As a model of a democratizing and secular Muslim state that has been a stalwart ally for more than 50 years, Turkey is of enormous strategic importance to the United States and Europe, especially at a time when the widening chasm between the West and the Islamic world looms as the greatest foreign policy challenge. Yet Ankara's relations with Washington are strained - over Iraq, Cyprus, Syria, Iran and Hamas - and Turkey's prospects for joining the European Union remain uncertain.

As Washington prepares for a visit Wednesday by Turkey's foreign minister, Abdullah Gul, the United States and Turkey should explore three initiatives to repair and revitalize their relationship.

First, although the United States and Turkey share broad goals in Iraq, the situation there threatens a potential breach in relations. The Turks feel the war in Iraq has undermined their security by stirring Kurdish nationalism. It also coincided with renewed terrorist attacks mounted by the Kurdistan Worker's Party from inside Iraq. To address this challenge, the United States should initiate a trilateral dialogue on the future of Iraq with Turkey and representatives of the Iraqi government, including Kurdish leaders.

If the effort to build a functioning Iraqi government is successful, this trilateral consultative process will support the common goal of a unified and sovereign Iraq; should the Iraqi government fail, the dialogue will provide a mechanism for managing some of the worst potential consequences.

Second, Washington must make it a diplomatic priority to persuade skeptics in Europe to take a more positive approach toward Turkey. Peering into the future and considering the strategic implications of a Turkey unmoored - or, more darkly, a Turkey that turns against its traditional partners, aligning itself more closely with Damascus, Moscow or Tehran - should be instructive.

Washington needs to make the case to its European allies that delaying Turkey's accession to the EU could harm their security. The longer accession takes, the more likely it is that Turks will become disenchanted with the EU and look elsewhere for opportunities; it is also more likely that Turkey's impressive political reform process, which began in 2002, will stall.

Further, Washington should take a leadership role in working to resolve the Cyprus conflict, which threatens to create further obstacles to Turkish EU membership. Rather than waiting for a new UN or EU initiative on the future of the island, America should catalyze a renewed negotiation process. A special Cyprus coordinator would work with the UN and EU to develop a new plan for reuniting the island, encourage European leaders to use their collective clout to require more constructive behavior from the Cypriot government, and coordinate Washington's political, diplomatic and economic steps to break Turkish Cypriots from their international isolation.

Third, the United States and Turkey should establish a high-level commission that meets twice a year and provides a structured mechanism for interaction across agencies of government, nongovernmental organizations and the private sector. At the outset, three working groups should be launched, focusing on security, economic and commercial ties, and educational and cultural exchanges.

A U.S.-Turkey cooperation commission could facilitate the re-establishment of the sustained interaction that characterizes America's strongest partnerships, and provide a foundation for keeping Turkey aligned with the West should Ankara's bid for EU membership ultimately fail.

As tensions over the outcome in Iraq mount, the prospects for generating positive momentum in U.S.- Turkey relations are diminishing. The consequences of a disoriented Turkey would be even greater than a failure in Iraq. America and Europe must do everything they can to ensure that Turkey remains firmly anchored in the West.

Steven A. Cook and Elizabeth Sherwood-Randall are fellows at the Council on Foreign Relations.

SELECT: What is the current size of the outsourcing market? What percent of U.S. software development, call centers, etc., have already moved to developing nations? Is the amount of outsourcing still increasing?

Dossani: To provide some perspective, although the off-shoring of services has been going on for mans Nears, technology led by the widespread use of the Internet has changed things. The resulting new twist in the provision of services is that the required interaction between the seller and the consumer has been substantially limited. The advances in information technology made possible the parsing of the provision of certain services into components requiring different levels of skill and interactivity As a result, certain portions of the serviced activity that might or might not be skill-intensive, but required low levels of face-to-face interaction could be relocated offshore. The sequence of events that enabled this process is the following:

First, the digital age allowed (or, at least, revolutionized) the conversion of service flows into stocks of information, making it possible to store a service. For example, a legal opinion that earlier had to be delivered to the client in person could now be prepared as a computer document and transmitted to the client via e-mail or, better yet, encoded into software. Easy storage and transmission allowed for the physical separation of the client and vendor as well as their separation in time. It also induced the separation of services into components that were standardized and could be prepared in advance (such as a template for a legal opinion) and other components that were customized for the client (such as the opinion itself) or remained non-storable. Taking advantage of the possibility of subdividing tasks and the economies that come with the division of labor, this reduced costs by offering the possibility of preparing the standardized components with lower-cost

labor and, possibly at another location.

The second fundamental impact of digitization was the conversion of non-information service flows into information service flows. For example, the sampling of tangible goods by a buyer through visiting a showroom is increasingly being replaced by virtual samples delivered over the Internet. Once converted to an information flow, the service may also he converted into a stock of information and subjected to the above mentioned forces of cost reduction through standardization of components and remote production.

Third, the low-cost transmission of the digitized material accelerated the off-shoring of services. Services such as writing software programs which were off-shored to India in the early 1970s were enabled by digitized storage and, in the 1980s, by the standardization of programming languages. Still later, as digital transmission costs fell in

the 1990s (just as digital storage costs had fallen earlier), even nonstorable

services, such as customer care, could he handled offshore.

The offshore services outsourcing market (excluding software development) is still small and will probably be approximately $10 billion for 2005. It employs about 500,000 people, two thirds of whom are located in India. The rest are widely distributed, with developing Asia and Ireland accounting for most of the remaining employment. About 60% of the employment is in call centers. The U.S. and U.K. call-center industry together employ about five million people, so the percentage of offshore jobs is still small. It is even smaller for other services.

Offshore software development employs approximately another 500,000 people. This compares with U.S. employment of about two million. This is a larger percentage of the total software development labor market. although most of the outsourced work is programming, while work such as systems integration and design continue to be done in the U.S.

The growth rate is still high and there are concerns about whether or not this rapid growth rate will hurt the quality of work done. However. this rate will still likely he in excess of 30% in 2005 and 2006. The reason for this is the massive wage differential.

Clearly there have been massive failures as well as outstanding successes in outsourcing. What are the critical success factors for making outsourcing work?

The infrastructure (telecom. finance, power) has all been standardized, although the solutions might not he the same as in developed countries. The critical success factors are two: the quality of labor and supervision; and managing growth. Unbelievable there is a growing shortage of labor. The result is that the quality of work is declining. Project supervisory skills are also in short supply. Managing growth, especially keeping attrition

under control, training, developing new vertical skills, moving into back-office work, and offering the client turnkey packages are some of the critical managerial factors for success.

Short of being willing to work for $15,000/year, what can western IT professionals do to provide sufficient value to prevent their functions from being outsourced?

The U.S. educational system still turns out a good product. It is sufficiently ahead of the comparable Indian product so that a recent computer science/computer engineering graduate from the average U.S. university can earn a premium of at least 100% over his Indian counterpart from a good university such as the IlTs, with substantially higher premiums for graduates from schools such as MIT and Stanford. The problem occurs more with mid-career professionals. Those with older skills are unable to compete with freshly trained graduates from India. Therefore, they need to update those skills regularly and take advantage of opportunities to globalize and convert them into managerial skills. This may have to he mandated at some point, as has happened in the financial sector, where stockbrokers need to regularly sit for exams to renew their licenses.

That said, most of the offshore jobs are relatively low-skilled. For example, the single largest category of offshore services is outbound calling for the financial services industry for selling mortgages or collecting overdue receivables. The work is routine, based on scripts that pop-up on the computer screen in response to prompts.

Do these findings suggest that developed countries are likely to be only marginally threatened by the globalization of services? Even if high-end work is stays within developed countries, as has happened in the software industry, the problem is that not everyone in developed countries can readily shift to high-end work. Since the 1960s, the shift in the economies of developed nations towards service-based economies certainly increased the number of highly-skilled service workers, but there was an even greater swelling in the number of other less-skilled service workers. This is partly a consequence of the nature of many services as linked, inseparable sets of activities with different

skill levels, combined with a pyramid of labor requirements, i.e., there is more demand for lower-level work than for high-end work. In manufacturing. the unemployment created by the reduction in demand for blue collar labor in developed countries was offset by the absorption of much of the surplus labor into service industries, often with minimal training. But the shift of low-end service workers to high-end workers will require a longer period of re-education and may have significant interim consequences on unemployment rates.

The threat to developed countries is increased by the fact that, apart from software, the largest growth in off-shoring is happening in business services. These are also the sectors with the largest growth in U.S. employment.

Further, there is evidence that even higher skilled functions can be moved offshore or might evolve on their own. For example, interviews with people at a firm earlier this year revealed that they had initially been contracted by an American firm to call its clients with overdue credit card payments. The offshore company eventually purchased the receivables from its client and assumed the collection risk itself. Another firm, Wipro Spectramind, managed the radiology services of Massachusetts General Hospital for its second and third shifts. Thus, American radiologists, who earn an average of $315,000 a year were replaced by Indian radiologists, who earn $20,000 a year on average.

I understand that there is a whole subculture in Pakistan and India of people who go to work in the late afternoon or evening and then work a full day on U.S. time. What effect has outsourcing had on the cultures of the countries that are recipients of much of the outsourced work? Have labor rates dramatically increased? Is it difficult for local companies in India and Pakistan to get quality IT talent?

Indeed such a subculture now exists. It is viewed as very stressful work and not suitable for a long-term career. Companies that do such work try to ameliorate the stress by hiring psychiatric counselors to provide free counseling to stressed-out employees. They also provide free meals and transportation, sports facilities, etc.

However, labor rates have increased only, a little. This is more than offset by

the rise in productivity of this labor over time.

Outsourcing is clearly a temporary solution. As labor rates equalize, the benefit of outsourcing decreases. In Pakistan and China, there are still huge differences in labor costs, but in Turkey, rates are closer to what they are in the 11.5. and other Western states. Realistically, how long can we gain a significant benefit form outsourcing?

India and China, and to some extent, Pakistan, have large labor pools. That is why, in manufacturing, Chinese wage rates have not changed despite massive employment growth over the past three decades. I think that wage rates in India will actually fall because of increasing supply, which is being drawn into outsourcing. This would mean several more decades of benefit from outsourcing.

One way in which developed countries may retain value is if their firms control the work done, either through providing the risk capital or through subsidiaries. While it is difficult to predict which organizational types will dominate, a number of firm-specific factors that influence the liability of off-shoring and organization structure are summarized here:

The knowledge component of the activity. A higher knowledge component makes the firm more concerned about whether the quality of the service will change due to a location change or the transfer process.

The interactive components of the process.

The ability to modularize the process

Savings from concentrating an activity in one location, leading to

benefits of scale and scope.

Reengineering as part of the transfer process. To transfer a business process, it is necessary to study it intensively and script the transfer. In the process of study, often there will he aspects of the current methodology for discharging the process that do not add value. Very often these aspects are legacies of earlier methodologies that were not eliminated as the production process evolved. During the act of transfer these are easier to abandon than at an existing facility' where they have become a "natural' part of the daily routine. Our interviews identified other unexpected benefits that go beyond the efficiency effects. Simply examining the business processes may reveal previously undetected inefficiencies. During the transfer process, these inefficiencies can be addressed without disrupting work patterns. Workers in the new location then use the reengineered process which is usually more efficient.

The time-sensitive nature of the work.

The turkey and ham many are eating this holiday season don't just appear magically on the table. Most are the end product of an increasingly global, industrialized system that is resulting in costly environmental degradation. Better understanding of the true costs of this resource-intensive system will be critical to reducing its negative effects on the environment, says an interdisciplinary team of researchers led by Stanford University's Rosamond Lee Naylor, Walter Falcon, and Harold Mooney.

"Losing the Links Between Livestock and Land" appears in the Policy Forum in the Dec. 9 issue of Science. It represents a synthesis of research by professors at Stanford University, the University of Virginia, the University of California at Davis, the universities of Manitoba and British Columbia in Canada, and the United Nations LEAD (Livestock Development and Environment) program within the Food and Agricultural Organization of UN.

"Sixty years ago, the link between the livestock production and consumption was much more clear and direct, with most consumers getting their meat and dairy products from small, family-owned farms," says lead author Naylor, an economist. Co-author Falcon agrees. "When I was growing up in Iowa, almost all farmers kept both chickens and pigs."

Today, meat consumption has sky-rocketed, and large-scale intensive livestock operations provide most of those products, both in the U.S. and around the world.

Particularly striking is the growth in demand for meat among developing countries, Naylor notes. "China's meat consumption is increasing rapidly with income growth and urbanization, and it has more than doubled in the past generation," she says. As a result, land once used to provide grains for humans now provides feed for hogs and poultry.

Numerous factors have contributed to the global growth of livestock systems, Naylor notes, including declining feed-grain prices; relatively inexpensive transportation costs; and trade liberalization. "But many of the true costs remain largely unaccounted for," she says. Those costs include destruction of forests and grasslands to provide farmland for corn, soybeans and other feed crops destined not directly for humans but for livestock; use of large quantities of freshwater; and nitrogen losses from croplands and animal manure.

Nitrogen losses are especially problematic, says James Galloway of the University of Virginia. "Once nitrogen is lost to the atmosphere or to water, it can have a large number of sequential environmental effects. For example, ammonia emitted into the atmosphere can in sequence affect atmospheric visibility, forest productivity, lake acidity and eventually impact the nutrient status of coastal waters."

Naylor cited Brazil as a specific example of the large impact on ecosystems and the environment. "Grasslands and rainforests are being destroyed to make room for soybean cultivation," she said. The areas are supplying feed to the growing livestock industry in Brazil, China, India and other parts of the world, leading to "serious consequences on biodiversity, climate, soil and water quality."

Naylor and her research team are seeking better ways to track all costs of livestock production, especially the hidden ones related to ecosystem degradation and destruction. "What is needed is a re-coupling of crop and livestock systems," Naylor said. "If not physically, then through pricing and other policy mechanisms that reflect social costs of resource use and ecological abuse."

Such policies "should not significantly compromise the improving diets of developing countries, nor should they prohibit trade," Naylor added. Instead, they should "focus on regulatory and incentive-based tools to encourage livestock and feed producers to internalize pollution costs, minimize nutrient run-off, and pay the true price of water."

She cited efforts in the Netherlands to track nitrogen inputs and outputs for hog farms as one approach. In the U.S., the 2002 Farm Bill provided funds for livestock producers to redesign manure pits and treat wastes, but she notes that much greater public and private efforts are needed to reduce the direct and indirect pollution caused by livestock.

In the end, though, it may be up to consumers to demand more environmentally sustainable approaches to livestock production. "In a global economy with no global society, it may well be up to consumers to set a sustainable course," she added.

Seed funding for the research was provided by the Woods Institute for the Environment, which supports interdisciplinary approaches to complex environmental issues. Naylor, Falcon and Mooney are affiliated with the institute and with the Center for Environmental Sciences and Policy in Stanford's Freeman Spogli Institute for International Studies.

In addition to Naylor, Mooney and Falcon of Stanford and Galloway of Virginia, co-authors are Henning Steinfeld of the United Nations Food and Agriculture Organization; Galloway; Vaclav Smil, University of Manitoba; Eric Bradford, University of California at Davis; and Jacqueline Alder, University of British Columbia.