convened by the Managing Global Insecurity Project (MGI) and the Bertelsmann Stiftung, the event -"Responsible Sovereignty: International Cooperation for a Changed World" -was the MGI project's fifth and capstone advisory group conference. The Berlin meeting was convened by three members of MGI's Advisory Group - Strobe Talbott, Brookings President; EU High Representative for Common Foreign and Security Policy Javier Solana; and Wolfgang Ischinger, Chairman of the Munich Security Conference - in partnership with Gunther Thielen, Chairman and Chief Executive of the Bertlesmann Foundation.

Also in attendance were the co-directors of the Managing Global Insecurity Project, Stephen J. Stedman, CISAC Senior Fellow and Director of the Ford Dorsey Program in International Policy Studies at Stanford University, Carlos Pascual, Brookings Vice President and Director for Foreign Policy, and Bruce Jones, Senior Fellow and Co-Director of the New York University Center on International Cooperation (CIC). The MGI advisory group is made up of U.S. Bipartisan and international leaders.

U.N. Secretary General Ban Ki-moon; German Foreign Minister Frank-Walter Steinmeier; and Rajendra Pachauri, Nobel Peace Prize winner and Chairman of the Intergovernmental Panel on Climate Change opened the event. Notable international officials and other participants included Mohamed El Baradei, Director General of the International Atomic Energy Agency; former Canadian Prime Minister Paul Martin; former Russian Foreign Minister Igor Ivanov; former Indian Foreign Minister Lalit Mansingh; and former U.N. High Commissioner for Refugees Sadako Ogata. Also present were Francis Deng, Ban Ki-moon's Special Advisor for the Prevention of Genocide and the originator of the idea of Responsible Sovereignty in the 1990s.

The meeting brought together high-level representatives from influential nations with members of the MGI Advisory Group and world leaders on climate change, nuclear nonproliferation and disarmament, and conflict prevention and response. In particular, the session focused on the idea that all states, whatever their politics and interests, share duties to their citizens and to each other in tackling common threats like terrorism, nuclear proliferation, and global climate change. The goal of the Berlin session was to generate momentum toward a 2009-2010 campaign to expand global partnerships and rejuvenate international cooperation to address today's most pressing global challenges.

As oil prices surge through $140/barrel at the time of writing, surely one can at least count on the invisible hand of the market to drive further exploration and production and ultimately bring more supplies on line, right? Or perhaps, more ominously, high oil prices presage a darker future of shortage and conflict as global oil fields pass their geological “peak”? In fact, both positions miss a crucial point about the dynamics of the world oil market — that it is increasingly animated by the counterintuitive behavior of the state-owned oil and gas giants that now control the vast majority of the world’s hydrocarbon resources.

“On average national oil companies (NOCs) extract resources at a far lower rate than international oil companies (IOCs), leaving about 700 billion barrels of oil effectively ‘dead’ to the world market.”So-called “national oil companies,” or NOCs, own about 80 percent of the world’s proven reserves of oil, a percentage that has been on the rise as the persistent high price environment encourages countries to assert even tighter control over the rent streams flowing from their resources. NOCs are curious and variegated beasts, and, contrary to the popular imagination, some are highly capable both technically and organizationally. Brazil’s Petrobras is an acknowledged world leader in deepwater drilling, while Norway’s StatoilHydro is highly regarded for its competence and transparent business practices. Saudi Arabia’s national champion, SaudiAramco, is secretive to the outside world but generally considered to be a well-run, technically capable organization. At the other end of the continuum, government infighting and micromanagement hobble Mexico’s Pemex and Kuwait’s KPC. Once-independent PDVSA in Venezuela has been remade by President Hugo Chávez into a government puppet that spends liberally on social programs but consistently undershoots its production targets. And indeed some national oil companies are hardly oil companies at all — Nigeria’s NNPC, for example, is mostly a rent-seeking bureaucracy.

What NOCs do share in common as distinct from the familiar international oil companies (IOCs) is being answerable to a host government, which inevitably brings with it some focus on objectives other than simple profit maximization. Typically, an NOC arises originally from the desire of resource-rich governments (“principals”) to gain more effective control over resource extractors (“agents”) by creating an oil champion owned by the state. Prior to NOC formation, governments are frequently (and often justifiably) wary of exploitation by the foreign oil operators providing hydrocarbon extraction services. Lacking a deep understanding of the costs of production, states are simply unable to be sure they are taxing their agents appropriately. In addition to enhancing control over the hydrocarbon sector and the revenue it brings, states may hope for other benefits from the NOC: cheap energy to fuel a growing economy, employment and development of local industry to support the hydrocarbon sector, or even foreign policy leverage derived from control of key resources.

Unfortunately for the states, relationships with their NOCs are rarely straightforward, with implications for performance. Some national oil companies evolve into barely controllable “states within a state”— PDVSA pre-Chávez was an example of this — while others see their initiative smothered by excessive government intervention as in the case of Pemex and KPC. Fraught state-NOC interactions can take their toll on company effectiveness; in other cases, NOCs may simply appear less efficient than their IOC brethren because they are serving state purposes beyond simple monetization of hydrocarbon resources. Irrespective of cause, the result is that on average NOCs extract resources at a far lower rate than IOCs, leaving about 700 billion barrels of oil effectively “dead” to the world market. A far more immediate concern than whether oil fields are passing their geological “peak” is who is sitting on top of those fields!

A detailed study of NOC performance and strategy at the Program on Energy and Sustainable Development at FSI suggests a useful way of thinking about the effects of NOC resource domination on world oil and gas markets. Price versus quantity supply curves from classical economics assume that increased price will spur efforts to expand supply. Unfortunately, the counterintuitive reality for NOCs is that, when it comes to expanding supply in the current high-price environment, most either 1) can but don’t want to or 2) want to but can’t. The end result is what one could call a “backward-bending” supply curve — additional price increases do little or nothing to boost supply.

“The world has plentiful hydrocarbons in the ground, but that’s where many of them are going to stay due to the unique organizational and political dynamics of the NOCs.”In the “can but don’t want to” category are resourcerich governments that have decided they cannot assimilate any more money. Already, their investments are running into political resistance around the globe — witness Dubai’s failed attempt to purchase U.S. port management contracts, CNOOC’s failed bid for Unocal, or the increasing calls for curbs on the activities of sovereign wealth funds. Nations may decide they have enough cash and are better off leaving resources in the ground where they safely await monetization at a later date.

In the “want to but can’t” camp are countries and their NOCs that are simply unable to provide the stable political and regulatory climate to support additional build-out of expensive production and transport infrastructure. This situation is particularly common for natural gas, where long investor time horizons are needed to bankroll the multibilliondollar capital costs of pipelines or liquefied natural gas (LNG) terminals.

Meanwhile, international oil companies are left on the sidelines salivating helplessly over the vast reserves in NOC hands. Venezuela’s Orinoco region could yield hundreds of billions of barrels of heavy crude, but the government and a nowpliant PDVSA invite favored countries and their NOCs to explore rather than selecting the operators most capable of extracting the challenging but plentiful resource. Technical expertise and massive investment are required to fully develop vast Russian gas fields including Kovykta, Shtokman, and Yamal, but IOCs already burned by nationalizations and shifting rules in these and other Russian ventures are unlikely to be in a position to supply enough of either. In the face of dwindling resources they can tap, IOCs will need to diversify their business models, perhaps tackling technologically challenging options like oil sands or liquids from coal in conjunction with the carbon storage techniques that could make these palatable from a climate change perspective. Ironically, the only “easy” oil for IOCs has become oil that is geologically and technologically difficult.

While oil price is dependent on many factors (including global economic health) and is impossible to forecast with certainty, one can confidently predict continued tight supply of oil and gas, especially given global demand that will be propped up indefinitely by rising consumption in China and India. The world has plentiful hydrocarbons in the ground, but that’s where many of them are going to stay due to the unique organizational and political dynamics of the NOCs. Leverage over the market is weak; measures to reduce demand for oil and gas (though politically unpopular) or to spur development of alternative fuels and associated infrastructure (though slow to develop at scale) may be all that we have.

“Emerging democracies must demonstrate that they can solve governance problems and meet citizens’ expectations for freedom, justice, a better life, and a fairer society.”

If the big global story of the 1980s and 1990s was the remarkable expansion of democracy, the bad news of this decade is that democracy is slipping into recession. In the two decades following the Portuguese revolution in 1974, the number of democracies tripled (from 40 to 120) and the percentage of the world’s states that are at least electoral democracies more than doubled (to about 60 percent). Since the late 1990s however, there has been little if any net progress in democracy. To be sure, significant new transitions to democracy took place in countries like Mexico, Indonesia, Serbia, Georgia, and Ukraine. But globally, the democratic wave has been neutralized and is now at risk of being overtaken by an authoritarian undertow, which has extinguished democracy in such states as Pakistan, Russia, Nigeria, Venezuela, Bangladesh and Kenya. In fact, two-thirds (15) of all the reversals of democracy (23) since 1974 have taken place just in the last eight years, since the October 1999 military coup in Pakistan.

Fortunately, breakdowns of democracy do not always persist for long. Pakistan held remarkably vibrant parliamentary elections in February 2008, in which the party of the autocratic, unelected president, Pervez Musharraf, was crushed. Should the legitimate parties succeed in curtailing Musharraf’s power or forcing him from office, a transition back to democracy could be completed. Thailand has made a similar cycle of return, Bangladesh figures to do so this year, and Nepal is trying to do so. The remote mountain kingdom of Bhutan has quickly gone from absolute to constitutional monarchy, and Mauritania, a desert-poor Muslim-majority country, has also made a democratic transition. But many of the new democracies of recent decades are shallow and in trouble. And freedom has been lurching backwards. By the ratings of Freedom House, last year was the worst year for freedom since the end of the Cold War, with 38 countries declining in their levels of political rights and civil liberties and only 10 improving.

Two other negative trends are important to note. One is the implosion of democratic openings in the Arab world. Under pressure from the George W. Bush administration beginning in 2003, several authoritarian Arab regimes liberalized political life and held competitive, multiparty elections. Then, Islamist political forces made dramatic gains in Egypt and Lebanon and won a majority of seats in Palestine and Iraq — and suddenly the Bush Administration got cold feet. Arab democrats who had surfaced and mobilized felt abandoned and betrayed. The liberal secular politician Ayman Nour, who had the temerity to challenge President Hosni Mubarak in Egypt’s first contested presidential election, languishes in prison three years later. The country’s political opening is now frozen, while more than a billion dollars in American aid continues to flow to the regime.

The second negative trend is that authoritarian states have, unfortunately, learned some of the lessons of democratic breakthroughs of the past decade, particularly the color revolutions that brought down neocommunist autocracies in Serbia, Georgia, Ukraine, and Kyrgyzstan. As a result, they have closed political space, swallowed up or arrested independent media, crushed independent political opposition, sabotaged or shut down innovative uses of the Internet, and sought to block or sever external flows of democratic assistance. Vladimir Putin’s Russia (with its sinister cabal of savvy Kremlin “political technologists”) has blazed the trail in this authoritarian pushback, but China, Belarus, Iran, Azerbaijan, Uzbekistan, and other “post” communist and Middle Eastern dictatorships have followed suit. To make matters worse, China and Russia have drawn together with the Central Asian dictatorships in a new club, the Shanghai Cooperation Organization, to formalize and advance their authoritarian pushback.

To renew democratic progress in the world, we must understand the reasons for the democratic recession. Authoritarian learning is one. Another has been the inconsistent and often unilateralist policies of the United States. Although President Bush has done much to put democracy promotion at the center of American foreign policy and has substantially increased funding for U.S. democracy assistance programs, he has also alienated potential allies in the effort to advance democracy globally by associating democracy promotion with the use of (largely unilateral) force, as in Iraq; by promoting democracy with a tone that was often self-righteous and a style that was too often poorly coordinated with our democratic allies; and then by failing to sustain pressure for democratic change when the going got rough in the Middle East.

Structural factors have also driven the recession of democracy. One has had to do with the global political economy. As the price of oil has gone up, the prospects for democracy have receded. Russia, Nigeria, and Venezuela have all seen their democracies slip back into authoritarianism as oil prices have skyrocketed, sending huge new infusions of discretionary revenue into the hands of autocratic leaders, which they have used to buy off opponents and strengthen their security apparatuses. In Iran and Azerbaijan, surging oil revenues have shored up authoritarian states that once seemed vulnerable.

A second and more pervasive factor has had to do with the performance of the new democracies. Some new democracies are holding their own (like Mali) and even making progress (like Brazil and Indonesia) in the face of enormous accumulated problems and challenges. But the general reality, even in these countries, is that democracy often does not work for average citizens. Rather, it is blighted by multiple forms of bad governance: abusive police and security forces, domineering local oligarchies, inept and indifferent state bureaucracies, corrupt and pliant judiciaries, and ruling elites who routinely shred the rule of law in the quest to get rich in office. As a result, citizens grow alienated from democracy and become susceptible to the patronage crumbs of corrupt political bosses and the demagogic appeals of authoritarian populists like Putin in Russia and Hugo Chávez in Venezuela.

“If democracies do not work better to contain crime and corruption, generate economic growth, relieve economic inequality, and secure freedom and a rule of law, people will eventually lose faith and turn to authoritarian alternatives.”Before democracy can spread further, it must take deeper root where it has already sprouted. Emerging democracies must demonstrate that they can solve governance problems and meet citizens’ expectations for freedom, justice, a better life, and a fairer society. If democracies do not work better to contain crime and corruption, generate economic growth, relieve economic inequality, and secure freedom and a rule of law, people will eventually lose faith and turn to authoritarian alternatives. Struggling democracies must be consolidated, so that all levels of society become enduringly committed to democracy as the best form of government and to the country’s constitutional norms and restraints. Western governments and international aid donors can assist in this process by making most foreign aid contingent on key principles of good governance: a free press, an independent judiciary, and vigorous, independently led institutions to control corruption. International donors also need to expand their efforts to assist these institutions of horizontal accountability as well as initiatives in civil society that monitor the conduct of government and press for institutional reform.

The only way to stem the democratic recession is to show that democracy really is the best form of government — that it can not only provide political freedom but also improve social justice and human welfare.