Just look at the number of construction cranes around you and you’ll immediately know that you have landed in a petrostate. What’s special about the Caspian oil giant Kazakhstan is the fact that there are two types of cranes—the idle ones and the busy ones. This becomes nowhere more apparent than in the country’s new capital Astana. The idle cranes stand on private construction sites and the busy ones on public construction sites.

Kazakhstan is probably one of the countries worst hit by the global credit crunch. After years of aggressive borrowing on international markets Kazakh banks have had to pull the plug on many domestic projects after their own cash stream evaporated and it became clear that they would need to settle most of the $14 billion in scheduled principal repayments on external debt this year. The International Monetary Fund (IMF) had been warning about the unsustainability of the ever growing debt ratio for the past two years, but to little avail. Growth rates above 9 percent for the past seven years and great future prospects thanks to ever expanding oil production earned Kazakhstan a credit rating of “stable” from Standard & Poor's rating agency. Now, the bubble burst, the S&P rating turned “negative”, and the private cranes stopped.

The busy cranes—in contrast—run 24/7. No effort is spared to make sure that the fancy new government building, the pavement, the flower-adorned square will be finished in time for the highlight of the year: the birthday of both the President Nursultan Nazarbayev and the capital on July 6 (their 68^th and 10^th, respectively). This simultaneity is no coincident. Astana is largely Nazarbayev’s creation. It was him who anointed the city in the middle-of-nowhere the new capital of the young Republic, who chose its no-nonsense name (“Astana” literally means “capital”), and who caused its population to triple. The upcoming celebrations almost turned into a Nursultan & Nursultan party. If Mr. Sat Tokpakbaye and his fellow parliamentarians had gotten their way, the capital would yet again have undergone a name change—this time to honor its creator more explicitly by endowing it with the President’s first name (there is already an oil field named after him). But out in his modesty, the President declined. With his proposal Mr. Tokpakbayev, achieved the near-impossible: to distinguish himself by loyalty in a Parliament whose members all come from the same Nur-Otan party.

The idle and the busy cranes both stand for different answers to petrostates’ most burning policy question—how to best use the ballooning governmental revenues from the thriving oil and gas sector. Save or spend?—is the 500 billion dollar question (to take the value OPEC earned from net oil export in 2007). Kazakhstan, like 23 other oil and gas producing countries, followed the IMF’s advice and established an oil fund with the goal of sterilizing, stabilizing, and saving governmental oil revenues. The so-called National Fund of the Republic of Kazakhstan (NFRK) has accumulated more than $26 billion in the eight years since inception, and the total value of all oil-related funds around the world is estimated to surpass the astronomical sum of $2.300 trillion. While the theoretical logic underlying the creation of oil funds is compelling, their actual track record in achieving macroeconomic stability and fair intergenerational income distribution is more mixed. As a number of recent studies demonstrate (e.g. Shabsigh and Ilahi 2007; Usui 2007), oil funds are no substitute for the strengthening of all institutions involved in the revenue management and budgeting process. Strong expenditure and deficit control mechanisms are indispensable because such richly endowed funds make it easier for the government to borrow money on international financial markets whereby the fund acts--explicitly or implicitly—as a collateral, which in turn undermines the fiscal prudence that the fund was meant to ensure in the first place. More indirectly, the accumulation of large sums of money creates a moral hazard problem also with respect to private sector spending. The temptation is huge for private (and state-owned) companies to take overly risky decisions in the hope that the oil fund will bail them out in case their speculations turn sour. When oil fund assets correspond to more than a quarter of the country’s GDP—as it is the case in Kazakhstan—this temptation is hard to resist. Recent demands by Kazakh banks to dip into the NFRK for alleviating their liquidity problems provide just one case in point, and the national oil company KazMunaiGas may soon follow suit.

However, spending, rather than saving, does not provide a panacea either and is fraught with its very own set of problems.

First, governments of oil rich countries faces a challenge similar to that of rich parents who want to raise their children to become productive members of society. As the US billionaire investor Warren Buffet was once quoted saying: “a very rich person should leave his kids enough to do anything but not enough to do nothing.” Political scientists refer to this concern as the risk of a growing “rentier mentality” (Beblawi 1990), i.e. the tendency of citizens in petrostates to expect the government to solve all their problems rather than relying on their own initiative. The resulting societal dependency may actually suit governments very well since who will bite the hand that feeds him/her? Innovation and entrepreneurship are undermined and undemocratic structures perpetuated. Second, pro-cyclical spending of highly volatile oil revenues results in a series of negative macroeconomic consequences ranging from soaring inflation, exchange rate appreciation, and a further accentuation of the crowding-out of private investments. Finally, a massive explosion in government revenues (e.g. the newly introduced oil export tariff alone is expected to add another $1.5 billion per year) makes it close to impossible for the governmental apparatus to identify and supervise a sufficient number of new spending projects with a satisfactory social return. The floodgates are wide open to white elephant projects, mismanagement, and corruption.

The Kazakh government is acutely aware of this dilemma. Like all other oil producing nations around the world, Kazakhstan is desperately trying to navigate safely between Scylla (saving) and Charybdis (saving). As a possible solution to this dilemma a number of scholars and activists are now proposing the direct distribution of oil revenues to all citizens (and thus the ultimate owners of a country’s natural resource endowment), thereby empowering them to decide for themselves how they want to spend the monetized share of their subsoil assets.

The only real world examples of direct distribution arrangements can be found in the US state Alaska and the Canadian province Alberta. This option has also been proposed for Nigeria (Sala-i-Martin and Subramanian 2003), Iraq (Birdsall and Subramanian 2003; Palley 2003; Sandbu 2006), and Kazakhstan (Makmutova 2008).

While direct distribution arrangements may mitigate some of the problems highlighted above, they have to be greeted with some degree of caution. High levels of corruption and patronage-driven politics not only undermine the effectiveness of top-down development projects but can also jeopardize the fair distribution of oil revenues. Furthermore, even if every entitled citizen does receive his or her share of oil revenues, the long-term impact on a country’s economic development may be small or possibly even negative because of increased inflation and spending on unproductive goods and services imported from abroad. These considerations are not of particular relevance in the two existing examples of direct distribution of oil revenues. Alaska and Alberta both enjoy a relatively good record in fighting corruption and in observing the rule of law. They are both part of a larger, highly developed economy which helps to mitigate inflationary pressure and the risk that citizens will spend most of their additional income on goods imported from abroad. But the picture looks very different in most other oil dependent countries.

One possibility for addressing the risk that directly distributed oil revenues will be spent unproductively is to combine the direct distribution scheme with certain conditions that are intended to encourage citizens to invest in ways that boost their own productivity. This approach has so far not been discussed in academic or policy circles, but the conditional distribution of oil revenues (CDOR) offers the potentials of marrying the merits of two programs that are generally considered to be successful, namely the direct distribution of oil revenues and conditional cash transfer programs employed throughout the world to fight poverty in a more targeted and bottom-up fashion. A whole range of different design options are compatible with this overarching concept. CDOR schemes do not have to adopt the exclusive pro-poor focus of conditional cash transfer programs. In fact, both in Alaska and in Alberta oil revenues are deliberately distributed in an income-blind manner, staying true to the logic that citizens are entitled to a share of oil revenues in their capacity as the ultimate owners of these resources. Also in contrast to most existing conditional cash transfer programs (e.g. Oportunidades in Mexico), the conditions attached to the direct distribution of oil revenues would probably be primarily linked to the use of these revenues rather than some pre-qualifying behavior (e.g. taking infants to regular health check-ups). Eligible spending areas would be selected based on their potential to maximize productivity gains and could include education, health, energy efficiency, start-up capital for small enterprises. Additional design options worth examining include the saving and pooling of CDOR money, which would allow citizens to realize a medium to larger scale common project within the approved spending priorities. For instance, the most promising strategy for greater productivity in Kazakhstan’s agricultural sector lies in the creation of larger units (co-operatives, publicly traded agricultural complexes), and specific incentives may therefore be built into the CDOR scheme to promote such a move away from subsistence farming.

The conditional distribution of oil revenues under any of these design options presents a promising discussion platform for a new initiative the World Bank announced in April 2008—tentatively labeled EITI++. This initiative is meant to help resource rich countries to “manage and transform their natural resource wealth into long-term economic growth that spreads the benefits more fairly among their people”, by focusing not only on the transfer of oil revenues from companies to governments (as does the “original” Extractive Industry Transparency Initiative (EITI) of 2002) but also on the generation, management, and distribution of oil revenues. The transparency mechanism of double disclosure pioneered by EITI could thereby be used to ensure that all citizens receive the share of oil revenues they are entitled to. Transparency could be further enhanced by tools currently developed by the Google Foundation’s Inform & Empower program.

The implementation of the CDOR scheme could build directly upon the experience gained under conditional cash transfer schemes, including the scientific testing of its effectiveness in a randomized experiment setting. The bottom-up development philosophy underlying the conditional distribution of oil revenues ties nicely in with other approaches to strengthen the consumers of public goods and services that have gained currency over the past decade (e.g. vouchers for health and education services).

With this sketch of a conditional distribution of oil revenues scheme in my pocket (and and unconditional love for the kicking baby in my belly) I navigated my way through yet another construction site to see Mr. Kuandyk Bishimbayev, one of Kazakhstan’s young and rising stars (now the head of the so-called “Division of Socio-Economic Monitoring” within the Presidential Administration). During our meeting I got the impression that my enthusiasm for this novel approach to oil revenue management proved contagious, and since my return to Stanford I have rolled out my networking machinery to spread the virus among my academic colleagues. The time is certainly ripe. With oil prices set to remain high for the foreseeable future Kazakhstan and all other petrostates cannot afford to miss this historic opportunity to promote the diversification of their economies and to create the foundation for a future where oil may lose its dominant position to alternative sources of energy.

This conference on Austria and Central Europe Since 1989: Legacies and Future Prospects is the third in the series of biannual international conferences to study the political and cultural landscape of Austria and Central Europe since 1945. Our previous conferences focused on Central Europe during the period of the post-war up to 1989. This year’s conference gathers leading scholars and public figures to discuss the exciting developments of our contemporary era and to offer comments on future prospects for the region.

The conference panels will offer multi-disciplinary views of Central Europe today. Addressing topics from the area stretching from the Baltic to the Balkans, speakers will focus on Austria as well as Hungary, the Czech Republic, Poland, and the counties of former Yugoslavia. Presentations will explore political, economic, social, and cultural facets of the region’s larger dynamic. Among the milestone changes during this period which will be highlighted will be Austria’s (and other Central European countries’) ascendance to the European Union, the disintegration and reconfiguration of Balkan nations, the collapse of the Soviet Bloc, and the great mobility of goods and labor through the region and new forms of social and cultural interaction.

The two-day conference will be held at Stanford University on March 5 and 6, 2009. The conference panels will be conducted in workshop format. Papers will be pre-circulated to facilitate round table discussion among participants. Faculty, students, and the interested public are encouraged to attend.

Interest in democracy, economic development, and the rule of law is clearly on the rise. Just as global attention in 2005 remained riveted on establishing and protecting the fundamentals of democracy in transitioning societies—the parliamentary elections in Afghanistan, the constitutional vote in Iraq, the threat to civil liberties in Russia—these issues took on increasing prominence on the Stanford campus, for policymakers and students alike.

STANFORD SUMMER FELLOWS PROGRAM

The Center on Democracy, Development, and the Rule of Law (CDDRL), the Freeman Spogli Institute’s newest research center, hosted its first annual Summer Fellows Program on campus in August. This innovative program is designed to help emerging and established leaders of transitioning countries in their efforts to create the fundamental institutions of democracy, fight the pernicious problem of corruption, improve governance at all levels of society, and strengthen prospects for sustainable economic development. In contrast to other programs of democracy promotion, which seek to transfer ready-made models to countries in transition, the Stanford program provides a comparative perspective on the evolution of established democratic practices, as well as theoretical and practical background on issues of democracy and good governance, to assist with needed economic, political, and judicial reform.

The three-week 2005 leadership seminar attracted 32 participants from 28 countries for specialized teaching, training, and outreach, including leaders from the Middle East, North and Sub-Saharan Africa, Central Asia, and parts of the former Soviet Union, whose stability is so vital to the international system. The curriculum draws on the combined expertise of Stanford scholars and practitioners in the fields of political science, economics, law, sociology, and business and emphasizes the dynamic linkages among democratization, economic development, and the rule of law in transitioning countries.

DEMOCRACY, DEVELOPMENT, AND THE RULE OF LAW

In the fall quarter of 2005, a new undergraduate course, titled %course1% (PS/IR 114D), examining the dynamic and interactive linkages among democratic institutions, economic development, and the framework of law proved to be an all-star attraction for Stanford students. Conceived by the research faculty and staff at CDDRL as an important introduction to fundamental concepts and team-taught by a number of prominent Stanford scholars—including University President Emeritus Gerhard Casper (Stanford Law School), Larry Diamond (Hoover Institution), CDDRL Director Michael A. McFaul (Hoover Institution and Department of Political Science), and Peter B. Henry (Graduate School of Business), the course attracted a record number of students this fall. Encina Columns recently interviewed Kathryn Stoner, associate director of research and senior research scholar at CDDRL, the course convener, to glean a few highlights.

Q. WHY DID YOU CHOOSE TO OFFER THE COURSE AT THIS TIME?

A. CDDRL research staff and faculty decided to offer the course in the fall of 2005 as a launch for what we hope will become an honors program. We wanted to use PS/IR 114D as a gateway course into other courses taught by our faculty, as well. For example, Larry Diamond teaches a very popular course on democracy, and we thought our course would be a good way to introduce undergraduates to some of the basic themes of that course, while also introducing them to connections between democracy and economic development and the interplay of these with the rule of law.

Q. DID YOU ENVISION A QUARTER-LONG OR YEAR-LONG COURSE? WHY?

A. The course was always envisioned as just a quarter-long course. This is to provide a launch into the menu of other courses that are offered by our faculty.

Q. WERE YOU SURPRISED BY THE STUDENT RESPONSE?

A. We were very surprised to have 130 students in the course this fall. We ran the course as a “beta test” in the spring of 2005 with just 25 students, but apparently the buzz among undergraduates was good and our enrollment numbers jumped in September when we offered the course again. The political science department was caught a little off guard and we had to hustle to find enough teaching assistants to staff the course.

Q. WHO WERE YOUR MAIN LECTURERS AND WHAT WERE THEIR TOPICS?

A. We had 13 lecturers in all including Gerhard Casper, on what rule of law means and why people choose to follow law or not; Larry Diamond, on meanings of democracy and Iraq; Avner Greif, on how economic institutions are established historically; and Jeremy M. Weinstein, on international aid and development in Africa, to name but a few.

Q. WHAT TOPICAL THEMES HAVE YOU EXPLORED WITH YOUR STUDENTS?

A. The Iraq lecture by Larry Diamond was particularly topical and the students clearly learned a lot from him. They also enjoyed Jeremy Weinstein’s lecture on debates on aid policy in Africa. He set it up in an engaging way so that students had to decide whether “conditionality” was a good idea in providing aid to Africa or not.

Q. DID YOU FIND THAT PARTICULAR ISSUES HAD SPECIAL "RESONANCE" FOR STANFORD STUDENTS?

A. I think that there is growing interest among Stanford undergraduates in how democracy can be promoted and to what extent the United States should be involved in this project. Many students in our course are interested in doing some sort of work in the development field, so they wanted to explore cases of when democracies have become consolidated versus situations where they slid back into dictatorship. They are also particularly interested in when or whether force is appropriate in promoting or establishing democracy in the Middle East and Afghanistan, for example.

Q. WHAT PROVED MOST GRATIFYING TO YOU? DID YOU GAIN NEW INSIGHT?

A. I always gain new insights when I interact with smart students who are deeply interested and engaged in these issues. I also find it a real privilege to actually sit down and listen to my colleagues deliver lectures on areas of their expertise. That is truly a treat.

Q. WHAT'S NEXT? WILL YOU OFFER THIS COURSE AGAIN?

A. Yes, we intend to offer the course every fall quarter. We are also currently planning to launch an honors program, perhaps this spring. As part of that we will offer a seminar for juniors interested in writing theses on the general themes of democracy, development, and the rule of law in the developing world.

The Initiative on Distance Learning (IDL) has for six years offered courses on international security issues to Russian regional universities via distance-learning technologies. Thanks to a seed grant from the Whitehead Family Foundation, the Freeman Spogli Institute’s IDL program is currently pursuing a promising collaborative project with the Tshwane University of Technology (TUT) and the University of Pretoria, which will adapt the IDL program for use in institutions of higher education in South Africa. In the interdisciplinary spirit of FSI, the project affords IDL the opportunity to work with Stanford’s Center for Innovations in Learning, the School of Education, and the Woods Institute for the Environment, forming the eLearning Initiative in South Africa, or ELISA.

ELISA offers an opportunity to adapt the IDL delivery model and academic content to meet the interests of its South African audience, while allowing all three institutions to pursue their common interest in the potential for hand-held mobile devices to enhance the experience for learners in a distance-learning milieu. In South Africa, mobile communication devices have the ability to supplant computers as the technology of choice in higher education, offering advantages of desktop computing while eliminating connectivity barriers. We hope to demonstrate the power of mobile phone devices in improving teaching and learning, providing an important leverage point in student educational empowerment. The project will help our team design cell-phone-based teaching, learning, and assessment activities; evaluate their effectiveness; and yield information to help build a knowledge base for those actively working to integrate technology into higher education.

Mobile, hand-held technologies are nearly ubiquitous in South Africa, making it an ideal environment to assess their efficacy in teaching. More students have access to a cell phone (99.4 percent) than have an e-mail account (0.4 percent) in the Unit for Distance Education at the University of Pretoria1. Wireless technologies are allowing many developing countries to “leapfrog” ahead of developed countries by adapting mobile and flexible communication technologies, rather than investing in costly land-line infrastructures. Distance-learning educators need to take advantage of this new technology, in order to explore ways to enhance the learning process for receptive students.

This is particularly important in South Africa, which plays an increasingly prominent leadership role in addressing the political and economic development issues facing the African continent and the global community. Dedicated to training a cadre of leaders to approach pressing issues from multiple perspectives, South Africa has undertaken educational curriculum reform over the past 15 years. Educators are seeking to make education more widely available to all levels of society: reforming institutions of higher education, experimenting with innovative technology to reach students in remote areas, and participating in distancelearning courses within Africa and from abroad.

Mobile technologies have the potential to bridge the “digital divide,” offering the functionality of minicomputers, with less expense and greater portability. Students who might otherwise not be able to attend classes gain access to course materials, assignments, and learning interactions on demand. Students can use text, graphics, and video to express their ideas through mobile devices. Students can receive guidance and work plans from faculty or collaborate with fellow students; faculty can record their students’ work for analysis and grading. IDL welcomes this chance to study the ability of mobile devices to supplant computers as the technology of choice in higher education in South Africa.

ELISA will offer its first course to Tshwane University of Technology students in 2006, and expand the program in subsecquent years.

A foreign policy firmly grounded in democratic values makes it possible for small states to stand up for their rights in the face of the shifting interests of large states, Estonia’s President Arnold Rüütel said Jan. 20.

“It is precisely action based on values that can provide answers in complicated situations,” Rüütel said. “This also makes it possible to distinguish long-term important issues from short-term changing interests.”

During a lunchtime speech at the Freeman Spogli Institute for International Studies, Rüütel thanked the United States for maintaining its policy of nonrecognition of the Soviet occupation of Estonia, Latvia, and Lithuania from World War II until 1991, when Baltic independence was restored in a bloodless revolution. “For us, this represents a powerful confirmation of a values-based foreign policy that remains crucial also today,” he said.

Rüütel, a onetime Communist who helped orchestrate Estonia’s transition to independence, spoke to about 100 students, faculty, and donors at an event hosted by management science and engineering Professor William J. Perry, who also is the Michael and Barbara Berberian Professor, a former U.S. Secretary of Defense, and co-director of the Stanford-Harvard Preventive Defense Project. Accompanied by an Estonian delegation, Rüütel also met with Institute Director Coit D. Blacker and visited the Hoover Institution, where archival specialist David Jacobs had prepared an exhibit of Baltic-related material.

The display included a series of informal photographs from the personal album of Nazi Foreign Minister Joachim von Ribbentrop taken during his visit to Moscow to sign the 1939 Molotov-Ribbentrop Pact, which was concluded just a few days before the beginning of World War II. The pact, which included a secret protocol dividing Eastern Europe into Soviet and Nazi spheres of influence, sealed the fate of the Baltic states for a halfcentury. Soviet officials denied the protocol’s existence until 1989. The unpublished photographs, obtained by U.S. forces after World War II, include a rare image of an enthusiastically grinning Stalin taken just after the pact was signed. “That’s a smile from the heart,” Rüütel remarked in Estonian.

Rüütel’s speech, which was translated into English, discussed Estonia’s two-year-old membership in the European Union and NATO. While the union gives opportunities for economic and social development in a globalizing world, Rüütel said, membership also offers Estonia a chance to contribute to international stability. And while NATO offers unprecedented protection, he continued, Estonia also is obliged to contribute to international security.

“NATO is not only a toolbox from which different tools can be taken,” Rüütel said. “It is an important mechanism for political and military cooperation among 26 states. We need it.” Public support for the organization remains at a steady 65 to 70 percent, he explained. “The NATO airspace control operation in the Baltic states certainly plays a role in this context,” he said. “Last year, U.S. planes contributed to it. We are grateful to the U.S. government.”

As a member of NATO, Estonia plans to increase its defense expenditure to 2 percent of gross domestic product by 2010, Rüütel said. The country also has participated in the “coalition of the willing.” Estonian soldiers fighting in Iraq alongside U.S. forces “have proved to be worthy combatants,” Rüütel said. “Responsible tasks lie ahead of us in Afghanistan. The Estonian parliament has decided to send up to 150 soldiers at a time there this year. Allow me to recall that there are 1.4 million inhabitants in Estonia.”

The president said that military operations can help to restore stability in conflict areas by providing security but that long-term success can be achieved only through the establishment of a free society based on democratic principles and the rule of law.

“The more successful the reconstruction and the strengthening of good governance are, the faster our peace forces can be [brought] home.” Arnold Rüütel, President of EstoniaWe need considerably higher capabilities for the strengthening of the civilian component in crisis management and [ensuing] reconstruction than we have today, both at the level of states and international organizations,” he said. “The more successful the reconstruction and the strengthening of good governance are, the faster our peace forces can be [brought] home.”

Rüütel also discussed his country’s role in combating international terrorism. “Estonia is determined to be a credible partner,” he said. “Among other things, this means making sure that our territory [is] not used by terrorists to prepare operations, to move money or for any other purpose.”

After the speech, Blacker asked about Estonia's relationship with neighboring Russia. A border agreement between the two countries remains unsigned. In response, Rüütel offered a history lesson about the consequences of the Molotov-Ribbentrop Pact after the Soviet Union forcibly annexed Estonia. Many of the country’s leaders were arrested, murdered or sent to death camps in Siberia, he said. Following the Nazi occupation of Estonia during the war, Soviet repression continued after 1945. In a country of 1.2 million inhabitants, about 70,000 people were deported to Siberia and more than 100,000 escaped to the West. As a result of World War II and its aftermath, he said, Estonia lost one out of every five citizens. “Practically, every Estonian family was somehow touched by these events,” he said. “This is something really difficult to forget.” Russia has failed to deal with its history in an honest way, he said.

Although Estonia cannot forget the past, Rüütel said his country is ready to cooperate with Russia and he expressed hope that a border treaty would soon be completed. “I would like to hope that Russia, one day, will understand that we are good neighbors living side by side with each other,” he said.

“Should the United States promote democracy around the world?” Stanford alumna Kathleen Brown, a former FSI advisory board member, former Treasurer of the State of California, and current head of public finance (Western region) Goldman Sachs

How are democracy, development, and the rule of law in transitioning societies related? How can they be promoted in the world’s most troubled regions? These were among the provocative issues addressed by faculty from the Freeman Spogli Institute’s Center on Democracy, Development, and the Rule of Law, as part of Stanford Day in Los Angeles on January 21, 2006. Panelists included Michael A. McFaul, CDDRL director, associate professor of political science, and senior fellow, the Hoover Institution; Kathryn Stoner, associate director for research and senior research associate at CDDRL; and Larry Diamond, coordinator of CDDRL’s Democracy Program, a Hoover Institution senior fellow, and founding co-editor of the Journal of Democracy.

The capstone of a day devoted to “Addressing Global Issues and Sharing Ideas,” the CDDRL panel was attended by more than 850 alumni, Stanford trustees, and supporters as part of the nationwide “Stanford Matters” series. Moderated by Stanford alumna Kathleen Brown, a former FSI Advisory Board member, former treasurer of the State of California, and current head of public finance (western region) Goldman Sachs, the panel looked at some of the toughest trouble spots in the world, including Iraq, Russia, and other parts of the former Soviet Union.

“Should the United States promote democracy around the world?” Brown began by asking Center Director Michael McFaul. “The President of the United States has said that the United States should put the promotion of liberty and freedom around the world as a fundamental policy proposition,” McFaul responded, noting “it is the central policy question in Washington, D.C., today.” It is not a debate between Democrats and Republicans, he continued, but rather between traditional realists, who look at the balance of power, and Wilsonian liberals, who argue that a country’s conduct of global affairs is profoundly affected by whether or not it is a democracy. The American people, McFaul noted, are divided on the issue. In opinion polls, 55 percent of Republicans say we should promote democracy, while 33 percent say no. Among Democrats, only 13 percent answer unequivocally that the United States should promote democracy.

“The President of the United States has said that the United States should put the promotion of liberty and freedom around the world as a fundamental policy proposition, and it is the central policy question in Washington, D.C., today.” CDDRL Director Michael McFaulAsserting that the United States should promote democracy, McFaul offered three major arguments. First is the moral issue—democracies are demonstrably better at constraining the power of the state and providing better lives for their people. Democracies do not commit genocide, nor do they starve their people. Moreover, most people want democracy, opinion polls show. Second are the economic considerations—we benefit from open societies and an open, liberal world trade system, which allows the free flow of goods and capital. Third is the security dimension. Every country that has attacked the United States has been an autocracy; conversely, no democracy has ever attacked us. The transformation of autocracies, including Japan, Germany, Italy, and the Soviet Union, has made us safer.

It is plausible to believe that the benefits of transformation in the Middle East will make us more secure, McFaul argued. “It would decrease the threats these states pose for each other, their need for weapons, and the need for U.S. intervention in the region,” he stated. Democratic transformation would also address a root cause of terrorism, as the vast majority of terrorists come from autocratic societies. There are, however, short-term problems, McFaul pointed out. Free elections could lead to radical regimes less friendly to the United States, as they have in Egypt, Iran, Iraq, and now in Palestine. U.S. efforts to promote democracy, he noted, can actually produce resistance.

Having advanced a positive case, McFaul asked FSI colleague Stoner-Weiss, “So, how do we promote democracy?” Stoner-Weiss, also an expert on Russia, said it is instructive to see how Russia has fallen off the path to democracy. In 1991, when the Soviet Union collapsed, it seemed to be an exciting time, rife with opportunity. “Here was an enemy, a major nuclear superpower, turning to democracy,” she stated. Despite initial U.S. enthusiasm, the outcome has not been a consolidated democracy. Russia, under Vladimir Putin, is becoming a more authoritarian state, a cause for concern because it is a nuclear state and a broken state—with rising rates of HIV and unable to secure its borders or control the flow of illegal drugs.

“So can we promote democracy?” Stoner-Weiss asked. The answer is a qualified yes, from Serbia to Georgia, and the Ukraine to Kyrgyzstan. But Russia has 89 divisions, 130 ethnicities, 11 time zones, and is the largest landmass in the world, she noted. Moving from a totalitarian state to a democracy and an open economy is enormously complicated. As Boris Yeltsin said in retiring as president on December 31, 1999, “What we thought would be easy turned out to be very difficult.”

Where is Russia today? It ranks below Cuba on the human development index; it is moving backward on corruption; and its economic development is poor, with 30 percent of the public living on subsistence income. Under Putin’s regime, private media have come under pressure, television is totally stated controlled, elections for regional leaders have been canceled, troops have remained in Chechnya, and Putin has supported controversial new legislation to curb civil liberties and NGO’s operating in Russia.

“How did Russia come to this?” she asked. In retrospect, the power of the president has been too strong. Initial “irrational exuberance” in the United States and Europe about what we could do has given way to apathy. Under Yeltsin, rule was oligarchical and democracy disorganized. Putin came to office promising a “dictatorship of law” to rid the country of corruption. Yet Russia under Putin, who rose through the KGB and never held elective office, has become far less democratic. He has severely curtailed civil liberties. The economy, dependent on oil and natural gas, is not on a path of sustainable growth.

“What can the United States do?” Stoner-Weiss asked. We have emphasized security over democracy, she pointed out, and invested in personal relations with Russia’s leaders, as opposed to investing in political process and institutions. We do have important opportunities, she noted. Russia chairs the G-8 group of major industrial nations this year, providing major opportunities for consultation, and wants to join the World Trade Organization. The United States should advance an institutional framework to help put Russia back on a path to democracy, a rule of law, and more sustainable growth, she argued.

Diamond, an expert on democratic development and regime change, examined U.S. involvement in the Middle East, noting that it is difficult to be optimistic at present. “Democracy is absolutely vital in the battle against terrorism,” he stated. The United States has to drain the swamp of rotten governments, lack of opportunity for participation and the pervasive indignity of human life. “The dilemma we face,” he pointed out, “is getting from here to there in the intractable Middle East.” There is not a single democracy in the Arab Middle East. This is not because of Islam, but rather the authoritarian nature of regimes in the region and the problem of oil.

“Can we promote democracy under these conditions?” Diamond asked. We need to get smart about it, he urged, noting that success depends on the particular context of each country. “If we want to promote democracy, the first rule is to know the country, its language, culture, history, and divisions,” he stated. We need to know, he continued, “who stands to benefit from a democratic transformation and, conversely, who stands to lose?” Rulers of these countries need to allow the space for freedom, for civic and intellectual pluralism, for open societies and meaningful participation. The danger is that there could be one person, one vote, one time. A second rule is that “academic knowledge and political practice must not be compartmentalized.” “To succeed,” Diamond stated, “we need to marry academic theories with concrete knowledge of these countries’ traditions, cultures, practices, and proclivities.”

In the lively question-and-answer session, panelists were asked, “Under what conditions is it appropriate to use force to promote democracy?” McFaul answered that we cannot invade in the name of democracy—we rebuilt Japan in that name but we did not invade that nation. We invaded Iraq in the name of national security. We know how to invade militarily, but still must learn how to build democracy. Effectiveness in the promotion of democracy, Diamond pointed out, requires the exercise of “soft” power—engagement with other societies, linkages with their schools and associations, and offering aid to democratic organizations around the world. Stoner-Weiss concurred, noting that we have used soft power effectively in some parts of the former Soviet Union, notably the Ukraine. People-to-people exchanges definitely help, she added.

To combat Osama bin Laden and the threat of future attacks in the United States, Diamond stated, we must halt the proliferation of nuclear weapons. North Korea and Iran are two of the most important issues on the global agenda. And we have got to improve governance in the Middle East in order to reduce the chances that the states of the region will breed and harbor stateless terrorists. A democratic Iran is in our interest, McFaul emphasized. Saudi Arabia must change as well—the only issue is whether change occurs with evolution or revolution. Democracy, economic development, and the rule of law, McFaul concluded, are inextricably intertwined.

Asked by alumnus and former Stanford trustee Brad Freeman what needs to happen to re-democratize Russia, McFaul pointed out that inequality has been a major issue in Russia—a small portion of the population controls its wealth and resources and, therefore, the political agenda and the use of law. Russia has been ruled by men and needs the rule of institutions, said Stoner-Weiss. We should insist that Putin allow free and fair elections, freedom of the press, and freedom of political expression, and re-focus efforts on developing the institutions of civil society, she stated.

Reform is a generational issue, McFaul emphasized. We need to educate and motivate the young so they can change their country from within. The Stanford Summer Fellows Program, which brought emerging leaders from 28 transitioning countries to Stanford in the program’s inaugural year of 2005, provides an important venue for upcoming generations to meet experienced U.S. leaders and others fighting to build democracies in their own countries. Such exchanges help secure recognition that building support for democracy, sustainable development, and the rule of law is a transnational issue.

As the world’s most dynamic and rapidly advancing region, the Asia-Pacific has commanded global attention. Business and policy leaders alike have been focused on the rise of China, tensions on the Korean peninsula, Japan’s economic recovery and political assertiveness, globalization and the outsourcing of jobs to South Asia, Indonesia’s multiple transitions, competing forces of nationalism vs. regionalism, and the future of U.S.-Asia relations.

What is the near-term outlook for change in the region? How might developments in the economic, political, or security sphere affect Asia’s expected trajectory? And how will a changing Asia impact the United States? These were among the complex and challenging issues addressed by a faculty panel from the Shorenstein Asia-Pacific Research Center (Shorenstein APARC) and the Eurasia Group at the Asia Society in New York on January 23, 2006.

Moderated by director of the Freeman Spogli Institute for International Studies Coit D. Blacker, the Olivier Nomellini Family University Fellow in Undergraduate Education, the panel included Michael H. Armacost, the Shorenstein Distinguished Fellow, former Under Secretary of State for Political Affairs, and former Ambassador to Japan and the Philippines; Donald K. Emmerson, the director of the Southeast Asia Forum at Shorenstein APARC and noted expert on Indonesia; Harry Harding, the director of research and analysis at the Eurasia Group in New York and University Professor of International Affairs at George Washington University; and Gi-Wook Shin, the director of Shorenstein APARC, founding director of the Korean Studies Program, and associate professor of sociology at Stanford.

Q. COIT BLACKER: WHAT IS THE MOST DIFFICULT, CHALLENGING ISSUE YOU SEE?

A. HARRY HARDING:

In China, we are seeing a darker side of the Chinese success story. Millions of people have been lifted out of poverty, China's role in international affairs is on the rise, and China is an increasingly responsible stakeholder in an open, liberal global economy. Yet, the world is now seeing the problems China's reform program has failed to resolve. China's new five-year plan seeks to address a number of these issues, providing a plan for sustainable economic development that is environmentally
responsible and addresses chronic pollution problems, for a harmonious society that
addresses inequalities and inadequacies in the provision of medical care, insurance
and pension systems, and for continuing technological innovation, as part of China's
quest to become an exporter of capital and technology.

A. GI-WOOK SHIN:

The world should be deeply concerned about developments on the Korean peninsula. Two pressing issues are U.S. relations with South Korea and the nuclear crisis with the North. It is not clear when or whether we will see a solution. Time may be against the United States on the issue. China and South Korea are not necessarily willing to follow the U.S. approach; without their cooperation, it is difficult to secure a successful solution. The younger generation emerging in South Korea does not see North Korea as a threat. Our own relations with South Korea are strained and we are viewed as preoccupied with Iraq and Iran, as North Korea continues to develop nuclear weapons.

A. DONALD EMMERSON:

In Southeast Asia, a key problem is uneven development, both in and between the political and economic spheres. Potentially volatile contrasts are seen throughout the region. Vietnam is growing at 8 percent per year, but will it become a democracy? It has not yet. Indonesia has shifted to democracy, but absent faster economic growth, that political gain could erode. Indonesia's media are among the freest in the region;
multiple peaceful elections have been held--a remarkable achievement--and nearly all Islamists shun terrorism. Older Indonesians remember, however, that the economy
performed well without democracy under President Suharto. Nowadays, corruption
scandals break out almost daily, nationalist and Islamist feelings are strong, and the
climate is not especially favorable to foreign investment. While Burma's economy
lags, its repressive polity embarrasses the Association of Southeast Asian Nations
(ASEAN). How long can the generals in Rangoon hold on? Disparities are also
international: dire poverty marks Laos and Cambodia, for example, while the
Malaysian and Thai economies have done well.

A. MICHAEL ARMACOST:

Japan is a "good news/bad news" story. The good news is that Japan has found a new security niche since the end of the Cold War. Previously, when a security problem loomed "over the horizon," they expected us to take care of it while, if prodded, they increased their financial support for U.S. troops stationed in Japan. During the first post-Cold War conflict in the Persian Gulf, Japan had neither the political consensus nor the legal framework to permit a sharing of the risks, as well as the costs, and this cost them politically. Since then, they have passed legislation that permits them to participate in U.N. peacekeeping activities, contribute noncombat, logistic, and other services to "coalition of the willing" operations, and even dispatch troops to join reconstruction activities in Iraq. Clearly, their more ambitious role is helping to make the U.S.-Japan alliance more balanced and more global.The bad news is a reemergence of stronger nationalist sentiment in Japan and more generally in Northeast Asia. In part this is attributable to the collapse of the Left in Japanese politics since the mid-1990s. This has left the Conservatives more dominant, and they are less apologetic about Japanese conduct in the 1930s and 1940s, more inclined to regard North Korea and China as potential threats, more assertive with respect to territorial issues, less sensitive to their neighbors’ reactions to Prime Ministerial visits to Yasukuni Shrine, and more eager to be regarded as a “normal” nation. Many Asians see the United States as pushing Japan to take on a more active security role and, in the context of rising Japanese nationalism, are less inclined to view the U.S.-Japan alliance as a source of reassurance.

Q. COIT BLACKER: WHAT ARE THE COMPETING AND CONFLICTING TENSIONS BETWEEN REGIONALISM AND NATIONALISM?

A. HARRY HARDING:

In China, there has been a resurgence of nationalism over the past 10 to 15 years. Since the end of the Maoist era and the beginning of the reform movement, the leadership has embraced nationalism as a source of legitimacy, but this is a double-edged sword. It places demands on the government to stand up for China’s face, rights, and prestige in international affairs, especially vis-à-vis Japan, the United States, and Taiwan, at times pushing Beijing in directions it does not wish to go.

A. DONALD EMMERSON:

In Indonesia, it is important to distinguish between inward and outward nationalism. Outward nationalism was manifest in Sukarno’s policy of confrontation with Malaysia. ASEAN is predicated on inward nationalism and outward cooperation. Nationalist feelings can be used inwardly to motivate reform and spur development. But there are potential drawbacks. Take the aftermath of the conflict in Aceh. The former rebels want their own political party. Hard-line nationalists in the Indonesian parliament, however, are loath to go along, and that could jeopardize stability in a province already exhausted by civil war and damaged by the 2004 tsunami.

A. GI-WOOK SHIN:

Korea is a nation of some 70 million people, large by European standards, but small in comparison to the giants of Asia, especially China, India, and Russia, making Korea very concerned about what other countries are doing and saying. Korea is currently undergoing an identity crisis. Until the 1980s, the United States was seen as a “savior” from Communism and avid supporter of modernization. Since then, many Koreans have come to challenge this view, arguing that the United States supported Korean dictatorship. Koreans are also rethinking their attitudes toward North Korea, seeing Koreans as belonging to one nation. This shift has contributed to negative attitudes toward both the United States and Japan

Q. COIT BLACKER: GENERATIONAL CHANGE IS ALSO A MAJOR ISSUE IN CHINA, THE DPRK, AND JAPAN. WHAT DOES IT BODE FOR POLITICAL CHANGE?

A. MICHAEL ARMACOST:

Japan has had a “one and a half party system” for more than half a century. Yet the Liberal Democratic Party has proven to be remarkably adaptive, cleverly co-opting many issues that might have been exploited by the opposition parties. It is clearly a democratic country, but its politics have not been as competitive as many other democracies. As for the United States, we have promoted lively democracies throughout the region. But we should not suppose that more democratic regimes will necessarily define their national interests in ways that are invariably compatible with ours. In both Taiwan and South Korea, to the contrary, democratic leaderships have emerged which pursue security policies that display less sensitivity to Washington’s concerns, and certainly exhibit little deference to U.S. leadership.

A. GI-WOOK SHIN:

In both North and South Korea, a marked evolution is under way. In the South, many new members of the parliament have little knowledge of the United States. Promoting mutual understanding is urgently needed on both sides. In the North, the big question is who will succeed Kim Jong Il—an issue with enormous implications for the United States.

A. DONALD EMMERSON:

Indonesians have a noisy, brawling democracy. What they don’t have is the rule of law. Judges can be bought, and laws are inconsistently applied. The Philippines enjoyed democracy for most of the 20th century, but poverty and underdevelopment remain rife, leading many Filipinos to ask just where democracy has taken their nation.

A. HARRY HARDING:

China has seen a significant increase in rural protests. There has been an increase in both the number of incidents and the level of violence. People are being killed, not just in rural areas, but also in major cities like Chengdu. We are seeing a new wave of political participation by professional groups, such as lawyers and journalists, galvanizing public support on such issues as environmental protection, failure to pay pensions, confiscation of land, and corruption. A new generation has been exposed to the Internet, the outside world, and greater choice, but it is not yet clear at what point they will demand greater choice in their own political life.

 

WHAT WOULD YOU ADVISE THE PRESIDENT ON U.S. POLICY TOWARDS ASIA?

In the lively question-and-answer session, panelists were asked, "Given the chance to talk to the U.S. President about change and improvement in U.S.-Asia policy, what would you say?"

MICHAEL ARMACOST: I am struck by a mismatch between our interests and our strategy in Asia. In some respects our Asia policy has become something of an adjunct of our policy toward the Middle East-where we confront perhaps more urgent, if not more consequential, concerns. Asia is still the most dynamic economic zone in the world; it is the region in which the most significant new powers are emerging; and it is where the interests of the Great Powers intersect most directly. Also, it is an area where profound change is taking place swiftly. We are adapting our policies in Asia to accommodate current preoccupations in the Muslim world, rather than with an eye to preserving our power and relevance in Asia.

HARRY HARDING: It is striking how much Asian nations still want us around- as an offshore balancer and a source of economic growth. Yet they want us to understand the priorities on their agenda as well as our own. We are seen as obsessed with terrorism and China. We should exhibit more support for Asian institution building, as we have with the European Union. We also need to get our own economic act together-promoting education, stimulating scientific research and technological innovation, and reducing our budget deficits-and quit resting on past laurels. Requiring Japan to accept U.S. beef exports and then sending them meat that did not meet the agreed-upon standards has been a setback for our relations, since the Japanese public regards the safety of its food supply as critically important.

DONALD EMMERSON: Most opinion-makers in Southeast Asia are tired of Washington's preoccupation with terrorism. To be effective in the region, we must deal-and appear to be dealing-with a wider array of economic, social, and political issues, and not just bilaterally. The United States is absent at the creation of East Asian regionalism. For various reasons, we were not invited to participate in the recent East Asia Summit. Meanwhile, China's "smile diplomacy" has yielded 27 different frameworks of cooperation between that country and ASEAN. We need to be more, and more broadly, engaged.

MICHAEL ARMACOST: The establishment of today's European community began with the historic reconciliation between France and Germany. I doubt that a viable Asian community can be created without a comparable accommodation between China and Japan. Some observers believe that current tensions between Tokyo and Beijing are advantageous insofar as they facilitate closer defense cooperation between the United States and Japan. I do not share that view. A drift toward Sino-Japanese strategic rivalry would complicate our choices as well as theirs, and I hope we can find ways of attenuating current tensions.