Authored by Steve H. Hanke of the Johns Hopkins University. Follow him on Twitter @Steve_Hanke. Economic policy is subject to fads and fashions. The most recent economic-policy fad is public infrastructure. Its advocates include progressives on the “left” and populists on the “right.” It is an undefined hallmark of President Trump’s economic program. They all tell us to take the chains off fiscal austerity and spend — spend a lot — on public works. They allege that this elixir will cure many, if not all, of our economic ills. Let’s take a look at their arguments and evidence. Although its picked up recently, economic growth remains muted throughout the world. The U.S. provides an important example. It has been over eight years since Lehman Brothers collapsed and the Great Recession commenced. But, the U.S. has failed to bounce back. The economy is still struggling to escape from a growth recession — a recession in which the economy is growing, but growing below its trend rate of growth. The U.S. aggregate demand, which is best represented by final sales to domestic purchasers (FSDP), is now only close to reaching its trend rate, with growth in nominal terms at a 4.43% percent rate (see the accompanying chart). Many argue that fiscal “austerity” is the culprit that has kept growth tamped down. They advocate fiscal stimulus (read: spending on public works). Another line of argument used to support massive increases in spending on public works goes beyond the standard Keynesian counter-cyclical argument. It is the secular-stagnation argument. Its leading advocate is Harvard Economist, Larry Summers, formerly U.S. Treasury Secretary and President of Harvard. He argues that private enterprise is failing to invest, and that, with weak private investment, the government must step up to the plate and spend on public works. For evidence to support Summers’ secular-stagnation argument, he points to anemic private domestic capital expenditures in the U.S. As the accompanying chart shows, net private domestic business investment (gross investment — capital consumption) is relatively weak and has been on a downward course for decades. Investment is what fuels productivity. So, with little fuel, we should expect weak productivity numbers in the U.S. Sure enough, the rate of growth in productivity is weak and has been trending downward. The U.S. is in the grips of the longest slide in productivity growth since the late 1970s. The secular stagnationists assert that the “deficiency” in net private investment and the resulting productivity slump can be made up by public works spending. Both the counter-cyclical and the secular-stagnation arguments have been trotted out many times in the past. So, it’s old wine in new bottles. But, it seems to be selling as a means to escape fiscal austerity. If proposed public works projects proceed as projected, the government financing magnitudes would be stunning. The McKinsey Global Institute estimates that annual spending of $3.7 trillion per year from 2013 through 2030 would be “required” worldwide. McKinsey’s “requirements” estimate was computed by using the 70 percent rule of thumb. As shown in the accompanying chart, the average value of the stock of infrastructure for representative countries is 70 percent of GDP. Based on this value, McKinsey then calculated the amount of spending required to keep the global infrastructure stock to GDP ratio fixed at 70 percent over the 2013-2030 period. That exercise yielded a whopping total of $67 trillion in public works spending, which is in the ballpark of most other estimates. President Trump has jumped on this infrastructure bandwagon. He is proposing a $1 trillion public works program. Following the script of the public works advocates (read: big spenders), Trump has lifted a page from President Obama’s Council of Economic Advisers (CEA). The President’s CEA’s 2016 Annual Report contains a long chapter titled “The Economic Benefits of Investing in U.S. Infrastructure.” That title alone tells us a great deal. Infrastructure spending advocates focus on the alleged benefits, which are often wildly inflated, while ignoring, downplaying, or distorting the cost estimates. This was clearly on display in an op-ed, “These are the Policies to Restore Growth to America,” which appeared in the Financial Times (12-13 November 2016). It was penned by Anthony Scaramucci, the short-lived adviser of President Trump. In it, Scaramucci asserted that infrastructure spending “has an estimated economic multiplier effect of 1.6 times, meaning Mr Trump’s plan would have a net reductive effect on long-term deficits.” This multiplier analysis is exactly the same one used by President Obama’s CEA to justify public works spending. The idea that a dollar of government spending creates more than a dollar’s worth of output is nothing new. Indeed, the multiplier originated in an article that appeared in a 1931 issue of the Economic Journal. The article was written by R. F. Kahn, who was one of John Maynard Keynes’ favorite students and closest collaborators. Since Kahn’s 1931 article, the multiplier has become an inherent part of Keynesian theory. The numerical values of the multiplier are not only sensitive to the assumptions employed, but also subject to misuse in the artificial inflation of benefits. Once public works are installed, the hot air comes out of their alleged benefits. These projects are poorly maintained, and users are often not charged for what they use, or they are charged prices set well below the relevant costs incurred. Water is a classic case. For example, the accompanying chart shows that, on average, 34 percent of the water delivered to water systems is either stolen or leaks out of the distribution systems. In Nigeria, 70 percent is leaked or stolen. So, it’s hard to take seriously the claims that billions of dollars are required to develop more water-resource capacity when much of the water produced in existing systems leaks away. Adjusted for leaks and thefts, the alleged benefits for many new projects, which have been inflated by multipliers, wither away to almost nothing. When we turn to the cost side of the ledger, something infrastructure advocates prefer to keep from the public’s view, we find that infrastructure projects are always subject to cost overruns. While the projects might look good on paper, reality is a different story. Detailed studies show that the average ratios of actual costs to estimated costs for public works projects in the U.S. typically range from 1.25 to over 2.0. In addition to cost overruns, the financing of infrastructure requires the imposition of taxes, and taxes impose costs beyond the amount of revenue raised. The excess burdens of taxation include “deadweight” distortions and enforcement and compliance costs. In short, it costs more than a dollar to finance a dollar in government spending. The best estimates indicate that, on average, it costs between $1.50 to $1.60 to raise a dollar in tax revenue. Taking proper account of cost overruns and the costs of collecting taxes, one wonders if there are any public works projects that could justify federal financing, let alone financing to the tune of $1 trillion. Welcome to the wonderful world of infrastructure waste, fraud, and abuse. This piece was originally published on Forbes.
Trump Says No Deal Reached on DACA (WSJ); Trump Denies Democrats’ Claim That They Made a Deal on ‘Dreamers’ (BBG) Weak China data knocks global stocks off record highs (Reuters) GOP to Release Tax Overhaul as Trump Says Rich Won’t Benefit (WSJ) North Korea threatens to 'sink' Japan, reduce U.S. to 'ashes and darkness' (Reuters) Saudi Arabia Clamps Down as Prince Consolidates Power (WSJ) Thank You for Calling Equifax. Your Business Is Not Important to Us (BBG) BOE Says Interest Rates Could Rise Within Months (WSJ) U.S.'s Mnuchin Sought Government Plane for Honeymoon in Europe (BBG) New York’s Plaza Hotel Is in the Sights of This Shy Billionaire (BBG) Russian submarines fire cruise missiles at Islamic state in Syria (Reuters) United Tech-Rockwell Deal Faces Potential Antitrust Obstacle (WSJ) Shortage of Insurance Adjusters Could Stall Florida’s Recovery (WSJ) Campaigners unveil banner linking racism and baseball at Red Sox game (Reuters) This Is the Crazy Tax Math Trump Must Master, Fast (BBG) Samsung’s New $300 Million Fund Bets on Automotive Innovation (WSJ) United Tech-Rockwell Deal Faces Potential Antitrust Obstacle (WSJ) Goldman Takes Stake in Under Armour CEO’s Baltimore Development (WSJ) Overnight Media Digest WSJ - A group including Apple Inc and Dell Technologies Inc surged to the front in a race to acquire Toshiba Corp's memory-chip business. Apple and Dell would likely supply debt financing for the Bain Capital's bid. on.wsj.com/2y0Hzkl - Equifax Inc said hackers exploited a vulnerability with a U.S. website application called Apache Struts in the data breach that affected potentially 143 million Americans. on.wsj.com/2y0bNDJ - Tenet Healthcare Corp, is exploring strategic options including a possible sale of the hospital company. on.wsj.com/2y0hHVF - U.S. President Donald Trump and congressional Democrats closed in on a deal to give legal status to undocumented immigrants who were brought to the U.S. as children, and to work out a package of border security, excluding the wall. on.wsj.com/2y0cddh - Halimah Yacob, 63, has been named Singapore's first female president. on.wsj.com/2y0i2Yr - Jian Yung, a Chinese-born New Zealand lawmaker has acknowledged he once taught English to Chinese spies, an admission that comes as his party faces a closer-than-expected fight in a general election just 10 days away. on.wsj.com/2y0mbf5 FT - The Trump administration on Wednesday told U.S. government agencies to remove Kaspersky Lab products from their networks, saying it was concerned about the ties between certain Kaspersky officials and Russian intelligence. on.ft.com/2vUeIxv - South Africa's main opposition party has taken aim at Global consultancy McKinsey for its involvement in the scandal surrounding the Gupta business family that has caused the collapse of Bell Pottinger's British arm. on.ft.com/2vUacyP - Facebook has tightened its rules on who can make money from advertising on its network, after brands withdrew their ads from Youtube for being placed before explicit or controversial content. on.ft.com/2vUasOj - Toshiba Corp said on Wednesday it has agreed to focus on selling its prized chips unit to a group led by Bain Capital, although it is not ruling out a deal with other bidders. on.ft.com/2vUaDcr (Compiled by Bengaluru newsroom; Editing by Sandra Maler) NYT - U.S. President Donald Trump on Wednesday blocked a China-backed investor from buying an American semiconductor maker over national security concerns, a rare move that could signal more aggressive scrutiny of China's deal-making ambitions. nyti.ms/2wrp8E8 - The U.S. federal government moved on Wednesday to wipe from its computer systems any software made by a prominent Russian cybersecurity firm, Kaspersky Lab, that is being investigated by the FBI for possible links to Russian security services. nyti.ms/2fknf6B - Martin Shkreli, the former pharmaceutical executive who is awaiting sentencing for a fraud conviction, was sent to jail on Wednesday after a federal judge revoked his bail because he had offered $5,000 for a strand of Hillary Clinton's hair. nyti.ms/2y0f327 - Toshiba Corp said on Wednesday it had agreed to negotiate with a group led by Bain Capital, the American investment firm, that also includes two organizations controlled by the Japanese government. They will seek to strike a deal over Toshiba's chip business, the world's second-largest manufacturer of flash memory chips. nyti.ms/2wqTDK8 Canada THE GLOBE AND MAIL ** Canada is pushing for major changes to a NAFTA provision that governs the adjudication of lawsuits filed by North American businesses against governments for damages to their investments – and the United States has yet to reject the idea. (tgam.ca/2vVX2kZ) ** Air Canada said in a news release that the Air Canada Pilots Association, which represents 3,600 pilots, agreed to amendments to the current 10-year labor deal that will allow the company to improve flexibility and lower costs. (tgam.ca/2vVpenY) ** The ratio of Toronto house listings compared with monthly sales has moved back into longterm balance, limiting the potential for significant further price corrections in the region, a new analysis concludes. (tgam.ca/2vUTTBN) NATIONAL POST ** Transat AT Inc is calling on the government to remove a joint venture provision from proposed legislation amending the Transportation Act, saying it is unnecessary and detrimental to competition among airlines in a market dominated by one carrier. (bit.ly/2vUXakz) ** Canadian oil production could edge closer to the five million barrel-per-day milestone in 2018, with supplies expected to grow the second fastest among major producers in coming years, a new report says. (bit.ly/2vVMj9Y) ** According to a Statistics Canada release based on census data, the Canadian median household income increased from the inflation-adjusted equivalent of C$63,457 in 2005 to C$70,336 in 2015 Britain The Times A new tax for internet companies such as Facebook Inc and Alphabet Inc's Google is to be drawn up in Brussels amid frustration that tech companies can too easily shield profits from national governments. bit.ly/2xZyM1Y Easyjet Plc passengers will be able to book flights for Singapore, Los Angeles and Buenos Aires for the first time under a scheme to open up the budget airline to long-haul flights. bit.ly/2h22kZB The Guardian The co-founder of Bell Pottinger Pvt, Tim Bell, has emerged as one of the creditors the firm's administrators are unlikely to be able to pay back, with a 300,000 pounds bill outstanding from his multimillion-pound deal to leave the City PR firm last year. bit.ly/2h3Vtip The chief executive of Kensington and Chelsea Tenant Management Organisation that managed Grenfell Tower, Robert Black, is still being paid his full salary despite resigning from the role after the fire that killed at least 80 people. bit.ly/2h2HJV8 The Telegraph The Government is stepping up pressure on Silicon Valley giants to take responsibility for unlawful material online and share the spoils of the internet with media companies. bit.ly/2h3KFk4 Theresa May has been urged to change the law on aid spending after it emerged that Britain cannot use its 13 billion pounds ($17.17 billion) aid budget to help its overseas territories devastated by Hurricane Irma. bit.ly/2h3wM5J Sky News Car products retailer Halfords Group Plc is to replace departing chief executive Jill McDonald with the boss of Dixons Carphone Plc's software business. Halfords said Honeybee chief operating officer Graham Stapleton would begin work in mid-January. bit.ly/2h1Rlzb British energy production company, Drax Group Plc wants to convert two of its remaining coal-fired power units to gas. The move by Drax has been driven by the shift away from coal power. bit.ly/2h2fpC3 The Independent Japanese investment bank Mitsubishi UFJ Securities has announced that it is putting measures in place to move some of its European securities division from London to Amsterdam because of Brexit. ind.pn/2h2NAtA A criminal investigation has been opened after eight people died and more than 100 had to be evacuated when a nursing home was left without air conditioning in the aftermath of Hurricane Irma. ind.pn/2y0s2AN
It has taken only a few years for ride-hailing services to make urban journeys more convenient in many cities, much to the delight of city dwellers the world over. And as innovation brings self-driving cars, electric vehicles, in-vehicle data connectivity, mechanisms for sharing rides and vehicles, and other technologies to more people, getting around cities will become easier, faster, and safer. Such improvements could help cut the costs of traffic congestion (about 1% of GDP globally), road accidents (1.25 million deaths in 2015), and air pollution (health problems like respiratory ailments). McKinsey and Bloomberg New Energy Finance have estimated that in 50 metropolitan areas worldwide, a rapid transition to advanced mobility systems could yield $600 billion in societal benefits through 2030. The shift to next-generation mobility systems, however, won’t be easy for cities to manage. There is no telling how quickly advances will take place or what the transition will look like. Research has shown, for example, that the more people use shared private transportation like ride-hailing apps, the more likely they are to also use public transit. But if too many urbanites begin to depend on private vehicles, even shared ones, traffic could get worse and public transit systems might be starved of the fares they need to pay for maintenance and upgrades. These complex dynamics put municipal authorities in a bind. Some have chosen a wait-and-see approach, opting to watch mobility trends and develop policy responses as needed as trends play out. This approach has merit, given how difficult it is to predict the behaviors of traditional transport businesses, advanced mobility services, and city residents. Nevertheless, officials might do better to envision what mobility ought to look like five to 15 years from now and devise policies to bring about that future sooner than it might otherwise arrive. Doing so will allow policy makers to play a more proactive role in shaping what that future looks like. Officials who hope to maximize the benefits of advanced mobility might think about several core strategies. One is how to tailor new mobility approaches to a city or region’s specific context and challenges. For example, it is likely that densely populated cities in developing economies, such as Delhi, Istanbul, and Mumbai, will gain from expanding their public transit systems and complementing them with ride-hailing services that rely on electric vehicles. Our analysis suggests that a developing, dense, average-size city could realize $600 million in annual societal benefits from mobility advances by 2030. Four-fifths of these benefits would stem from reductions in traffic accidents, injuries, and fatalities — a great benefit for the people of these striving, fast-growing areas. Meanwhile, higher-income metros can take this model a step further by developing a truly integrated mobility system that combines public transit, car sharing, autonomous vehicles, smart infrastructure, and more. One way that cities can quicken the integration of mobility systems is to offer an app-based service for planning and paying for trips that use multiple modes of local transportation. For advanced cities such as London, Shanghai, Singapore, and the like, a “seamless mobility” model could yield societal benefits of up to $2.5 billion per year by 2030. Finally, it is likely that high-income areas of suburban sprawl, where cars remain almost essential, will see big improvements from the extensive use of self-driving vehicles. As cities move forward, officials must consider what to do with land and roadways as people and vehicles move in different patterns. If more and more people are climbing in and out of shared vehicles at curbside, traffic could stall. Designating zones for pickups and drop-offs might help ease the flow of vehicles. Such zones, as well as other, more valuable uses of urban land, could be carved out of parking spaces, which will be significantly less in demand as vehicles are used more efficiently. Cities can also explore opportunities to improve transportation access and ensure that all of their inhabitants benefit from advances in mobility. Almost every city has districts that are poorly served by public transit, as well as groups, such as the elderly, who have difficulty using buses and trains. Providing low-cost, on-demand access to a variety of vehicles could improve access for these groups, while also allowing cities to retire low-usage public transit routes. Advances in mobility will have major implications for cities around the world. Those that get a head start on developing integrated mobility plans will be better positioned to reap the benefits that new technologies will bring to their residents.
World stocks hit new record highs on Tuesday amid a continuation of Monday's risk-on theme which unleashed a dramatic relief rally on easing North Korea tensions and signs that Hurricane Irma caused less damage than feared (which according to Keynesians should be GDP negative). The MSCI All-Country World Index gained 0.2%, hitting the highest on record with a fifth consecutive advance. European equities headed for the longest winning streak in five months while S&P 500 futures extended on Monday's record high, pointing to another all time high open. Meanwhile, the dollar struggled to build on a strong start to the week as concerns about lackluster inflation lingered before key U.S. data. Europe's Stoxx 600 Index gained for a fifth day, the longest run since April, up 0.6% hitting the highest level in 5 weeks, as the technology sector joined in the rally ahead of Apple iPhone unveiling later on Tuesday. Chip makers STMicroelectronics N.V. and Infineon Technologies AG were among big gainers, while the insurer index gained a further 0.3%, as insured property losses from Hurricane Irma’s are expected to be smaller than initially forecast. S&P index futures also rose as North Korea stayed silent - for now - in the face of another round of sanctions. As Bloomberg puts it well, "the appetite for riskier assets that took hold on Monday was sustained more by a lack of bad news than any positive catalysts." So far there have been no further provocative developments from North Korea after the UN Security Council approved a watered-down proposal to punish the nation for its latest missile and nuclear tests. Meanwhile, Hurricane Irma damage estimates were revised sharply lower (remember when the worse the hurricane, the better for GDP? Apparently for stocks, no matter what the hurricane outcome, it's all good). With a flat greenback, bonds across Europe followed Treasuries lower. “The absence of walking into any North Korea-related headlines, the general feeling that the worst-case scenario from Hurricane Irma was avoided and with the more significant economic data reserved for later in the week too, markets seem to have breathed a collective big sigh of relief,” strategists including Craig Nicol at Deutsche Bank AG wrote in a note to clients. In overnight geopolitical developments, Japan's Defense Minister Onodera said Japan cannot rule out possibility of further provocation by North Korea and will stay on alert. Shortly prior, the UN Security Council unanimously voted to increase sanctions against North Korea, albeit substantially watered down from the original version proposed by the US and excluding an oil embargo or asset freezes of the government. The US Ambassador to the UN Haley said the US is willing to act alone to stop North Korea’s nuclear programme and that half-measures have not worked. There were also comments from South Korea which later stated that North Korea is technically ready for a nuclear test. British consumer price inflation came in stronger than expected at 2.9 percent, offering more clues as to the Bank of England’s policy decision on Thursday, and sending the pound to the highest level against the USD, as cable rose as high as 1.328. The BOE has been struggling to keep inflation at 2 percent since sterling tumbled in response to Britain voting to leave the European Union in June 2016, pressuring on consumer spending and living standards (more below). Asia, too, was green across the board: Japan’s Topix index advanced 0.9 percent at the close in Tokyo. Australia’s S&P/ASX 200 Index added 0.6 percent. South Korea’s Kospi index rose 0.3 percent. The Hang Seng Index in Hong Kong and gauges in China fluctuated. The MSCI Asia Pacific Index climbed 0.4 percent. The Japanese yen fell 0.3 percent to 109.74 per dollar, the weakest in more than a week. The dollar failed to maintain momentum after Monday’s 0.6 percent gain, with market focus turning to whether U.S. consumer-price data due Thursday has the potential to improve the greenback’s allure. The Bloomberg Dollar Spot Index swung between gains and losses as investors unwound risk-off positions, while the pound rallied on the back of faster-than-estimated U.K. inflation. Sterling rose to $1.3282, its highest level in a year, as data showed annual core inflation in Britain accelerated to 2.7 percent in August, the most since 2011. Profit-taking in euro-pound longs also helped cable push above the August highs, according to currency traders in Europe and London. The strong U.K. data spurred an immediate repricing of Bank of England rate-increase odds. Based on MPC-dated overnight index swap rates, chances of a 25 basis point hike by the end of year have risen to 33 percent from 24 percent Monday. A tightening is fully priced in by end of summer next year. Risks are now skewed toward a hawkish shift in the BOE Monetary Policy Committee vote on Thursday, with more than two members now pushing for a rate increase, providing more support for the pound. Over in China, the onshore yuan slumps by the most in six months against a trade-weighted currency basket amid a weaker central bank fixing and a dollar surge overnight. The Bloomberg replica of the CFETS RMB Index slumped 0.44%, the biggest drop since March 16, to 94.9385, just two days after reaching this year’s high on Monday. On Tuesday, the PBOC weakened its daily reference rate by 0.43%, the most since Jan. 9 and the first cut in 12 days, to 6.5277 per dollar. The fixing was weaker than the 6.5245 average of estimates from 18 traders and analysts surveyed by Bloomberg, and followed on Friday's aggressive attempt by the PBOC to reignite volatility by invitine shorters into the currency after it cut reserve requirements from 20% to 0%. Brent traded near $53.50/bbl; Bloomberg reports that OPEC output fell in August. OPEC’s estimate of its oil production, compiled from four of six external data sets known as secondary sources, fell to 30.004m b/d excluding output from Libya and Nigeria, according to a person familiar with the matter; down from 30.113m b/d in July. At the same time, Saudi Arabia reportedly told OPEC it pumped 9.95m b/d of oil in August, down from 10.01m b/d in July. The data contrast with OPEC’s internal ests, which show Saudi Arabia pumped 10.022m b/d in August vs 10.049m b/d in July, according to information compiled from four of six secondary sources. “The OPEC monthly report is coming out later and that should set some kind of direction to the market,” says Tamas Varga, analyst at PVM Oil Associates. “Yesterday we saw the WTI-Brent arbitrage strengthening, it has been so weak that it’s inevitable that at some point people are going to find U.S. crude so cheap that it will reverse” Elsewhere, safe-haven assets such as U.S. Treasuries and gold gave back most of recent gains. The 10Y Treasury yield jumped to 2.1515% from 2.1250%, the highest in a week. Germany’s 10-year yield gained three basis points to 0.37 percent, the highest in a week. Britain’s 10-year yield rose three basis points to 1.076 percent, the highest in almost three weeks. Gold dropped to $1,326.31 per ounce, compared to Friday’s one-year peak of $1,357.4. Key events on today's calendar include the JOLTS job openings, NFIB small business optimism report, U.S. 10-year auction. Bulletin Headline Summary from RanSquawk: GBP rallies, as CPI & RPI beats put focus on the MPC In politics, UK Parliament passed the Brexit Bill and Norway’s ruling centre-right government won re-election Looking ahead, highlights include potential comments from ECB’s Constancio and a US 10yr Auction Market Snapshot S&P 500 futures up 0.1% to 2,490.75 STOXX Europe 600 up 0.5% to 381.49 MSCI Asia up 0.3% to 162.84 MSCI Asia ex Japan up 0.4% to 538.95 Nikkei up 1.2% to 19,776.62 Topix up 0.9% to 1,627.45 Hang Seng Index up 0.06% to 27,972.24 Shanghai Composite up 0.09% to 3,379.49 Sensex up 0.6% to 32,080.00 Australia S&P/ASX 200 up 0.6% to 5,746.44 Kospi up 0.3% to 2,365.47 German 10Y yield rose 2.6 bps to 0.362% Euro up 0.04% to $1.1958 Italian 10Y yield rose 0.9 bps to 1.677% Spanish 10Y yield rose 2.7 bps to 1.593% Brent Futures down 0.5% to $53.57/bbl Gold spot down 0.09% to $1,326.28 U.S. Dollar Index unchanged at 91.88 Top Overnight News President Donald Trump plans an aggressive travel schedule, taking him to as many as 13 states over the next seven weeks, to sell the idea of a tax overhaul as the administration tries to avoid repeating the communication failures of its attempt to repeal Obamacare Florida’s ports re-open after Irma, but feeding gas stations could take days and restoring power also is a challenge in getting gas to consumers Investors may pile into Treasuries and gilts at the expense of Japanese and Chinese debt if a proposal by the world’s biggest wealth fund is implemented Hedge funds are less interested in shorting China after being wrong in predicting a sharp devaluation, a credit crisis and an economic hard landing UN Votes New North Korea Sanctions Short of an Oil Embargo Toshiba Board Is Said to Aim for Chip Sale Decision Wednesday Equifax’s Seismic Breach Tests Trump Pledge to Dismantle Rules CBOE Plans to Introduce Options on S&P Select Sector Indexes U.K. Inflation Accelerates More Than Forecast to Reach 2.9% $150 Billion Misfire: How Forecasters Got Irma Damage So Wrong In Dismal Summer, ‘Despicable Me 3’ Producer Delivers $1 Billion SoFi CEO Cagney to Step Down by Year End; Co. Seeks Successor FPL Says Much of SW Florida Electric System Will Need Rebuild Delta Says 1,100 Flights Canceled at Atlanta on Irma Effects U.K. Will Offer Troops to Support EU Operations After Brexit Li Upbeat on China Economy as Lagarde Cites Push to Curb Risk Asian markets traded mostly higher on positive momentum from the reduced North Korean concerns, which also followed a strong performance on Wall St where the S&P 500 closed at a fresh record level. ASX 200 (+0.7%) and Nikkei 225 (+1.2%) gained as financials mirrored the outperformance in their counterparts stateside where lower estimates of hurricane damages and rising yields buoyed the sector, while JPY weakness remained the driver for Japanese exporter sentiment. Conversely, Shanghai Comp. (+0.1%) and Hang Seng (Unch.) were less exuberant after the PBoC refrained from liquidity operations again and after the Hong Kong benchmark index met resistance around the 28,000 level. Finally, 10yr JGBs were lower as 10yr yields rose by the most YTD alongside increases in global yields, with demand for bonds also dampened by the positive risk tone and after a 5yr auction where the b/c declined and tail in price widened from prior. PBoC refrained from open market operations again today.PBoC set CNY mid-point at 6.5277 vs Prev. 6.4997, biggest fixing drop since January. Chinese Premier Li says China's economy will continue maintain trend seen in H1, adds China will not boost exports through CNY depreciation. Top Asian News Hong Kong Finance Chief Warns Again of Property Risk as Fed Acts Star Stock Geely Soars Most in Month on Market Sentiment Boost China’s Banks Are Leading Globalization Charge, McKinsey Says Hedge Funds Used to Love Shorting China. Now, Not So Much European equity markets also traded in the green across the board with Stoxx 600 sectors following the theme, as financials lead the way. UK home builders have struggled however, and underperform, likely weighed on after a report in the Times suggested that the chronic housing shortage is being made worse by the reluctance of banks to lend to small housebuilders, the Federation of Master Builders has claimed. Bunds underperform, leading the middle of the curve, as investors unwind safe haven flows. The Bund now trades around 162.40, with the next support to look-out for being 162.22. Gilts do trade slightly better than Bunds, however, the Gilt bears did catch up following the beats in UK CPI and RPI data. Gilts now trade through September lows, with the BoE possibly looking at a hawkish tilt on Thursday. Top European News Norway PM Wins Second Term as Insurgency Against Oil Fizzles Swedbank Plans Two-Tiered FICC Research Offering After MiFID II Italian Quarterly Unemployment Rate Falls to Lowest Since 2012 U.K. Builders Fall; BofAML Sees Multiple Risks, Full Valuations In currencies, morning FX volatility has largely been based on data: the UK beat across the board, with EUR/GBP now hitting one-month lows, as the inflation figures could lead the BoE to be more forceful in realigning market forecasts with their own when it comes to rate hike expectations. The stronger data, supported by some form of Brexit direction clarity, has helped sterling find a bid through the European morning. Elsewhere, only a slight miss from Sweden helped some SEK bulls, with many pricing in a bad report, following Norway’s misses yesterday and inflation also remaining above the Riksbank's target. EUR/SEK fell from 9.5820, to print lows around 9.5440. Political news also caused some early volatility; as the latest Newshub poll showed a lead for the National Party vs. Labour in New Zealand, the details of the poll have the Greens now under the 5% threshold required to enter Parliament without the security of an electoral seat win. The lack of power from the Greens will lead to Labour not being able to form a coalition, leaving the national party with a 61 seat majority. In commodities, WTI and Brent saw some bearish pressure, as bulls failed to test yesterday’s high. Fundamentally, US refineries are restarting following the shutdowns caused by Hurricane Harvey, however, with restarts historically dangerous, operators did keep the shutdowns to a minimum. Precious metals continue to highlight metal markets, as the risk tone has picked up this week, the fail to fill Monday’s gap could be an indication of a strong bearish trend in Gold, which trades back within August’s range. OPEC figures show that the cartel's August output has fallen to 30mln bpd, according to sources. On today's calendar, there is the NFIB small business confidence reading and July JOLTS job openings. Away from the data, China Premier Li Keqiang will host an economic roundtable in Beijing that will include heads of IMF, the World Bank and WTO. US Event Calendar 6am: NFIB Small Business Optimism, 105.30, est. 104.8, prior 105.2 10am: JOLTS Job Openings, est. 6,000, prior 6,163 DB's Jim Reid concludes the overnight wrap Yesterday felt a bit like a no-news-is-good-news-day for markets. Indeed, the absence of walking into any North Korea related headlines was part of the story, while the general feeling that the worst-case scenario from Hurricane Irma was avoided also played a big role. With the more significant economic data reserved for later in the week too, markets seem to have breathed a collective big sigh of relief with the S&P 500 (+1.08%) rallying to another all-time high after rising by the most in a single session since April. The Dow (+1.19%) and Nasdaq (+1.13%) are just off their respective record levels, while prior to this in Europe the Stoxx 600 had closed +1.04% for its best day since mid-August. Meanwhile, after flirting with a 1% handle last week, 10y Treasury yields jumped +8.0bps yesterday to close at 2.131% and finish what was the weakest session since late July. The stronger than expected China inflation data probably impacted at the margin too but as we said yesterday it feels like the bigger test for rates will come this Thursday with the August CPI report. Meanwhile bond markets in Europe finished anywhere from +1bp to +6bps higher in yield, with interestingly Italy outperforming although it wasn’t obvious what was driving that. Elsewhere, in further evidence of a classic risk-on session two of the bigger underperforming currencies were the Swiss Franc (-1.27%) and Yen (-1.42%), while Gold also tumbled -1.41%. WTI Oil rose +1.24% as OPEC members voiced support for a possible extension of production cuts. Just after the close of the US session last night, the UN Security Council voted unanimously for a watered down version of sanctions on North Korea, which does not include an oil embargo. The resolution passed seeks to cut imports of refined petroleum products to 2 million barrels per annum and ban textile exports, but does not include the more stringent oil embargo, likely reflecting the lack of support from China and Russia. We are yet to have heard a response from North Korea post the decision. One would have to imagine that the outcome helps nearterm sentiment insofar as not antagonizing China, but the reality is that it still doesn’t come closer to solving much. This morning in Asia, markets have largely followed the lead from the US and are trading broadly higher as we go to print, with the Nikkei (+1.01%), ASX 200 (+0.87%), Kospi (+0.12%) and Shanghai Comp (+0.07%) firmer. The Hang Seng is currently flat. US equity futures are also little changed while bond markets in Asia are weaker. Staying in Asia, yesterday our China Chief Economist Zhiwei Zhang published a report previewing the 19th National Congress meeting from October 18th. Zhiwei notes that this week-long event kicks off a six-month process that continues with the Central Economic Working Conference (CEWC) in December and the National People’s Congress (NPC) in March next year. He notes that the event is more about politics than setting economic policies, as the representatives will elect a group of leaders. Based on the age rule, five of seven incumbent members of the Politburo should retire as they are older than 67. Other important things to look out for include the CEWC setting GDP growth targets, while finally, the NPC will see a reshuffle of cabinet ministers and government posts. Overall, Zhiwei expects no substantial change in policy over the next six months, although the central government may slow fiscal spending a bit and the focus will turn to whether China may push for more deleveraging and structural reforms. Moving on. Following on from China’s better than expected inflation report the early focus in Europe yesterday was on the mixed August CPI reports out of Norway and Denmark. Norway disappointed with underlying CPI falling a fair bit more than expected (-0.9% mom vs. -0.4% expected) however Denmark then bettered expectations after coming in at -0.3% mom versus expectations for a bigger -0.5% decline. As a reminder, today we’ve got a bunch more inflation reports including Sweden first thing this morning, followed by the UK and then Portugal. Staying in Europe, there was a steady slate of comments from ECB board members yesterday. The early comments came from Benoit Coeure. Initially the headlines appeared fairly negative, warning that persistent gains in the euro may weigh on inflation, however the details of his comments revealed Coeure highlighting that the pass-through impact of the currency appreciation has declined as a result of a stronger economy and therefore any future impact is more limited on inflation. Later on, the ECB’s Ardo Hansson highlighted that “inflation rates have been gradually increasing” while fellow board member Sabine Lautenschlaeger said that “conditions are in place for inflation to pick up and move steadily towards our goal”. Elsewhere at the ECB, it was interesting to note the El Mundo report yesterday suggesting that the German government wants Bundesbank President Jens Weidmann to replace ECB President Mario Draghi when he steps down in October 2019. The article also suggested that a representative from Southern Europe as Vice-President would be nominated to keep the balance (Spain’s Economy Minister being highlighted). Weidmann has held relatively extreme and vocal views on ECB policy so it’s hard to know if this would improve his case across the wider Eurozone. Anyhow, this is still reasonably far off for now with a decision not due to be made until June 2019. Moving onto the latest on Brexit. Following a vote early this morning, PM May’s repeal bill secured enough votes (326-290) in the House of Commons to pass the first hurdle which would allow the UK government to copy EU law onto the domestic statute book. However, the real challenge will be how many amendments are made over the next eight days as Parliament debate the bill further. One such debate includes allowing ministers to make changes to existing laws, but bypass the normal scrutiny by parliament. Before we take a look at today’s calendar, in terms of the remaining data yesterday, in Italy July industrial production was above market at +0.1% mom (vs. -0.4% expected). This, coupled with solid gains in the preceding two months, has led to annual growth of +4.4% yoy (vs. +3.7% expected). In France, the business industry sentiment index was slightly lower than expectations at 104 (vs. 106 expected), but remains consistent with annual GDP growth of c.2% yoy. There was no data released in the US yesterday. Looking at the day ahead, in the UK, we have August CPI (+0.5% mom expected), PPI (+0.1% mom expected) and RPI (+0.5% mom expected). Across Europe, France’s 2Q total payrolls and Italy’s 2Q unemployment rate are also due. Over in the US, there is the NFIB small business confidence reading and July JOLTS job openings. Away from the data, China Premier Li Keqiang will host an economic roundtable in Beijing that will include heads of IMF, the World Bank and WTO.
In today’s rapidly changing business environment, companies that rely solely on full-time employees are finding they have neither the skills nor the agility to sustain success. For instance, 40 percent of U.S. companies can’t fill their open positions, according to a McKinsey Global Institute study that found that analytical, engineering, and management roles are the hardest to fill. With those gaps, companies must now focus less on the fixed supply of in-house people and more on the capabilities they need to get work done. And a pool of independent and highly skilled workers who can fill those needs is growing. Economists Lawrence Katz and Alan Krueger found that American workers in alternative work arrangements, including temp workers, increased by 9.4 million from 2005 to 2015, a 67 percent jump. Many of these independent professionals are increasingly being engaged to do strategic, high-value-add work requiring deep expertise. They can be called upon to staff high-level projects that were previously too expensive to hire employees to work on full time. These are workers who often want more flexibility for themselves than traditional employees in a corporate setting. Companies that are able to easily access and manage these workers will be able to unleash fresh energy and thinking inside their organizations, and quickly meet staffing needs when new opportunities arise. Flexible talent-access platforms are enabling many of these companies, making it easier than ever before to bring in the right skills for the right project at the right time. But making the most of flexible talent-access platforms is not as simple as adding a solution into an existing organization. Old ways of thinking and working designed to support an internal-only workforce need to change. Winning in the future will require a rigorous approach to accessing and managing independent workers. To fully enable a new vision of the future, organizations must make changes in five key business areas: Planning and Budgeting If organizations have easy access to—and indeed rely on—external talent, they can tackle new opportunities, experiment more nimbly, and operate in new areas. Companies therefore need to adapt their various processes—strategy, budgeting, talent—to this reality. They should employ objective-based planning and start by prioritizing the work that needs to get done separately from whether it’s executed by a full-time employee or external talent. Companies should adjust budgeting so that managers are focused on the best ways to meet their objectives and not given implicit or explicit incentives to increase full-time head count. Procurement and legal should be prepared to promote these new policies and procedures through open communication channels—becoming champions of adoption benefits to business stakeholders. Human Resources HR will play a leading role in driving this shift. Organizations should focus more on defining capabilities and enabling access to the skills they need, and focus less on where internal people sit or finding the perfect person for an internal role. Freed from old assumptions, companies will orient their talent strategies around determining the right mix of internal and external capabilities. Talent acquisition functions should rebrand themselves around “talent access.” Training Managers will need the ability to contract with, pay, and manage far-flung but integrated virtual networks of individual contributors they can no longer “manage by walking around.” Managers should be trained on managing scope, launching teams, and providing feedback and coaching to individuals they do not formally control. Individual contributors should be able to quickly form relationships and facilitate teamwork among project staff who have never worked together before. Organizations that focus on systematically moving to this new world of work will see its benefits more quickly than those that move in this direction piecemeal or in response to competitive pressures. A purposeful “future of work” initiative that incorporates the above best practices should have the following components: Stakeholder Buy-in Engage employees in a discussion about the intent to work in a new way, including why it makes sense for the organization—the value the company expects to derive—and what these new ways of working will mean both operationally and behaviorally. Adaptable Processes Identify and modify key business processes, policies, and procedures to align with the new ways of operating. This needs to be a serious initiative to ensure that the organization supports rather than hinders the overall effort. Platform Adoption Identify and implement an appropriate technology solution to support the identification, sourcing, and management of independent labor. Change Documentation Develop and implement a standard set of training modules on key skills-based aspects of the new way of working. Testing and Learning Identify—and actively communicate and learn from—short-term wins. Benchmarks for Success Measure progress toward the goal. For example, companies can examine how much work external talent does, how key business processes have changed, and changes in the behaviors of people as they plan for work and deliver on their objectives. Ultimately, the new world of work requires executives to completely revise their relationship with talent. For those companies that navigate this transformation, the payoff will be substantial—not just in terms of new growth opportunities, but also in terms of new efficiencies. They will be able to think more broadly about the business, and they will be exposed to best practices and ideas from people who have thought about tough problems in different contexts. They will be free to move into new areas of the world that they otherwise couldn’t have considered. As a result, they will enjoy more flexibility and a greater number of strategic options. With the right approach and leadership, the world of on-demand talent promises to bring these aspirations much closer to reality. To learn more about the flexible workforce, download the June 2017 commissioned study Address Critical Skill Gaps With On-Demand Knowledge conducted by Forrester Consulting on behalf of Catalant Technologies.
eBay Inc. (EBAY) hits a new 52-week high of $37.79. The company's efforts toward expanding its international business and fueling its Marketplaces growth remain long-term drivers.
За последнее десятилетие природный газ каким-то образом сумел превратить победу в поражение.Спрос на метан быстро рос, и в 2016 году его потребление оказалось на 631 млн тонн нефтяного эквивалента выше, чем 10 лет назад — это лишь немногим меньше совокупного роста потребления нефти, а также ядерной, солнечной и ветровой энергий вместе взятых.В то же время индустрия переживает глубокий кризис. По данным McKinsey Energy Insights, рынок сжижения и транспортировки газа будет перенасыщен до 2024 года.Если ориентироваться на текущие азиатские цены, составляющие $5908 за миллион британских тепловых единиц, подавляющее большинство проектов будут убыточными.На первый взгляд, возобновляемые источники энергии лишь усугубляют ситуацию. В Европе и США, где газ дешевый, метан может выступать единым фронтом с ветром, солнечной энергией и гидроэлектростанциями против общего врага, угля, но в значительной части последний обходится дешевле. В результате стремительно падающая стоимость энергии из возобновляемых источников оказывает большее давление на газ, чем на уголь.Почему же Мартен Витселар, директор Royal Dutch Shell Plc по газу и новым источникам энергии, приветствует развитие солнечной и ветровой энергетики? Он заявил:«Мы глубоко убеждены в том, что итоговая комбинация источников, обеспечивающая дешевую или, по крайней мере, недорогую, надежную и экологически чистую энергию для всех, будет состоять из возобновляемых источников энергии, биотоплива и природного газа».Чтобы понять, почему он в этом уверен, давайте разберемся, как устроена возобновляемая энергетика. В отличие от нефти, угля и атома, здесь мы имеем дело с по сути бесплатным топливом.Кроме того, здесь речь не идет о строительстве гигантского промышленного объекта вроде теплоэлектростанции — турбины и солнечные батареи становятся дешевле по мере увеличения объемов производства. Вспомните, что случилось с ценами на компьютеры за последние 35 лет.Это объясняет, почему солнце и ветер уже поставляют самую дешевую энергию в Австралии, и почему в Индии стоимость солнечной энергии за последние 2,5 года упала более чем на 40%, и теперь она дешевле угля.Это большие перемены, но критики правы — у возобновляемых источников энергии есть важный недостаток: они непостоянны, поскольку солнце может зайти за тучу, а ветер стихнуть.И здесь вступает газ.Можно зайти со стороны надежности и бесперебойности, и тогда логичный выбор — угольные и ядерные электростанции. Надежность — это как раз то, чего не хватает солнцу и ветру, и именно на этом факте традиционные игроки строят свою защиту от новичков. Правда, надежность можно обеспечить и другим способом — притом дешевле.И для этого отлично подходит газ. Предположим, погода изменилась, и количество энергии, вырабатываемой ветром и солнцем, упало. Чтобы обеспечить мгновенное восстановление питания, лучше всего подходят аккумуляторы. А вот дальше, в последующие часы, для снижения стоимости стоит переходить к аккумулирующим водохранилищам и газовым турбинам. Увы, угольные электростанции стартуют и останавливаются слишком медленно.Пока регуляторы спорят о выборе оптимального решения, промышленность голосует рублем. Например, Мартен Витселар рассказал, что Shell рассматривает возможность строительства возобновляемых генерирующих мощностей в Австралии с резервным газоснабжением — подобные объекты планируются в Омане и Брунее. В Австралии парогазовые турбины, которые в основном и используются для покрытия пикового спроса, составляют самую большую долю запланированных мощностей после ветровой и солнечной энергии.Газ по-прежнему остается ископаемым топливом, а значит, когда-нибудь он закончится. Однако до этого еще далеко, а пока тем, кто боится перенасыщения рынка, стоит перестать воспринимать возобновляемые источники энергии как угрозу — наоборот, ветер и солнце могут стать спасителями газа. Читайте полную версию статьи на Insider.pro
The Great Recession may be over, but eight years later we can still see the deep scars and unhealed wounds it left on the global economy. In an attempt to prevent an unpleasant revisit to the Stone Age, global governments have bailed out banks and the private sector. These bailouts and subsequent stimuli swelled global government debt, which jumped 75%, to $58 trillion in 2014 from $33 trillion in 2007. (These numbers, from McKinsey & Co., are the latest, but it’s fair to say they have not shrunk since.) There’s a lot about today’s environment that doesn’t fit neatly into economic theory. Ballooning government debt should have brought higher — much higher — interest rates. But central banks bought the bonds of their respective governments and corporations, driving interest rates down to the point at which a quarter of global government debt now “pays” negative interest. The concept of positive interest rates is straightforward. You take your savings, which you amass by forgoing current consumption — not buying a newer car or making fewer trips to fancy restaurants — and lend it to someone. In exchange for your sacrifice, you receive interest payments. With negative interest rates, something quite different happens: You lend $100 to your neighbor. A year later the neighbor knocks on your door and, with a smile on his face, repays that $100 loan by writing you a check for $95. You had to pay $5 for forgoing your consumption of $100 for a year. The key takeaway: negative and near-zero interest rates show central banks’ desperation to avoid deflation. More important, they highlight the bleak state of the global economy. In theory, low- and negative interest rates were supposed to reduce savings and stimulate spending. In practice, the opposite has happened: The savings rate has gone up. As interest rates on their deposits declined, consumers felt that now they had to save more to earn the same income. Go figure. Some countries resort to negative interest rates because they want to devalue their currencies. This strategy suffers from what economists call the fallacy of composition: the mistaken assumption that what is true of one member of a group is true for the group as a whole. As a country adopts negative interest rates, its currency will decline against others — arguably stimulating its export sector (at the expense of other countries). But there is absolutely nothing proprietary about this strategy: Other governments will do the same, and in the end all will experience lowered consumption and a higher savings rate. The main point that investors must understand and remember: If the global economy were doing great, interest rates would not be where they are today. So, how does one invest in this overvalued market? Our strategy is spelled out in this fairly lengthy article. Vitaliy Katsenelson is chief investment officer at Investment Management Associates in Denver, Colo. He is the author of “Active Value Investing” (Wiley) and “The Little Book of Sideways Markets” (Wiley). Read more on Katsenelson’s Contrarian Edge blog.
Authored by Nafeez Ahmed via Medium.com, Inside the secret network behind mass surveillance, endless war, and Skynet... INSURGE INTELLIGENCE, a new crowd-funded investigative journalism project, breaks the exclusive story of how the United States intelligence community funded, nurtured and incubated Google as part of a drive to dominate the world through control of information. Seed-funded by the NSA and CIA, Google was merely the first among a plethora of private sector start-ups co-opted by US intelligence to retain ‘information superiority.’ The origins of this ingenious strategy trace back to a secret Pentagon-sponsored group, that for the last two decades has functioned as a bridge between the US government and elites across the business, industry, finance, corporate, and media sectors. The group has allowed some of the most powerful special interests in corporate America to systematically circumvent democratic accountability and the rule of law to influence government policies, as well as public opinion in the US and around the world. The results have been catastrophic: NSA mass surveillance, a permanent state of global war, and a new initiative to transform the US military into Skynet. This exclusive is being released for free in the public interest, and was enabled by crowdfunding. I’d like to thank my amazing community of patrons for their support, which gave me the opportunity to work on this in-depth investigation. Please support independent, investigative journalism for the global commons. * * * Read Part 1 here... * * * Mass surveillance is about control. It’s promulgators may well claim, and even believe, that it is about control for the greater good, a control that is needed to keep a cap on disorder, to be fully vigilant to the next threat. But in a context of rampant political corruption, widening economic inequalities, and escalating resource stress due to climate change and energy volatility, mass surveillance can become a tool of power to merely perpetuate itself, at the public’s expense. A major function of mass surveillance that is often overlooked is that of knowing the adversary to such an extent that they can be manipulated into defeat. The problem is that the adversary is not just terrorists. It’s you and me. To this day, the role of information warfare as propaganda has been in full swing, though systematically ignored by much of the media. Here, INSURGE INTELLIGENCE exposes how the Pentagon Highlands Forum’s co-optation of tech giants like Google to pursue mass surveillance, has played a key role in secret efforts to manipulate the media as part of an information war against the American government, the American people, and the rest of the world: to justify endless war, and ceaseless military expansionism. The war machine In September 2013, the website of the Montery Institute for International Studies’ Cyber Security Initiative (MIIS CySec) posted a final version of a paper on ‘cyber-deterrence’ by CIA consultant Jeffrey Cooper, vice president of the US defense contractor SAIC and a founding member of the Pentagon’s Highlands Forum. The paper was presented to then NSA director Gen. Keith Alexander at a Highlands Forum session titled ‘Cyber Commons, Engagement and Deterrence’ in 2010. Gen. Keith Alexander (middle), who served as director of the NSA and chief of the Central Security Service from 2005 to 2014, as well as commander of the US Cyber Command from 2010 to 2014, at the 2010 Highlands Forum session on cyber-deterrence MIIS CySec is formally partnered with the Pentagon’s Highlands Forum through an MoU signed between the provost and Forum president Richard O’Neill, while the initiative itself is funded by George C. Lee: the Goldman Sachs executive who led the billion dollar valuations of Facebook, Google, eBay, and other tech companies. Cooper’s eye-opening paper is no longer available at the MIIS site, but a final version of it is available via the logs of a public national security conference hosted by the American Bar Association. Currently, Cooper is chief innovation officer at SAIC/Leidos, which is among a consortium of defense technology firms including Booz Allen Hamilton and others contracted to develop NSA surveillance capabilities. The Highlands Forum briefing for the NSA chief was commissioned under contract by the undersecretary of defense for intelligence, and based on concepts developed at previous Forum meetings. It was presented to Gen. Alexander at a “closed session” of the Highlands Forum moderated by MIIS Cysec director, Dr. Itamara Lochard, at the Center for Strategic and International Studies (CSIS) in Washington DC. SAIC/Leidos’ Jeffrey Cooper (middle), a founding member of the Pentagon’s Highlands Forum, listening to Phil Venables (right), senior partner at Goldman Sachs, at the 2010 Forum session on cyber-deterrence at the CSIS Like Rumsfeld’s IO roadmap, Cooper’s NSA briefing described “digital information systems” as both a “great source of vulnerability” and “powerful tools and weapons” for “national security.” He advocated the need for US cyber intelligence to maximize “in-depth knowledge” of potential and actual adversaries, so they can identify “every potential leverage point” that can be exploited for deterrence or retaliation. “Networked deterrence” requires the US intelligence community to develop “deep understanding and specific knowledge about the particular networks involved and their patterns of linkages, including types and strengths of bonds,” as well as using cognitive and behavioural science to help predict patterns. His paper went on to essentially set out a theoretical architecture for modelling data obtained from surveillance and social media mining on potential “adversaries” and “counterparties.” A year after this briefing with the NSA chief, Michele Weslander Quaid?—?another Highlands Forum delegate?—?joined Google to become chief technology officer, leaving her senior role in the Pentagon advising the undersecretary of defense for intelligence. Two months earlier, the Defense Science Board (DSB) Task Force on Defense Intelligence published its report on Counterinsurgency (COIN), Intelligence, Surveillance and Reconnaissance (IRS) Operations. Quaid was among the government intelligence experts who advised and briefed the Defense Science Board Task Force in preparing the report. Another expert who briefed the Task Force was Highlands Forum veteran Linton Wells. The DSB report itself had been commissioned by Bush appointee James Clapper, then undersecretary of defense for intelligence?—?who had also commissioned Cooper’s Highlands Forum briefing to Gen. Alexander. Clapper is now Obama’s Director of National Intelligence, in which capacity he lied under oath to Congress by claiming in March 2013 that the NSA does not collect any data at all on American citizens. Michele Quaid’s track record across the US military intelligence community was to transition agencies into using web tools and cloud technology. The imprint of her ideas are evident in key parts of the DSB Task Force report, which described its purpose as being to “influence investment decisions” at the Pentagon “by recommending appropriate intelligence capabilities to assess insurgencies, understand a population in their environment, and support COIN operations.” The report named 24 countries in South and Southeast Asia, North and West Africa, the Middle East and South America, which would pose “possible COIN challenges” for the US military in coming years. These included Pakistan, Mexico, Yemen, Nigeria, Guatemala, Gaza/West Bank, Egypt, Saudi Arabia, Lebanon, among other “autocratic regimes.” The report argued that “economic crises, climate change, demographic pressures, resource scarcity, or poor governance could cause these states (or others) to fail or become so weak that they become targets for aggressors/insurgents.” From there, the “global information infrastructure” and “social media” can rapidly “amplify the speed, intensity, and momentum of events” with regional implications. “Such areas could become sanctuaries from which to launch attacks on the US homeland, recruit personnel, and finance, train, and supply operations.” The imperative in this context is to increase the military’s capacity for “left of bang” operations?—?before the need for a major armed forces commitment?—?to avoid insurgencies, or pre-empt them while still in incipient phase. The report goes on to conclude that “the Internet and social media are critical sources of social network analysis data in societies that are not only literate, but also connected to the Internet.” This requires “monitoring the blogosphere and other social media across many different cultures and languages” to prepare for “population-centric operations.” The Pentagon must also increase its capacity for “behavioral modeling and simulation” to “better understand and anticipate the actions of a population” based on “foundation data on populations, human networks, geography, and other economic and social characteristics.” Such “population-centric operations” will also “increasingly” be needed in “nascent resource conflicts, whether based on water-crises, agricultural stress, environmental stress, or rents” from mineral resources. This must include monitoring “population demographics as an organic part of the natural resource framework.” Other areas for augmentation are “overhead video surveillance,” “high resolution terrain data,” “cloud computing capability,” “data fusion” for all forms of intelligence in a “consistent spatio-temporal framework for organizing and indexing the data,” developing “social science frameworks” that can “support spatio-temporal encoding and analysis,” “distributing multi-form biometric authentication technologies [“such as fingerprints, retina scans and DNA samples”] to the point of service of the most basic administrative processes” in order to “tie identity to all an individual’s transactions.” In addition, the academy must be brought in to help the Pentagon develop “anthropological, socio-cultural, historical, human geographical, educational, public health, and many other types of social and behavioral science data and information” to develop “a deep understanding of populations.” A few months after joining Google, Quaid represented the company in August 2011 at the Pentagon’s Defense Information Systems Agency (DISA) Customer and Industry Forum. The forum would provide “the Services, Combatant Commands, Agencies, coalition forces” the “opportunity to directly engage with industry on innovative technologies to enable and ensure capabilities in support of our Warfighters.” Participants in the event have been integral to efforts to create a “defense enterprise information environment,” defined as “an integrated platform which includes the network, computing, environment, services, information assurance, and NetOps capabilities,” enabling warfighters to “connect, identify themselves, discover and share information, and collaborate across the full spectrum of military operations.” Most of the forum panelists were DoD officials, except for just four industry panelists including Google’s Quaid. DISA officials have attended the Highlands Forum, too?—?such as Paul Friedrichs, a technical director and chief engineer of DISA’s Office of the Chief Information Assurance Executive. Knowledge is Power Given all this it is hardly surprising that in 2012, a few months after Highlands Forum co-chair Regina Dugan left DARPA to join Google as a senior executive, then NSA chief Gen. Keith Alexander was emailing Google’s founding executive Sergey Brin to discuss information sharing for national security. In those emails, obtained under Freedom of Information by investigative journalist Jason Leopold, Gen. Alexander described Google as a “key member of [the US military’s] Defense Industrial Base,” a position Michele Quaid was apparently consolidating. Brin’s jovial relationship with the former NSA chief now makes perfect sense given that Brin had been in contact with representatives of the CIA and NSA, who partly funded and oversaw his creation of the Google search engine, since the mid-1990s. In July 2014, Quaid spoke at a US Army panel on the creation of a “rapid acquisition cell” to advance the US Army’s “cyber capabilities” as part of the Force 2025 transformation initiative. She told Pentagon officials that “many of the Army’s 2025 technology goals can be realized with commercial technology available or in development today,” re-affirming that “industry is ready to partner with the Army in supporting the new paradigm.” Around the same time, most of the media was trumpeting the idea that Google was trying to distance itself from Pentagon funding, but in reality, Google has switched tactics to independently develop commercial technologies which would have military applications the Pentagon’s transformation goals. Yet Quaid is hardly the only point-person in Google’s relationship with the US military intelligence community. One year after Google bought the satellite mapping software Keyhole from CIA venture capital firm In-Q-Tel in 2004, In-Q-Tel’s director of technical assessment Rob Painter?—?who played a key role in In-Q-Tel’s Keyhole investment in the first place?—?moved to Google. At In-Q-Tel, Painter’s work focused on identifying, researching and evaluating “new start-up technology firms that were believed to offer tremendous value to the CIA, the National Geospatial-Intelligence Agency, and the Defense Intelligence Agency.” Indeed, the NGA had confirmed that its intelligence obtained via Keyhole was used by the NSA to support US operations in Iraq from 2003 onwards. A former US Army special operations intelligence officer, Painter’s new job at Google as of July 2005 was federal manager of what Keyhole was to become: Google Earth Enterprise. By 2007, Painter had become Google’s federal chief technologist. That year, Painter told the Washington Post that Google was “in the beginning stages” of selling advanced secret versions of its products to the US government. “Google has ramped up its sales force in the Washington area in the past year to adapt its technology products to the needs of the military, civilian agencies and the intelligence community,” the Post reported. The Pentagon was already using a version of Google Earth developed in partnership with Lockheed Martin to “display information for the military on the ground in Iraq,” including “mapping out displays of key regions of the country” and outlining “Sunni and Shiite neighborhoods in Baghdad, as well as US and Iraqi military bases in the city. Neither Lockheed nor Google would say how the geospatial agency uses the data.” Google aimed to sell the government new “enhanced versions of Google Earth” and “search engines that can be used internally by agencies.” White House records leaked in 2010 showed that Google executives had held several meetings with senior US National Security Council officials. Alan Davidson, Google’s government affairs director, had at least three meetings with officials of the National Security Council in 2009, including White House senior director for Russian affairs Mike McFaul and Middle East advisor Daniel Shapiro. It also emerged from a Google patent application that the company had deliberately been collecting ‘payload’ data from private wifi networks that would enable the identification of “geolocations.” In the same year, we now know, Google had signed an agreement with the NSA giving the agency open-ended access to the personal information of its users, and its hardware and software, in the name of cyber security?—?agreements that Gen. Alexander was busy replicating with hundreds of telecoms CEOs around the country. Thus, it is not just Google that is a key contributor and foundation of the US military-industrial complex: it is the entire Internet, and the wide range of private sector companies?—?many nurtured and funded under the mantle of the US intelligence community (or powerful financiers embedded in that community)?—?which sustain the Internet and the telecoms infrastructure; it is also the myriad of start-ups selling cutting edge technologies to the CIA’s venture firm In-Q-Tel, where they can then be adapted and advanced for applications across the military intelligence community. Ultimately, the global surveillance apparatus and the classified tools used by agencies like the NSA to administer it, have been almost entirely made by external researchers and private contractors like Google, which operate outside the Pentagon. This structure, mirrored in the workings of the Pentagon’s Highlands Forum, allows the Pentagon to rapidly capitalize on technological innovations it would otherwise miss, while also keeping the private sector at arms length, at least ostensibly, to avoid uncomfortable questions about what such technology is actually being used for. But isn’t it obvious, really? The Pentagon is about war, whether overt or covert. By helping build the technological surveillance infrastructure of the NSA, firms like Google are complicit in what the military-industrial complex does best: kill for cash. As the nature of mass surveillance suggests, its target is not merely terrorists, but by extension, ‘terrorism suspects’ and ‘potential terrorists,’ the upshot being that entire populations?—?especially political activists?—?must be targeted by US intelligence surveillance to identify active and future threats, and to be vigilant against hypothetical populist insurgencies both at home and abroad. Predictive analytics and behavioural profiles play a pivotal role here. Mass surveillance and data-mining also now has a distinctive operational purpose in assisting with the lethal execution of special operations, selecting targets for the CIA’s drone strike kill lists via dubious algorithms, for instance, along with providing geospatial and other information for combatant commanders on land, air and sea, among many other functions. A single social media post on Twitter or Facebook is enough to trigger being placed on secret terrorism watch-lists solely due to a vaguely defined hunch or suspicion; and can potentially even land a suspect on a kill list. The push for indiscriminate, comprehensive mass surveillance by the military-industrial complex?—?encompassing the Pentagon, intelligence agencies, defense contractors, and supposedly friendly tech giants like Google and Facebook?—?is therefore not an end in itself, but an instrument of power, whose goal is self-perpetuation. But there is also a self-rationalizing justification for this goal: while being great for the military-industrial complex, it is also, supposedly, great for everyone else. The ‘long war’ No better illustration of the truly chauvinistic, narcissistic, and self-congratulatory ideology of power at the heart of the military-industrial complex is a book by long-time Highlands Forum delegate, Dr. Thomas Barnett, The Pentagon’s New Map. Barnett was assistant for strategic futures in the Pentagon’s Office of Force Transformation from 2001 to 2003, and had been recommended to Richard O’Neill by his boss Vice Admiral Arthur Cebrowski. Apart from becoming a New York Times bestseller, Barnett’s book had been read far and wide in the US military, by senior defense officials in Washington and combatant commanders operating on the ground in the Middle East. Barnett first attended the Pentagon Highlands Forum in 1998, then was invited to deliver a briefing about his work at the Forum on December 7th 2004, which was attended by senior Pentagon officials, energy experts, internet entrepreneurs, and journalists. Barnett received a glowing review in the Washington Post from his Highlands Forum buddy David Ignatius a week later, and an endorsement from another Forum friend, Thomas Friedman, both of which helped massively boost his credibility and readership. Barnett’s vision is neoconservative to the root. He sees the world as divided into essentially two realms: The Core, which consists of advanced countries playing by the rules of economic globalization (the US, Canada, UK, Europe and Japan) along with developing countries committed to getting there (Brazil, Russia, India, China, and some others); and the rest of the world, which is The Gap, a disparate wilderness of dangerous and lawless countries defined fundamentally by being “disconnected” from the wonders of globalization. This includes most of the Middle East and Africa, large swathes of South America, as well as much of Central Asia and Eastern Europe. It is the task of the United States to “shrink The Gap,” by spreading the cultural and economic “rule-set” of globalization that characterizes The Core, and by enforcing security worldwide to enable that “rule-set” to spread. These two functions of US power are captured by Barnett’s concepts of “Leviathan” and “System Administrator.” The former is about rule-setting to facilitate the spread of capitalist markets, regulated via military and civilian law. The latter is about projecting military force into The Gap in an open-ended global mission to enforce security and engage in nation-building. Not “rebuilding,” he is keen to emphasize, but building “new nations.” For Barnett, the Bush administration’s 2002 introduction of the Patriot Act at home, with its crushing of habeas corpus, and the National Security Strategy abroad, with its opening up of unilateral, pre-emptive war, represented the beginning of the necessary re-writing of rule-sets in The Core to embark on this noble mission. This is the only way for the US to achieve security, writes Barnett, because as long as The Gap exists, it will always be a source of lawless violence and disorder. One paragraph in particular sums up his vision: “America as global cop creates security. Security creates common rules. Rules attract foreign investment. Investment creates infrastructure. Infrastructure creates access to natural resources. Resources create economic growth. Growth creates stability. Stability creates markets. And once you’re a growing, stable part of the global market, you’re part of the Core. Mission accomplished.” Much of what Barnett predicted would need to happen to fulfill this vision, despite its neoconservative bent, is still being pursued under Obama. In the near future, Barnett had predicted, US military forces will be dispatched beyond Iraq and Afghanistan to places like Uzbekistan, Djibouti, Azerbaijan, Northwest Africa, Southern Africa and South America. Barnett’s Pentagon briefing was greeted with near universal enthusiasm. The Forum had even purchased copies of his book and had them distributed to all Forum delegates, and in May 2005, Barnett was invited back to participate in an entire Forum themed around his “SysAdmin” concept. The Highlands Forum has thus played a leading role in defining the Pentagon’s entire conceptualization of the ‘war on terror.’ Irving Wladawsky-Berger, a retired IMB vice president who co-chaired the President’s Information Technology Advisory Committee from 1997 to 2001, described his experience of one 2007 Forum meeting in telling terms: “Then there is the War on Terror, which DoD has started to refer to as the Long War, a term that I first heard at the Forum. It seems very appropriate to describe the overall conflict in which we now find ourselves. This is a truly global conflict… the conflicts we are now in have much more of the feel of a battle of civilizations or cultures trying to destroy our very way of life and impose their own.” The problem is that outside this powerful Pentagon-hosted clique, not everyone else agrees. “I’m not convinced that Barnett’s cure would be any better than the disease,” wrote Dr. Karen Kwiatowski, a former senior Pentagon analyst in the Near East and South Asia section, who blew the whistle on how her department deliberately manufactured false information in the run-up to the Iraq War. “It would surely cost far more in American liberty, constitutional democracy and blood than it would be worth.” Yet the equation of “shrinking The Gap” with sustaining the national security of The Core leads to a slippery slope. It means that if the US is prevented from playing this leadership role as “global cop,” The Gap will widen, The Core will shrink, and the entire global order could unravel. By this logic, the US simply cannot afford government or public opinion to reject the legitimacy of its mission. If it did so, it would allow The Gap to grow out of control, undermining The Core, and potentially destroying it, along with The Core’s protector, America. Therefore, “shrinking The Gap” is not just a security imperative: it is such an existential priority, that it must be backed up with information war to demonstrate to the world the legitimacy of the entire project. Based on O’Neill’s principles of information warfare as articulated in his 1989 US Navy brief, the targets of information war are not just populations in The Gap, but domestic populations in The Core, and their governments: including the US government. That secret brief, which according to former senior US intelligence official John Alexander was read by the Pentagon’s top leadership, argued that information war must be targeted at: adversaries to convince them of their vulnerability; potential partners around the world so they accept “the cause as just”; and finally, civilian populations and the political leadership so they believe that “the cost” in blood and treasure is worth it. Barnett’s work was plugged by the Pentagon’s Highlands Forum because it fit the bill, in providing a compelling ‘feel good’ ideology for the US military-industrial complex. But neoconservative ideology, of course, hardly originated with Barnett, himself a relatively small player, even though his work was extremely influential throughout the Pentagon. The regressive thinking of senior officials involved in the Highlands Forum is visible from long before 9/11, which was ceased upon by actors linked to the Forum as a powerful enabling force that legitimized the increasingly aggressive direction of US foreign and intelligence policies. Yoda and the Soviets The ideology represented by the Highlands Forum can be gleaned from long before its establishment in 1994, at a time when Andrew ‘Yoda’ Marshall’s ONA was the primary locus of Pentagon activity on future planning. A widely-held myth promulgated by national security journalists over the years is that the ONA’s reputation as the Pentagon’s resident oracle machine was down to the uncanny analytical foresight of its director Marshall. Supposedly, he was among the few who made the prescient recognition that the Soviet threat had been overblown by the US intelligence community. He had, the story goes, been a lone, but relentless voice inside the Pentagon, calling on policymakers to re-evaluate their projections of the USSR’s military might. Except the story is not true. The ONA was not about sober threat analysis, but about paranoid threat projection justifying military expansionism. Foreign Policy’s Jeffrey Lewis points out that far from offering a voice of reason calling for a more balanced assessment of Soviet military capabilities, Marshall tried to downplay ONA findings that rejected the hype around an imminent Soviet threat. Having commissioned a study concluding that the US had overestimated Soviet aggressiveness, Marshall circulated it with a cover note declaring himself “unpersuaded” by its findings. Lewis charts how Marshall’s threat projection mind-set extended to commissioning absurd research supporting staple neocon narratives about the (non-existent) Saddam-al-Qaeda link, and even the notorious report by a RAND consultant calling for re-drawing the map of the Middle East, presented to the Pentagon’s Defense Policy Board on the invitation of Richard Perle in 2002. Investigative journalist Jason Vest similarly found from Pentagon sources that during the Cold War, Marshall had long hyped the Soviet threat, and played a key role in giving the neoconservative pressure group, the Committee on the Present Danger, access to classified CIA intelligence data to re-write the National Intelligence Estimate on Soviet Military Intentions. This was a precursor to the manipulation of intelligence after 9/11 to justify the invasion and occupation of Iraq. Former ONA staffers confirmed that Marshall had been belligerent about an imminent Soviet threat “until the very end.” Ex-CIA sovietologist Melvin Goodman, for instance, recalled that Marshall was also instrumental in pushing for the Afghan mujahideen to be provided with Stinger missiles?—?a move which made the war even more brutal, encouraging the Russians to use scorched earth tactics. Enron, the Taliban and Iraq The post-Cold War period saw the Pentagon’s creation of the Highlands Forum in 1994 under the wing of former defense secretary William Perry?—?a former CIA director and early advocate of neocon ideas like preventive war. Surprisingly, the Forum’s dubious role as a government-industry bridge can be clearly discerned in relation to Enron’s flirtations with the US government. Just as the Forum had crafted the Pentagon’s intensifying policies on mass surveillance, it simultaneously fed directly into the strategic thinking that culminating in the wars in Afghanistan and Iraq. On November 7th 2000, George W. Bush ‘won’ the US presidential elections. Enron and its employees had given over $1 million to the Bush campaign in total. That included contributing $10,500 to Bush’s Florida recount committee, and a further $300,000 for the inaugural celebrations afterwards. Enron also provided corporate jets to shuttle Republican lawyers around Florida and Washington lobbying on behalf of Bush for the December recount. Federal election documents later showed that since 1989, Enron had made a total of $5.8 million in campaign donations, 73 percent to Republicans and 27 percent to Democrats?—?with as many as 15 senior Bush administration officials owning stock in Enron, including defense secretary Donald Rumsfeld, senior advisor Karl Rove, and army secretary Thomas White. Yet just one day before that controversial election, Pentagon Highlands Forum founding president Richard O’Neill wrote to Enron CEO, Kenneth Lay, inviting him to give a presentation at the Forum on modernizing the Pentagon and the Army. The email from O’Neill to Lay was released as part of the Enron Corpus, the emails obtained by the Federal Energy Regulatory Commission, but has remained unknown until now. The email began “On behalf of Assistant Secretary of Defense (C3I) and DoD CIO Arthur Money,” and invited Lay “to participate in the Secretary of Defense’s Highlands Forum,” which O’Neill described as “a cross-disciplinary group of eminent scholars, researchers, CEO’s/CIO’s/CTO’s from industry, and leaders from the media, the arts and the professions, who have met over the past six years to examine areas of emerging interest to all of us.” He added that Forum sessions include “seniors from the White House, Defense, and other agencies of government (we limit government participation to about 25%).” Here, O’Neill reveals that the Pentagon Highlands Forum was, fundamentally, about exploring not just the goals of government, but the interests of participating industry leaders like Enron. The Pentagon, O’Neill went on, wanted Lay to feed into “the search for information/ transformation strategies for the Department of Defense (and government in general),” particularly “from a business perspective (transformation, productivity, competitive advantage).” He offered high praise of Enron as “a remarkable example of transformation in a highly rigid, regulated industry, that has created a new model and new markets.” O’Neill made clear that the Pentagon wanted Enron to play a pivotal role in the DoD’s future, not just in the creation of “an operational strategy which has information superiority,” but also in relation to the DoD’s “enormous global business enterprise which can benefit from many of the best practices and ideas from industry.” “ENRON is of great interest to us,” he reaffirmed. “What we learn from you may help the Department of Defense a great deal as it works to build a new strategy. I hope that you have time on your busy schedule to join us for as much of the Highlands Forum as you can attend and speak with the group.” That Highlands Forum meeting was attended by senior White House and US intelligence officials, including CIA deputy director Joan A. Dempsey, who had previously served as assistant defense secretary for intelligence, and in 2003 was appointed by Bush as executive director of the President’s Foreign Intelligence Advisory Board, in which capacity she praised extensive information sharing by the NSA and NGA after 9/11. She went on to become executive vice president at Booz Allen Hamilton, a major Pentagon contractor in Iraq and Afghanistan that, among other things, created the Coalition Provisional Authority’s database to track what we now know were highly corrupt reconstruction projects in Iraq. Enron’s relationship with the Pentagon had already been in full swing the previous year. Thomas White, then vice chair of Enron energy services, had used his extensive US military connections to secure a prototype deal at Fort Hamilton to privatize the power supply of army bases. Enron was the only bidder for the deal. The following year, after Enron’s CEO was invited to the Highlands Forum, White gave his first speech in June just “two weeks after he became secretary of the Army,” where he “vowed to speed up the awarding of such contracts,” along with further “rapid privatization” of the Army’s energy services. “Potentially, Enron could benefit from the speedup in awarding contracts, as could others seeking the business,” observed USA Today. That month, on the authority of defense secretary Donald Rumsfeld?—?who himself held significant shares in Enron?—?Bush’s Pentagon invited another Enron executive and one of Enron’s senior external financial advisors to attend a further secret Highlands Forum session. An email from Richard O’Neill dated June 22nd, obtained via the Enron Corpus, showed that Steven Kean, then executive vice president and chief of staff of Enron, was due to give another Highlands presentation on Monday 25th. “We are approaching the Secretary of Defense-sponsored Highlands Forum and very much looking forward to your participation,” wrote O’Neill, promising Kean that he would be “the centerpiece of discussion. Enron’s experience is quite important to us as we seriously consider transformative change in the Department of Defense.” Steven Kean is now president and COO (and incoming CEO) of Kinder Morgan, one of the largest energy companies in North America, and a major supporter of the controversial Keystone XL pipeline project. Due to attend the same Highlands Forum session with Kean was Richard Foster, then a senior partner at the financial consultancy McKinsey. “I have given copies of Dick Foster’s new book, Creative Destruction, to the Deputy Secretary of Defense as well as the Assistant Secretary,” said O’Neill in his email, “and the Enron case that he outlines makes for important discussion. We intend to hand out copies to the participants at the Forum.” Foster’s firm, McKinsey, had provided strategic financial advice to Enron since the mid-1980s. Joe Skilling, who in February 2001 became Enron CEO while Kenneth Lay moved to chair, had been head of McKinsey’s energy consulting business before joining Enron in 1990. McKinsey and then partner Richard Foster were intimately involved in crafting the core Enron financial management strategies responsible for the company’s rapid, but fraudulent, growth. While McKinsey has always denied being aware of the dodgy accounting that led to Enron’s demise, internal company documents showed that Foster had attended an Enron finance committee meeting a month before the Highlands Forum session to discuss the “need for outside private partnerships to help drive the company’s explosive growth”?—?the very investment partnerships responsible for the collapse of Enron. McKinsey documents showed that the firm was “fully aware of Enron’s extensive use of off-balance-sheet funds.” As The Independent’s economics editor Ben Chu remarks, “McKinsey fully endorsed the dubious accounting methods,” which led to the inflation of Enron’s market valuation and “that caused the company to implode in 2001.” Indeed, Foster himself had personally attended six Enron board meetings from October 2000 to October 2001. That period roughly coincided with Enron’s growing influence on the Bush administration’s energy policies, and the Pentagon’s planning for Afghanistan and Iraq. But Foster was also a regular attendee at the Pentagon Highlands Forum?—?his LinkedIn profile describes him as member of the Forum since 2000, the year he ramped up engagement with Enron. He also delivered a presentation at the inaugural Island Forum in Singapore in 2002. Enron’s involvement in the Cheney Energy Task Force appears to have been linked to the Bush administration’s 2001 planning for both the invasions of Afghanistan and Iraq, motivated by control of oil. As noted by Prof. Richard Falk, a former board member of Human Rights Watch and ex-UN investigator, Enron’s Kenneth Lay “was the main confidential consultant relied upon by Vice President Dick Cheney during the highly secretive process of drafting a report outlining a national energy policy, widely regarded as a key element in the US approach to foreign policy generally and the Arab world in particular.” The intimate secret meetings between senior Enron executives and high-level US government officials via the Pentagon Highlands Forum, from November 2000 to June 2001, played a central role in establishing and cementing the increasingly symbiotic link between Enron and Pentagon planning. The Forum’s role was, as O’Neill has always said, to function as an ideas lab to explore the mutual interests of industry and government. Enron and Pentagon war planning In February 2001, when Enron executives including Kenneth Lay began participating concertedly in the Cheney Energy Task Force, a classified National Security Council document instructed NSC staffers to work with the task force in “melding” previously separate issues: “operational policies towards rogue states” and “actions regarding the capture of new and existing oil and gas fields.” According to Bush’s treasury secretary Paul O’Neill, as quoted by Ron Suskind in The Price of Loyalty (2004), cabinet officials discussed an invasion of Iraq in their first NSC meeting, and had even prepared a map for a post-war occupation marking the carve-up of Iraq’s oil fields. The message at that time from President Bush was that officials must “find a way to do this.” Cheney Energy Task Force documents obtained by Judicial Watch under Freedom of Information revealed that by March, with extensive industry input, the task force had prepared maps of Gulf state and especially Iraqi oilfields, pipelines, and refineries, along with a list titled ‘Foreign Suitors for Iraqi Oilfield Contracts.’ By April, a think-tank report commissioned by Cheney, overseen by former secretary of state James Baker, and put together by a committee of energy industry and national security experts, urged the US government “to conduct an immediate policy review toward Iraq including military, energy, economic and political/diplomatic assessments,” to deal with Iraq’s “destabilizing influence” on oil flows to global markets. The report included recommendations from Highlands Forum delegate and Enron chair, Kenneth Lay. But Cheney’s Energy Task Force was also busily pushing forward plans for Afghanistan involving Enron, that had been in motion under Clinton. Through the late 1990s, Enron was working with California-based US energy company Unocal to develop an oil and gas pipeline that would tap Caspian basin reserves, and carry oil and gas across Afghanistan, supplying Pakistan, India and potentially other markets. The endeavor had the official blessing of the Clinton administration, and later the Bush administration, which held several meetings with Taliban representatives to negotiate terms for the pipeline deal throughout 2001. The Taliban, whose conquest of Afghanistan had received covert assistance under Clinton, was to receive formal recognition as the legitimate government of Afghanistan in return for permitting the installation of the pipeline. Enron paid $400 million for a feasibility study for the pipeline, a large portion of which was siphoned off as bribes to Taliban leaders, and even hired CIA agents to help facilitate. Then in summer 2001, while Enron officials were liaising with senior Pentagon officials at the Highlands Forum, the White House’s National Security Council was running a cross-departmental ‘working group’ led by Rumsfeld and Cheney to help complete an ongoing Enron project in India, a $3 billion power plant in Dabhol. The plant was slated to receive its energy from the Trans-Afghan pipeline. The NSC’s ‘Dabhol Working Group,’ chaired by Bush’s national security adviser Condoleeza Rice, generated a range of tactics to enhance US government pressure on India to complete the Dabhol plant?—?pressure that continued all the way to early November. The Dabhol project, and the Trans-Afghan pipeline, was by far Enron’s most lucrative overseas deal. Throughout 2001, Enron officials, including Ken Lay, participated in Cheney’s Energy Task Force, along with representatives across the US energy industry. Starting from February, shortly after the Bush administration took office, Enron was involved in about half a dozen of these Energy Task Force meetings. After one of these secret meetings, a draft energy proposal was amended to include a new provision proposing to dramatically boost oil and natural gas production in India in a way that would apply only to Enron’s Dabhol power plant. In other words, ensuring the flow of cheap gas to India via the Trans-Afghan pipeline was now a matter of US ‘national security.’ A month or two after this, the Bush administration gave the Taliban $43 million, justified by its crackdown on opium production, despite US-imposed UN sanctions preventing aid to the group for not handing over Osama bin Laden. Then in June 2001, the same month that Enron’s executive vice president Steve Kean attended the Pentagon Highlands Forum, the company’s hopes for the Dabhol project were dashed when the Trans-Afghan pipeline failed to materialize, and as a consequence, construction on the Dabhol power plant was shut down. The failure of the $3 billion project contributed to Enron’s bankruptcy in December. That month, Enron officials met with Bush’s commerce secretary, Donald Evans, about the plant, and Cheney lobbied India’s main opposition party about the Dhabol project. Ken Lay had also reportedly contacted the Bush administration around this time to inform officials about the firm’s financial troubles. By August, desperate to pull off the deal, US officials threatened Taliban representatives with war if they refused to accept American terms: namely, to cease fighting and join in a federal alliance with the opposition Northern Alliance; and to give up demands for local consumption of the gas. On the 15th of that month, Enron lobbyist Pat Shortridge told then White House economic advisor Robert McNally that Enron was heading for a financial meltdown that could cripple the country’s energy markets. The Bush administration must have anticipated the Taliban’s rejection of the deal, because they had planned a war on Afghanistan from as early as July. According to then Pakistani foreign minister Niaz Naik, who had participated in the US-Taliban negotiations, US officials told him they planned to invade Afghanistan in mid-October 2001. No sooner had the war commenced, Bush’s ambassador to Pakistan, Wendy Chamberlain, called Pakistani’s oil minister Usman Aminuddin to discuss “the proposed Turkmenistan-Afghanistan-Pakistan gas pipeline project,” according to the Frontier Post, a Pakistani English-language broadsheet. They reportedly agreed that the “project opens up new avenues of multi-dimensional regional cooperation particularly in view of the recent geo-political developments in the region.” Two days before 9/11, Condoleeza Rice received the draft of a formal National Security Presidential Directive that Bush was expected to sign immediately. The directive contained a comprehensive plan to launch a global war on al-Qaeda, including an “imminent” invasion of Afghanistan to topple the Taliban. The directive was approved by the highest levels of the White House and officials of the National Security Council, including of course Rice and Rumsfeld. The same NSC officials were simultaneously running the Dhabol Working Group to secure the Indian power plant deal for Enron’s Trans-Afghan pipeline project. The next day, one day before 9/11, the Bush administration formally agreed on the plan to attack the Taliban. The Pentagon Highlands Forum’s background link with the interests involved in all this, show they were not unique to the Bush administration?—?which is why, as Obama was preparing to pull troops out of Afghanistan, he re-affirmed his government’s support for the Trans-Afghan pipeline project, and his desire for a US firm to construct it. The Pentagon’s propaganda fixer Throughout this period, information war played a central role in drumming up public support for war?—?and the Highlands Forum led the way. In December 2000, just under a year before 9/11 and shortly after George W. Bush’s election victory, key Forum members participated in an event at the Carnegie Endowment for International Peace to explore “the impact of the information revolution, globalization, and the end of the Cold War on the US foreign policy making process.” Rather than proposing “incremental reforms,” the meeting was for participants to “build from scratch a new model that is optimized to the specific properties of the new global environment.” Among the issues flagged up in the meeting was the ‘Global Control Revolution’: the “distributed” nature of the information revolution was altering “key dynamics of world politics by challenging the primacy of states and inter-state relations.” This was “creating new challenges to national security, reducing the ability of leading states to control global policy debates, challenging the efficacy of national economic policies, etc.” In other words, how can the Pentagon find a way to exploit the information revolution to “control global policy debates,” particularly on “national economic policies”? The meeting was co-hosted by Jamie Metzl, who at the time served on Bill Clinton’s National Security Council, where he had just led the drafting of Clinton’s Presidential Decision Directive 68 on International Public Information (IPI), a new multiagency plan to coordinate US public information dissemination abroad. Metzl went on to coordinate IPI at the State Department. The preceding year, a senior Clinton official revealed to the Washington Times that Metz’s IPI was really aimed at “spinning the American public,” and had “emerged out of concern that the US public has refused to back President Clinton’s foreign policy.” The IPI would plant news stories favorable to US interests via TV, press, radio and other media based abroad, in hopes it would get picked up in American media. The pretext was that “news coverage is distorted at home and they need to fight it at all costs by using resources that are aimed at spinning the news.” Metzl ran the IPI’s overseas propaganda operations for Iraq and Kosovo. Other participants of the Carnegie meeting in December 2000, included two founding members of the Highlands Forum, Richard O’Neill and SAIC’s Jeff Cooper?—?along with Paul Wolfowitz, another Andrew Marshall acolyte who was about to join the incoming Bush administration as Rumsfelds’ deputy defense secretary. Also present was a figure who soon became particularly notorious in the propaganda around Afghanistan and Iraq War 2003: John W. Rendon, Jr., founding president of The Rendon Group (TRG) and another longtime Pentagon Highlands Forum member. John Rendon (right) at the Highlands Forum, accompanied by BBC anchor Nik Gowing (left) and Jeff Jonas, IBM Entity Analytics chief engineer (middle) TRG is a notorious communications firm that has been a US government contractor for decades. Rendon played a pivotal role in running the State Department’s propaganda campaigns in Iraq and Kosovo under Clinton and Metzl. That included receiving a Pentagon grant to run a news website, the Balkans Information Exchange, and a US Agency for International Development (USAID) contract to promote “privatization.” Rendon’s central role in helping the Bush administration hype up the non-existent threat of weapons of mass destruction (WMD) to justify a US military invasion is now well-known. As James Bamford famously exposed in his seminal Rolling Stone investigation, Rendon played an instrumental role on behalf of the Bush administration in deploying “perception management” to “create the conditions for the removal of Hussein from power” under multi-million dollar CIA and Pentagon contracts. Among Rendon’s activities was the creation of Ahmed Chalabi’s Iraqi National Congress (INC) on behalf of the CIA, a group of Iraqi exiles tasked with disseminating propaganda, including much of the false intelligence about WMD. That process had begun concertedly under the administration of George H W. Bush, then rumbled along under Clinton with little fanfare, before escalating after 9/11 under George W. Bush. Rendon thus played a large role in the manufacture of inaccurate and false news stories relating to Iraq under lucrative CIA and Pentagon contracts?—?and he did so in the period running up to the 2003 invasion as an advisor to Bush’s National Security Council: the same NSC, of course, that planned the invasions of Afghanistan and Iraq, achieved with input from Enron executives who were simultaneously engaging the Pentagon Highlands Forum. But that is the tip of iceberg. Declassified documents show that the Highlands Forum was intimately involved in the covert processes by which key officials engineered the road to war on Iraq, based on information warfare. A redacted 2007 report by the DoD’s Inspector General reveals that one of the contractors used extensively by the Pentagon Highlands Forum during and after the Iraq War was none other than The Rendon Group. TRG was contracted by the Pentagon to organize Forum sessions, determine subjects for discussion, as well as to convene and coordinate Forum meetings. The Inspector General investigation had been prompted by accusations raised in Congress about Rendon’s role in manipulating information to justify the 2003 invasion and occupation of Iraq. According to the Inspector General report: “… the Assistant Secretary of Defense for Networks and Information Integration/Chief Information Officer employed TRG to conduct forums that would appeal to a cross-disciplinary group of nationally regarded leaders. The forums were in small groups discussing information and technologies and their effects on science, organizational and business processes, international relations, economics, and national security. TRG also conducted a research program and interviews to formulate and develop topics for the Highlands Forum focus group. The Office of the Assistant Secretary of Defense for Networks and Information Integration would approve the subjects, and TRG would facilitate the meetings.” TRG, the Pentagon’s private propaganda arm, thus played a central role in literally running the Pentagon Highlands Forum process that brought together senior government officials with industry executives to generate DoD information warfare strategy. The Pentagon’s internal investigation absolved Rendon of any wrongdoing. But this is not surprising, given the conflict of interest at stake: the Inspector General at the time was Claude M. Kicklighter, a Bush nominee who had directly overseen the administration’s key military operations. In 2003, he was director of the Pentagon’s Iraq Transition Team, and the following year he was appointed to the State Department as special advisor on stabilization and security operations in Iraq and Afghanistan. The surveillance-propaganda nexus Even more telling, Pentagon documents obtained by Bamford for his Rolling Stone story revealed that Rendon had been given access to the NSA’s top-secret surveillance data to carry out its work on behalf of the Pentagon. TRG, the DoD documents said, is authorized “to research and analyze information classified up to Top Secret/SCI/SI/TK/G/HCS.” ‘SCI’ means Sensitive Compartmented Information, data classified higher than Top Secret, while ‘SI’ designates Special Intelligence, that is, highly secret communications intercepted by the NSA. ‘TK’ refers to Talent/Keyhole, code names for imagery from reconnaissance aircraft and spy satellites, while ‘G’ stands for Gamma, encompassing communications intercepts from extremely sensitive sources, and ‘HCS’ means Humint Control System?—?information from a very sensitive human source. In Bamford’s words: “Taken together, the acronyms indicate that Rendon enjoys access to the most secret information from all three forms of intelligence collection: eavesdropping, imaging satellites and human spies.” So the Pentagon had: 1. contracted Rendon, a propaganda firm; 2. given Rendon access to the intelligence community’s most classified information including data from NSA surveillance; 3. tasked Rendon to facilitating the DoD’s development of information operations strategy by running the Highlands Forum process; 4. and further, tasked Rendon with overseeing the concrete execution of this strategy developed through the Highlands Forum process, in actual information operations around the world in Iraq, Afghanistan and beyond. TRG chief executive John Rendon remains closely involved in the Pentagon Highlands Forum, and ongoing DoD information operations in the Muslim world. His November 2014 biography for the Harvard Kennedy School ‘Emerging Leaders’ course describes him as “a participant in forward-thinking organizations such as the Highlands Forum,” “one of the first thought-leaders to harness the power of emerging technologies in support of real time information management,” and an expert on “the impact of emerging information technologies on the way populations think and behave.” Rendon’s Harvard bio also credits him with designing and executing “strategic communications initiatives and information programs related to operations, Odyssey Dawn (Libya), Unified Protector (Libya), Global War on Terrorism (GWOT), Iraqi Freedom, Enduring Freedom (Afghanistan), Allied Force and Joint Guardian (Kosovo), Desert Shield, Desert Storm (Kuwait), Desert Fox (Iraq) and Just Cause (Panama), among others.” Rendon’s work on perception management and information operations has also “assisted a number of US military interventions” elsewhere, as well as running US information operations in Argentina, Colombia, Haiti, and Zimbabwe?—?in fact, a total of 99 countries. As a former executive director and national political director of the Democratic Party, John Rendon remains a powerful figure in Washington under the Obama administration. Pentagon records show that TRG has received over $100 million from the DoD since 2000. In 2009, the US government cancelled a ‘strategic communications’ contract with TRG after revelations it was being used to weed out reporters who might write negative stories about the US military in Afghanistan, and to solely promote journalists supportive of US policy. Yet in 2010, the Obama administration re-contracted Rendon to supply services for “military deception” in Iraq. Since then, TRG has provided advice to the US Army’s Training and Doctrine Command, the Special Operations Command, and is still contracted to the Office of the Secretary of Defense, the US Army’s Communications Electronic Command, as well as providing “communications support” to the Pentagon and US embassies on counter-narcotics operations. TRG also boasts on its website that it provides “Irregular Warfare Support,” including “operational and planning support” that “assists our government and military clients in developing new approaches to countering and eroding an adversary’s power, influence and will.” Much of this support has itself been fine-tuned over the last decade or more inside the Pentagon Highlands Forum. Irregular war and pseudo-terrorism The Pentagon Highlands Forum’s intimate link, via Rendon, to the propaganda operations pursued under Bush and Obama in support of the ‘Long War,’ demonstrate the integral role of mass surveillance in both irregular warfare and ‘strategic communications.’ One of the major proponents of both is Prof John Arquilla of the Naval Postgraduate School, the renowned US defense analyst credited with developing the concept of ‘netwar,’ who today openly advocates the need for mass surveillance and big data mining to support pre-emptive operations to thwart terrorist plots. It so happens that Arquilla is another “founding member” of the Pentagon’s Highlands Forum. Much of his work on the idea of ‘networked warfare,’ ‘networked deterrence,’ ‘information warfare,’ and ‘swarming,’ largely produced for RAND under Pentagon contract, was incubated by the Forum during its early years and thus became integral to Pentagon strategy. For instance, in Arquilla’s 1999 RAND study, The Emergence of Noopolitik: Toward an American Information Strategy, he and his co-author David Ronfeldt express their gratitude to Richard O’Neill “for his interest, support and guidance,” and to “members of the Highlands Forum” for their advance comments on the study. Most of his RAND work credits the Highlands Forum and O’Neill for their support. Prof. John Arquilla of the Naval Postgraduate School, and a founding member of the Pentagon Highlands Forum Arquilla’s work was cited in a 2006 National Academy of Sciences study on the future of network science commissioned by the US Army, which found based on his research that: “Advances in computer-based technologies and telecommunications are enabling social networks that facilitate group affiliations, including terrorist networks.” The study conflated risks from terror and activist groups: “The implications of this fact for criminal, terror, protest and insurgency networks has been explored by Arquilla and Ronfeldt (2001) and are a common topic of discussion by groups like the Highlands Forum, which perceive that the United States is highly vulnerable to the interruption of critical networks.” Arquilla went on to help develop information warfare strategies “for the military campaigns in Kosovo, Afghanistan and Iraq,” according to military historian Benjamin Shearer in his biographical dictionary, Home Front Heroes (2007)?—?once again illustrating the direct role played by certain key Forum members in executing Pentagon information operations in war theatres. In his 2005 New Yorker investigation, the Pulitzer Prize-winning Seymour Hersh referred to a series of articles by Arquilla elaborating on a new strategy of “countering terror” with pseudo-terror. “It takes a network to fight a network,” said Arquilla, drawing on the thesis he had been promoting in the Pentagon through the Highlands Forum since its founding: “When conventional military operations and bombing failed to defeat the Mau Mau insurgency in Kenya in the 1950s, the British formed teams of friendly Kikuyu tribesmen who went about pretending to be terrorists. These ‘pseudo gangs’, as they were called, swiftly threw the Mau Mau on the defensive, either by befriending and then ambushing bands of fighters or by guiding bombers to the terrorists’ camps.” Arquilla went on to advocate that western intelligence services should use the British case as a model for creating new “pseudo gang” terrorist groups, as a way of undermining “real” terror networks: “What worked in Kenya a half-century ago has a wonderful chance of undermining trust and recruitment among today’s terror networks. Forming new pseudo gangs should not be difficult.” Essentially, Arquilla’s argument was that as only networks can fight networks, the only way to defeat enemies conducting irregular warfare is to use techniques of irregular warfare against them. Ultimately, the determining factor in victory is not conventional military defeat per se, but the extent to which the direction of the conflict can be calibrated to influence the population and rally their opposition to the adversary. Arquilla’s ‘pseudo-gang’ strategy was, Hersh reported, already being implemented by the Pentagon: “Under Rumsfeld’s new approach, I was told, US military operatives would be permitted to pose abroad as corrupt foreign businessmen seeking to buy contraband items that could be used in nuclear-weapons systems. In some cases, according to the Pentagon advisers, local citizens could be recruited and asked to join up with guerrillas or terrorists… The new rules will enable the Special Forces community to set up what it calls ‘action teams’ in the target countries overseas which can be used to find and eliminate terrorist organizations. ‘Do you remember the right-wing execution squads in El Salvador?’ the former high-level intelligence official asked me, referring to the military-led gangs that committed atrocities in the early nineteen-eighties. ‘We founded them and we financed them,’ he said. ‘The objective now is to recruit locals in any area we want. And we aren’t going to tell Congress about it.’ A former military officer, who has knowledge of the Pentagon’s commando capabilities, said, ‘We’re going to be riding with the bad boys.’” Official corroboration that this strategy is now operational came with the leak of a 2008 US Army special operations field manual. The US military, the manual said, can conduct irregular and unconventional warfare by using surrogate non-state groups such as “paramilitary forces, individuals, businesses, foreign political organizations, resistant or insurgent organizations, expatriates, transnational terrorism adversaries, disillusioned transnational terrorism members, black marketers, and other social or political ‘undesirables.’” Shockingly, the manual specifically acknowledged that US special operations can involve both counterterrorism and “Terrorism,” as well as: “Transnational criminal activities, including narco-trafficking, illicit arms-dealing, and illegal financial transactions.” The purpose of such covert operations is, essentially, population control?—?they are “specifically focused on leveraging some portion of the indigenous population to accept the status quo,” or to accept “whatever political outcome” is being imposed or negotiated. By this twisted logic, terrorism can in some cases be defined as a legitimate tool of US statecraft by which to influence populations into accepting a particular “political outcome”?—?all in the name fighting terrorism. Is this what the Pentagon was doing by coordinating the nearly $1 billion of funding from Gulf regimes to anti-Assad rebels, most of which according to the CIA’s own classified assessments ended up in the coffers of violent Islamist extremists linked to al-Qaeda, who went on to spawn the ‘Islamic State’? The rationale for the new strategy was first officially set out in an August 2002 briefing for the Pentagon’s Defense Science Board, which advocated the creation of a ‘Proactive, Preemptive Operations Group’ (P2OG) within the National Security Council. P2OG, the Board proposed, must conduct clandestine operations to infiltrate and “stimulate reactions” among terrorist networks to provoke them into action, and thus facilitate targeting them. The Defense Science Board is, like other Pentagon agencies, intimately related with the Highlands Forum, whose work feeds into the Board’s research, which in turn is regularly presented at the Forum. According to the US intelligence sources who spoke to Hersh, Rumsfeld had ensured that the new brand of black operations would be conducted entirely under Pentagon jurisdiction, firewalled off from the CIA and regional US military commanders, and executed by its own secret special operations command. That chain of command would include, apart from the defense secretary himself, two of his deputies including the undersecretary of defense for intelligence: the position overseeing the Highlands Forum. Strategic communications: war propaganda at home and abroad Within the Highlands Forum, the special operations techniques explored by Arquilla have been taken up by several others in directions focused increasingly on propaganda?—?among them, Dr. Lochard, as seen previously, and also Dr. Amy Zalman, who focuses particularly on the idea of the US military using ‘strategic narratives’ to influence public opinion and win wars. Like her colleague, Highlands Forum founding member Jeff Cooper, Zalman was schooled in the bowels of SAIC/Leidos. From 2007 to 2012, she was a senior SAIC strategist, before becoming Department of Defense Information Integration Chair at the US Army’s National War College, where she focused on how to fine-tune propaganda to elicit the precise responses desired from target groups, based on complete understanding of those groups. As of summer last year, she became CEO of the World Futures Society. Dr. Amy Zalman, an ex-SAIC strategist, is CEO of the World Futures Society, and a long-time Pentagon Highlands Forum delegate consulting for the US government on strategic communications in irregular warfare In 2005, the same year Hersh reported that the Pentagon strategy of “stimulating reactions” among terrorists by provoking them was underway, Zalman delivered a briefing to the Pentagon Highlands Forum titled, ‘In Support of a Narrative Theory Approach to US Strategic Communication.’ Since then, Zalman has been a long-time Highlands Forum delegate, and has presented her work on strategic communications to a range of US government agencies, NATO forums, as well as teaching courses in irregular warfare to soldiers at the US Joint Special Operations University. Her 2005 Highlands Forum briefing is not publicly available, but the thrust of Zalman’s input into the information component of Pentagon special operations strategies can be gleaned from some of her published work. In 2010, when she was still attached to SAIC, her NATO paper noted that a key component of irregular war is “winning some degree of emotional support from the population by influencing their subjective perceptions.” She advocated that the best way of achieving such influence goes far further than traditional propaganda and messaging techniques. Rather, analysts must “place themselves in the skins of the people under observation.” Zalman released another paper the same year via the IO Journal, published by the Information Operations Institute, which describes itself as a “special interest group” of the Associaton of Old Crows. The latter is a professional association for theorists and practitioners of electronic warfare and information operations, chaired by Kenneth Israel, vice president of Lockheed Martin, and vice chaired by David Himes, who retired last year from his position as senior advisor in electronic warfare at the US Air Force Research Laboratory. In this paper, titled ‘Narrative as an Influence Factor in Information Operations,’ Zalman laments that the US military has “found it difficult to create compelling narratives?—?or stories?—?either to express its strategic aims, or to communicate in discrete situations, such as civilian deaths.” By the end, she concludes that “the complex issue of civilian deaths” should be approached not just by “apologies and compensation”?—?which barely occurs anyway?—?but by propagating narratives that portray characters with whom the audience connects (in this case, ‘the audience’ being ‘populations in war zones’). This is to facilitate the audience resolving struggles in a “positive way,” defined, of course, by US military interests. Engaging emotionally in this way with “survivors of those dead” from US military action might “prove to be an empathetic form of influence.” Throughout, Zalman is incapable of questioning the legitimacy of US strategic aims, or acknowledging that the impact of those aims in the accumulation of civilian deaths, is precisely the problem that needs to change?—?as opposed to the way they are ideologically framed for populations subjected to military action. ‘Empathy,’ here, is merely an instrument by which to manipulate. In 2012, Zalman wrote an article for The Globalist seeking to demonstrate how the rigid delineation of ‘hard power’ and ‘soft power’ needed to be overcome, to recognize that the use of force requires the right symbolic and cultural effect to guarantee success: “As long as defense and economic diplomacy remain in a box labeled ‘hard power,’ we fail to see how much their success relies on their symbolic effects as well as their material ones. As long as diplomatic and cultural efforts are stored in a box marked ‘soft power,’ we fail to see the ways in which they can be used coercively or produce effects that are like those produced by violence.” Given SAIC’s deep involvement in the Pentagon Highlands Forum, and through it the development of information strategies on surveillance, irregular warfare, and propaganda, it is hardly surprising that SAIC was the other key private defense firm contracted to generate propaganda in the run up to Iraq War 2003, alongside TRG. “SAIC executives have been involved at every stage… of the war in Iraq,” reported Vanity Fair, ironically, in terms of deliberately disseminating false claims about WMD, and then investigating the ‘intelligence failure’ around false WMD claims. David Kay, for instance, who had been hired by the CIA in 2003 to hunt for Saddam’s WMD as head of the Iraq Survey Group, was until October 2002 a senior SAIC vice president hammering away “at the threat posed by Iraq” under Pentagon contract. When WMD failed to emerge, President Bush’s commission to investigate this US ‘intelligence failure’ included three SAIC executives, among them Highlands Forum founding member Jeffrey Cooper. The very year of Kay’s appointment to the Iraq Survey Group, Clinton’s defense secretary William Perry?—?the man under whose orders the Highlands Forum was set-up?—?joined the board of SAIC. The investigation by Cooper and all let the Bush administration off the hook for manufacturing propaganda to legitimize war?—?unsurprisingly, given Cooper’s integral role in the very Pentagon network that manufactured that propaganda. SAIC was also among the many contractors that profited handsomely from Iraqi reconstruction deals, and was re-contracted after the war to promote pro-US narratives abroad. In the same vein as Rendon’s work, the idea was that stories planted abroad would be picked up by US media for domestic consumption. Delegates at the Pentagon’s 46th Highlands Forum in December 2011, from right to left: John Seely Brown, chief scientist/director at Xerox PARC from 1990–2002 and an early board member of In-Q-Tel; Ann Pendleton-Jullian, co-author with Brown of a manuscript, Design Unbound; Antonio and Hanna Damasio, a neurologist and neurobiologist respectively who are part of a DARPA-funded project on propaganda But the Pentagon Highlands Forum’s promotion of advanced propaganda techniques is not exclusive to core, longstanding delegates like Rendon and Zalman. In 2011, the Forum hosted two DARPA-funded scientists, Antonio and Hanna Damasio, who are principal investigators in the ‘Neurobiology of Narrative Framing’ project at the University of Southern California. Evoking Zalman’s emphasis on the need for Pentagon psychological operations to deploy “empathetic influence,” the new DARPA-backed project aims to investigate how narratives often appeal “to strong, sacred values in order to evoke an emotional response,” but in different ways across different cultures. The most disturbing element of the research is its focus on trying to understand how to increase the Pentagon’s capacity to deploy narratives that influence listeners in a way that overrides conventional reasoning in the context of morally-questionable actions. The project description explains that the psychological reaction to narrated events is “influenced by how the narrator frames the events, appealing to different values, knowledge, and experiences of the listener.” Narrative framing that “targets the sacred values of the listener, including core personal, nationalistic, and/or religious values, is particularly effective at influencing the listener’s interpretation of narrated events,” because such “sacred values” are closely tied with “the psychology of identity, emotion, moral decision making, and social cognition.” By applying sacred framing to even mundane issues, such issues “can gain properties of sacred values and result in a strong aversion to using conventional reasoning to interpret them.” The two Damasios and their team are exploring what role “linguistic and neuropsychological mechanisms” play in determining “the effectiveness of narrative framing using sacred values in influencing a listener’s interpretation of events.” The research is based on extracting narratives from millions of American, Iranian and Chinese weblogs, and subjecting them to automated discourse analysis to compare them quantitatively across the three languages. The investigators then follow up using behavioral experiments with readers/listeners from different cultures to gauge their reaction different narratives “where each story makes an appeal to a sacred value to explain or justify a morally-questionable behavior of the author.” Finally, the scientists apply neurobiological fMRI scanning to correlate the reactions and personal characteristics of subjects with their brain responses. Why is the Pentagon funding research investigating how to exploit people’s “sacred values” to extinguish their capacity for logical reasoning, and enhance their emotional openness to “morally-questionable behavior”? The focus on English, Farsi and Chinese may also reveal that the Pentagon’s current concerns are overwhelmingly about developing information operations against two key adversaries, Iran and China, which fits into longstanding ambitions to project strategic influence in the Middle East, Central Asia and Southeast Asia. Equally, the emphasis on English language, specifically from American weblogs, further suggests the Pentagon is concerned about projecting propaganda to influence public opinion at home. Rosemary Wenchel (left) of the US Department of Homeland Security with Jeff ‘Skunk’ Baxter, a former musician and now US defense consultant who has worked for contractors like SAIC and Northrup Grumman. SAIC/Leidos executive Jeff Cooper is behind them Lest one presume that DARPA’s desire to mine millions of American weblogs as part of its ‘neurobiology of narrative framing’ research is a mere case of random selection, an additional co-chair of the Pentagon Highlands Forum in recent years is Rosemary Wenchel, former director of cyber capabilities and operations support at the Office of the Secretary of Defense. Since 2012, Wenchel has been deputy assistant secretary for strategy and policy in the Department of Homeland Security. As the Pentagon’s extensive funding of propaganda on Iraq and Afghanistan demonstrates, population influence and propaganda is critical not just in far-flung theatres abroad in strategic regions, but also at home, to quell the risk of domestic public opinion undermining the legitimacy of Pentagon policy. In the photo above, Wenchel is talking to Jeff Baxter, a long-time US defense and intelligence consultant. In September 2005, Baxter was part of a supposedly “independent” study group (chaired by NSA-contractor Booz Allen Hamilton) commissioned by the Department of Homeland Security, which recommended a greater role for US spy satellites in monitoring the domestic population. Meanwhile, Zalman and Rendon, while both remaining closely involved in the Pentagon Highlands Forum, continue to be courted by the US military for their expertise on information operations. In October 2014, both participated in a major Strategic Multi-Layer Assessment conference sponsored by the US Department of Defense and the Joint Chiefs of Staff, titled ‘A New Information Paradigm? From Genes to “Big Data” and Instagram to Persistent Surveillance… Implications for National Security.’ Other delegates represented senior US military officials, defense industry executives, intelligence community officials, Washington think-tanks, and academics. John Rendon, CEO of The Rendon Group, at a Highlands Forum session in 2010 Rendon and SAIC/Leidos, two firms that have been central to the very evolution of Pentagon information operations strategy through their pivotal involvement in the Highlands Forum, continue to be contracted for key operations under the Obama administration. A US General Services Administration document, for instance, shows that Rendon was granted a major 2010–2015 contract providing general media and communications support services across federal agencies. Similarly, SAIC/Leidos has a $400 million 2010–2015 contract with the US Army Research Laboratory for “Expeditionary Warfare; Irregular Warfare; Special Operations; Stabilization and Reconstruction Operations”?—?a contract which is “being prepared now for recomplete.” The empire strikes back Under Obama, the nexus of corporate, industry, and financial power represented by the interests that participate in the Pentagon Highlands Forum has consolidated itself to an unprecedented degree. Coincidentally, the very day Obama announced Hagel’s resignation, the DoD issued a media release highlighting how Robert O. Work, Hagel’s deputy defense secretary appointed by Obama in 2013, planned to take forward the Defense Innovation Initiative that Hagel had just announced a week earlier. The new initiative was focused on ensuring that the Pentagon would undergo a long-term transformation to keep up with leading edge disruptive technologies across information operations. Whatever the real reasons for Hagel’s ejection, this was a symbolic and tangible victory for Marshall and the Highlands Forum vision. Highlands Forum co-chair Andrew Marshall, head of the ONA, may indeed be retiring. But the post-Hagel Pentagon is now staffed with his followers. Robert Work, who now presides over the new DoD transformation scheme, is a loyal Marshall acolyte who had previously directed and analyzed war games for the Office of Net Assessment. Like Marshall, Wells, O’Neill and other Highlands Forum members, Work is also a robot fantasist who lead authored the study, Preparing for War in the Robotic Age, published early last year by the Center for a New American Security (CNAS). Work is also pitched to determine the future of the ONA, assisted by his strategist Tom Ehrhard and DoD undersecretary for intelligence Michael G. Vickers, under whose authority the Highlands Forum currently runs. Ehrard, an advocate of “integrating disruptive technologies in DoD,” previously served as Marshall’s military assistant in the ONA, while Mike Vickers?—?who oversees surveillance agencies like the NSA?—?was also previously hired by Marshall to consult for the Pentagon. Vickers is also a leading proponent of irregular warfare. As assistant defense secretary for special operations and low intensity conflict under former defense secretary Robert Gates in both the Bush and Obama administrations, Vickers’s irregular warfare vision pushed for “distributed operations across the world,” including “in scores of countries with which the US is not at war,” as part of a program of “counter network warfare” using a “network to fight a network”?—?a strategy which of course has the Highlands Forum all over it. In his previous role under Gates, Vickers increased the budget for special operations including psychological operations, stealth transport, Predator drone deployment and “using high-tech surveillance and reconnaissance to track and target terrorists and insurgents.” To replace Hagel, Obama nominated Ashton Carter, former deputy defense secretary from 2009 to 2013, whose expertise in budgets and procurement according to the Wall Street Journal is “expected to boost some of the initiatives championed by the current Pentagon deputy, Robert Work, including an effort to develop new strategies and technologies to preserve the US advantage on the battlefield.” Back in 1999, after three years as Clinton’s assistant defense secretary, Carter co-authored a study with former defense secretary William J. Perry advocating a new form of ‘war by remote control’ facilitated by “digital technology and the constant flow of information.” One of Carter’s colleagues in the Pentagon during his tenure at that time was Highlands Forum co-chair Linton Wells; and it was Perry of course that as then-defense secretary appointed Richard O’Neill to set-up the Highlands Forum as the Pentagon’s IO think-tank back in 1994. Highlands Forum overlord Perry went on to join the board of SAIC, before eventually becoming chairman of another giant defense contractor, Global Technology Partners (GTP). And Ashton Carter was on GTP’s board under Perry, before being nominated to defense secretary by Obama. During Carter’s previous Pentagon stint under Obama, he worked closely with Work and current undersecretary of defense Frank Kendall. Defense industry sources rejoice that the new Pentagon team will “dramatically improve” chances to “push major reform projects” at the Pentagon “across the finish line.” Indeed, Carter’s priority as defense chief nominee is identifying and acquiring new commercial “disruptive technology” to enhance US military strategy?—?in other words, executing the DoD Skynet plan. The origins of the Pentagon’s new innovation initiative can thus be traced back to ideas that were widely circulated inside the Pentagon decades ago, but which failed to take root fully until now. Between 2006 and 2010, the same period in which such ideas were being developed by Highlands Forum experts like Lochard, Zalman and Rendon, among many others, the Office of Net Assessment provided a direct mechanism to channel these ideas into concrete strategy and policy development through the Quadrennial Defense Reviews, where Marshall’s input was primarily responsible for the expansion of the “black” world: “special operations,” “electronic warfare” and “information operations.” Andrew Marshall, now retired head of the DoD’s Office of Net Assessment and Highlands Forum co-chair, at a Forum session in 2008 Marshall’s pre-9/11 vision of a fully networked and automated military system found its fruition in the Pentagon’s Skynet study released by the National Defense University in September 2014, which was co-authored by Marshall’s colleague at the Highlands Forum, Linton Wells. Many of Wells’ recommendations are now to be executed via the new Defense Innovation Initiative by veterans and affiliates of the ONA and Highlands Forum. Given that Wells’ white paper highlighted the Pentagon’s keen interest in monopolizing AI research to monopolize autonomous networked robot warfare, it is not entirely surprising that the Forum’s sponsoring partners at SAIC/Leidos display a bizarre sensitivity about public use of the word ‘Skynet.’ On a Wikipedia entry titled ‘Skynet (fictional)’, people using SAIC computers deleted several paragraphs under the ‘Trivia’ section pointing out real-world ‘Skynets’, such as the British military satellite system, and various information technology projects. Hagel’s departure paved the way for Pentagon officials linked to the Highlands Forum to consolidate government influence. These officials are embedded in a longstanding shadow network of political, industry, media and corporate officials that sit invisibly behind the seat of government, yet literally write its foreign and domestic national security policies whether the administration is Democrat of Republican, by contributing ‘ideas’ and forging government-industry relationships. It is this sort of closed-door networking that has rendered the American vote pointless. Far from protecting the public interest or helping to combat terrorism, the comprehensive monitoring of electronic communications has been systematically abused to empower vested interests in the energy, defense, and IT industries. The state of permanent global warfare that has resulted from the Pentagon’s alliances with private contractors and unaccountable harnessing of information expertise, is not making anyone safer, but has spawned a new generation of terrorists in the form of the so-called ‘Islamic State’?—?itself a Frankenstein by-product of the putrid combination of Assad’s brutality and longstanding US covert operations in the region. This Frankenstein’s existence is now being cynically exploited by private contractors seeking to profit exponentially from expanding the national security apparatus, at a time when economic volatility has pressured governments to slash defense spending. According to the Securities and Exchange Commission, from 2008 to 2013, the five largest US defense contractors lost 14 percent of their employees, as the winding down of US wars in Iraq and Afghanistan led to lack of business and squeezed revenues. The continuation of the ‘Long War’ triggered by ISIS has, for now, reversed their fortunes. Companies profiting from the new war include many connected to the Highlands Forum, such as Leidos, Lockheed Martin, Northrup Grumman, and Boeing. War is, indeed, a racket. No more shadows Yet in the long-run, the information imperialists have already failed. This investigation is based entirely on open source techniques, made viable largely in the context of the same information revolution that enabled Google. The investigation has been funded entirely by members of the public, through crowd-funding. And the investigation has been published and distributed outside the circuits of traditional media, precisely to make the point that in this new digital age, centralized top-down concentrations of power cannot overcome the power of people, their love of truth and justice, and their desire to share. What are the lessons of this irony? Simple, really: The information revolution is inherently decentralized, and decentralizing. It cannot be controlled and co-opted by Big Brother. Efforts to do so will in the end invariably fail, in a way that is ultimately self-defeating. The latest mad-cap Pentagon initiative to dominate the world through control of information and information technologies, is not a sign of the all-powerful nature of the shadow network, but rather a symptom of its deluded desperation as it attempts to ward off the acceleration of its hegemonic decline. But the decline is well on its way. And this story, like so many before it, is one small sign that the opportunities to mobilize the information revolution for the benefit of all, despite the efforts of power to hide in the shadows, are stronger than ever.
Would you pay $1,000 for each piece of equity research you read throughout the day? How about $5,000 for an industry piece? Well, Autonomous Research, which was founded in 2009 by former Merrill Lynch analysts, is really hoping you'll agree that those are appropriate clearing prices for their daily market wisdom. According to Bloomberg, as equity research providers in the Europe continue to figure out how exactly to best comply with upcoming MiFID II rules, Autonomous thinks that a piecemeal approach will allow them to reach smaller funds that lack the resources to purchase more expensive annual contracts for bulge bracket research. Autonomous Research LLP is offering a pay-as-you-go model for its European equity product in the run-up to the MiFID II rules, which are set to shake up the way money managers pay for analyst reports, people with knowledge of the matter said. The prices for the new service start at $1,000 for a single stock report and climb to $5,000 for high-end industry research, the people said, asking not to be identified because the information is private. Autonomous Research, which specializes in analysis of financial companies, also charges a single user $5,000 for access to its daily round-up of news and analysis, with the price per client falling as more sign up, the people said. “We have been transparent with our clients on pricing for research since inception eight years ago,” said Chief Financial Officer Jonathan Firkins. “We have a clear and transparent pricing menu which we discuss proactively with existing and prospective clients.” Of course, as we recently pointed out, bigger firms like Barclays have opted for larger 1x, all-you-can-eat packages priced at the bargain basement rate of just $455,000 per year...it's hard to imagine how hedgies won't be knocking down their doors to gain access. The firm is proposing three levels of service -- bronze, silver and gold -- with the premium package comprising unlimited reports, field trips and “occasional” one-on-one meetings with analysts and corporate executives, according to a pricing document seen by Bloomberg News. At the bottom end of the scale, read-only access to European research will start at 30,000 pounds. At Barclays, even if clients stump up 350,000 pounds for the gold “trans-Atlantic” package, they could still end up spending more. “Bespoke” analyst work and corporate access is priced separately, according to the document. Field trips, industry events and company management meetings are also at the bank’s discretion, and analyst one-on-ones are “capped,” it shows. Prices in the document may not apply to all clients, have been in flux and could still be subject to change, a person familiar with the process said, asking not to be identified discussing the matter. A Barclays spokesman declined to comment. Banks are scrambling as they enter the last six months before the decades-old practice of sending out free analyst reports as a courtesy and marketing strategy comes to an end. The European Union’s MiFID II regulations, enforced from Jan. 3, require money managers to separate the trading commissions they pay from investment-research fees. This means banks in turn have to be more transparent, providing specific charges for their analysts’ time and work in order to comply. Of course, the logical takeaway from these exorbitant offering prices, if they hold, is that institutional clients will ultimately be forced to consolidate their vendors...translation, so long to the small independent research shops. Meanwhile, investment banks will be forced to control costs by trying to focus on writing reports that people actually read (vs. the 1% hit rate they have today). All of which means that those shrinking analysts pools are about to completely collapse. In fact, as McKinsey recently noted, up to 30% of research analysts could be at risk of losing their cushy banking jobs as result of Europe's new regulations. Europe’s impending ban on free research will cost hundreds of analysts their jobs with banks set to cut about $1.2 billion of investment on the area, according to a report by McKinsey & Co. The consultancy estimates the $4 billion that the top-10 sell-side banks currently spend on research annually is likely to fall by 30 percent as clients become pickier about what they pay for, McKinsey Partner Roger Rudisuli said in an interview. Investment banks’ cash equity research headcount has fallen 12 percent to 3,900 since 2011 compared with as much as 40 percent in sales and trading, leaving the area facing “big cuts” to catch up, he said. “Two to three global banking players will preserve their status in the new era, winning the execution arms race and dominating trading in equities around the globe,” McKinsey said in a report Wednesday, which Rudisuli helped write. “Over the coming five years, banks will need to make hard choices and play to their strengths. Not only will the top ranks be thinned out, there will be shakeouts in regional markets.” Of course, as we've said before, almost any amount of money seems, at least to us, to be too much to have the same people give you the same advice over and over again, namely "buy more stocks, faster."
We’ve all heard that globalization lifts all boats and increases our prosperity … But mainstream economists and organizations are now starting to say that globalization increases inequality. The National Bureau of Economic Research – the largest economics research organization in the United States, with many Nobel economists and Chairmen of the Council of Economic Advisers as members – published, a report in May finding: Recent globalization trends have increased U.S. inequality by disproportionately raising top incomes. *** Rising import competition has adversely affected manufacturing employment, led firms to upgrade their production and caused labor earnings to fall. NBER explains that globalization allows executives to gain the system to their advantage: This paper examines the role of globalization in the rapid increase in top incomes. Using a comprehensive data set of thousands of executives at U.S. firms from 1993-2013, we find that exports, along with technology and firm size, have contributed to rising executive compensation. Isolating changes in exports that are unrelated to the executive’s talent and actions, we show that globalization has affected executive pay not only through market channels but also through non-market channels. Furthermore, exogenous export shocks raise executive compensation mostly through bonus payments in poor-governance settings, in line with the hypothesis that globalization has enhanced the executive’s rent capture opportunities. Overall, these results indicate that globalization has played a more central role in the rapid growth of executive compensation and U.S. inequality than previously thought, and that rent capture is an important part of this story. A World Bank document says globalization “may have led to rising wage inequality”. It notes: Recent evidence for the US suggests that adjustment costs for those employed in sectors exposed to import competition from China are much higher than previously thought. *** Trade may have contributed to rising inequality in high income economies …. The World Bank also cites Nobel prize-winning economist Eric Maskin’s view that globalization increases inequality because it increases the mismatch between the skills of different workers. A report by the International Monetary Fund notes: High trade and financial flows between countries, partly enabled by technological advances, are commonly cited as driving income inequality …. In advanced economies, the ability of firms to adopt laborsaving technologies and offshoring has been cited as an important driver of the decline in manufacturing and rising skill premium (Feenstra and Hanson 1996, 1999, 2003) …. *** Increased financial flows, particularly foreign direct investment (FDI) and portfolio flows have been shown to increase income inequality in both advanced and emerging market economies (Freeman 2010). One potential explanation is the concentration of foreign assets and liabilities in relatively higher skill- and technology-intensive sectors, which pushes up the demand for and wages of higher skilled workers. In addition, FDI could induce skill-specific technological change, be associated with skill-specific wage bargaining, and result in more training for skilled than unskilled workers (Willem te Velde 2003). Moreover, low-skill, outward FDI from advanced economies may in effect be relatively high-skilled, inward FDI in developing economies (Figini and Görg 2011), thus exacerbating the demand for high-skilled workers in recipient countries. Financial deregulation and globalization have also been cited as factors underlying the increase in financial wealth, relative skill intensity, and wages in the finance industry, one of the fastest growing sectors in advanced economies (Phillipon and Reshef 2012; Furceri and Loungani 2013). The Bank of International Settlements – the “Central Banks’ Central Bank” – also notes that globalization isn’t all peaches and cream. The Financial Times explains : A trio of recent papers by top officials from the Bank for International Settlements goes further, however, arguing that financial globalisation itself makes booms and busts far more frequent and destabilising than they otherwise would be. McKinsey & Company notes: Even as globalization has narrowed inequality among countries, it has aggravated income inequality within them. The Economist points out: Most economists have been blindsided by the backlash [against globalization]. A few saw it coming. It is worth studying their reasoning …. *** Branko Milanovic of the City University of New York believes such costs perpetuate a cycle of globalisation. He argues that periods of global integration and technological progress generate rising inequality …. Supporters of economic integration underestimated the risks … that big slices of society would feel left behind …. The New York Times reported: Were the experts wrong about the benefits of trade for the American economy? *** Voters’ anger and frustration, driven in part by relentless globalization and technological change [has made Trump and Sanders popular, and] is already having a big impact on America’s future, shaking a once-solid consensus that freer trade is, necessarily, a good thing. “The economic populism of the presidential campaign has forced the recognition that expanded trade is a double-edged sword,” wrote Jared Bernstein, former economic adviser to Vice President Joseph R. Biden Jr. What seems most striking is that the angry working class — dismissed so often as myopic, unable to understand the economic trade-offs presented by trade — appears to have understood what the experts are only belatedly finding to be true: The benefits from trade to the American economy may not always justify its costs. I n a recent study, three economists — David Autor at the Massachusetts Institute of Technology, David Dorn at the University of Zurich and Gordon Hanson at the University of California, San Diego — raised a profound challenge to all of us brought up to believe that economies quickly recover from trade shocks. In theory, a developed industrial country like the United States adjusts to import competition by moving workers into more advanced industries that can successfully compete in global markets. They examined the experience of American workers after China erupted onto world markets some two decades ago. The presumed adjustment, they concluded, never happened. Or at least hasn’t happened yet. Wages remain low and unemployment high in the most affected local job markets. Nationally, there is no sign of offsetting job gains elsewhere in the economy. What’s more, they found that sagging wages in local labor markets exposed to Chinese competition reduced earnings by $213 per adult per year. In another study they wrote with Daron Acemoglu and Brendan Price from M.I.T., they estimated that rising Chinese imports from 1999 to 2011 cost up to 2.4 million American jobs. “These results should cause us to rethink the short- and medium-run gains from trade,” they argued. “Having failed to anticipate how significant the dislocations from trade might be, it is incumbent on the literature to more convincingly estimate the gains from trade, such that the case for free trade is not based on the sway of theory alone, but on a foundation of evidence that illuminates who gains, who loses, by how much, and under what conditions.” *** The case for globalization based on the fact that it helps expand the economic pie by 3 percent becomes much weaker when it also changes the distribution of the slices by 50 percent, Mr. Autor argued. And Steve Keen – economics professor and Head of the School of Economics, History and Politics at Kingston University in London – notes: Plenty of people will try to convince you that globalization and free trade could benefit everyone, if only the gains were more fairly shared. The only problem with the party, they’ll say, is that the neighbours weren’t invited. We’ll share the benefits more equally now, we promise. Let’s keep the party going. Globalization and Free Trade are good. This belief is shared by almost all politicians in both parties, and it’s an article of faith for the economics profession. *** It’s a fallacy based on a fantasy, and it has been ever since David Ricardo dreamed up the idea of “Comparative Advantage and the Gains from Trade” two centuries ago. *** [Globalization’s] little shell and pea trick is therefore like most conventional economic theory: it’s neat, plausible, and wrong. It’s the product of armchair thinking by people who never put foot in the factories that their economic theories turned into rust buckets. So the gains from trade for everyone and for every country that could supposedly be shared more fairly simply aren’t there in the first place. Specialization is a con job—but one that the Washington elite fell for (to its benefit, of course). Rather than making a country better off, specialization makes it worse off, with scrapped machinery that’s no longer useful for anything, and with less ways to invent new industries from which growth actually comes. Excellent real-world research by Harvard University’s “Atlas of Economic Complexity” has found diversity, not specialization, is the “magic ingredient” that actually generates growth. Successful countries have a diversified set of industries, and they grow more rapidly than more specialized economies because they can invent new industries by melding existing ones. *** Of course, specialization, and the trade it necessitates, generates plenty of financial services and insurance fees, and plenty of international junkets to negotiate trade deals. The wealthy elite that hangs out in the Washington party benefits, but the country as a whole loses, especially its working class. Some Big Companies Losing Interest In Globalization Ironically, the Washington Post noted in 2015 that the giant multinational corporations themselves are losing interest in globalization … and many are starting to bring the factories back home: Yet despite all this activity and enthusiasm, hardly any of the promised returns from globalization have materialized, and what was until recently a taboo topic inside multinationals — to wit, should we reconsider, even rein in, our global growth strategy? — has become an urgent, if still hushed, discussion. *** Given the failures of globalization, virtually every major company is struggling to find the most productive international business model. *** Reshoring — or relocating manufacturing operations back to Western factories from emerging nations — is one option. As labor costs escalate in places such as China, Thailand, Brazil and South Africa, companies are finding that making products in, say, the United States that are destined for North American markets is much more cost-efficient. The gains are even more significant when productivity of emerging countries is taken into account. *** Moreover, new disruptive manufacturing technologies — such as 3-D printing, which allows on-site production of components and parts at assembly plants — make the idea of locating factories where the assembled products will be sold more practicable. *** GE, Whirlpool, Stanley Black & Decker, Peerless and many others have reopened shuttered factories or built new ones in the United States.
Financial market prices are generally set by the trading venues which command the highest trading volumes and liquidity. This is also true of the gold market where the venues with the highest gold trading volumes - the London over-the-counter and COMEX gold futures markets – establish the international gold price. However, these two gold markets merely trade paper gold claims in the form of unallocated gold positions (London Gold Market) and gold futures derivatives (COMEX). This trading creates paper gold supply out of thin air and is also highly leveraged and fractional in nature since the paper gold claims are only fractionally backed by real physical gold. Although these highly leveraged synthetic gold trades have nothing to do with the transacting of physical gold, perversely they still establish the international gold price because physical gold markets merely inherit the gold prices derived in these ‘high liquidity’ paper gold markets. BullionStar maintains that these paper gold markets cannot price physical gold accurately because they don’t trade physical gold, instead they trade infinitely scalable fractional claims on a smaller amount of physical gold. The international gold price is thus an artificial gold price totally removed from supply and demand in the physical gold markets. Drawbacks of paper gold / Benefits of physical gold Each trading day in the London OTC gold market, the equivalent of a staggering 6500 tonnes of gold is traded. To put this into perspective, less than 7500 tonnes of physical gold vaulted in the entire London gold vaulting network, most of which is owned by central banks and Exchange Traded Funds. Nearly all trading in the London OTC gold market is speculate activity based on unallocated gold positions. Unallocated gold positions are just book-keeping entries where the holder of the position is an unsecured creditor to a counterparty bullion bank, and the position just represents indebtedness between the two transacting parties. Likewise, on the COMEX futures exchange during 2017, only 1 in every 2650 gold futures contracts actually reached delivery via a transfer of underlying gold. The remainder (99.96%) of gold futures are cash-settled. There is very little physical gold backing COMEX gold trading i.e. Registered physical gold inventories in COMEX approved gold vaults represent only a tiny fraction of the total volume of gold futures traded at any given time. Conversely, real physical gold is a tangible asset that exists in limited quantities, it is inherently valuable, difficult to produce, difficult to counterfeit, and most importantly when held in the form of fully allocated, segregated and unencumbered gold bars and gold coins, it has no counterparty risk and so is no one else’s liability. Real physical gold is not a claim on gold. It is gold. Real physical gold is real money, and is the ultimate form of saving and store of value due to its ability to retain its purchasing power over time. Unfortunately, the proliferation of paper gold trading dwarfs the volume of physical gold traded, and thus the gold price is set on these huge paper gold trading volumes. Price Disconnect But given the dominance of gold pricing by the paper gold markets, can this situation continue, and if so for how long? BullionStar would contend that this situation can only continue while the bulk of paper gold market participants are happy to continue trading paper gold claims and in the absence of a shock to the physical gold demand-supply balance. Conversely, a shift in the trading behaviour of paper gold traders away from paper gold towards physical gold, or a scenario in which physical gold demand overwhelms available physical gold supply, could cause a disconnect between gold pricing in the paper gold and physical gold markets, with the paper price falling while the physical price simultaneously rises. Physical Gold flows West to East As Western institutional and retail investors continue to speculate and trade staggering volumes of paper gold instruments, Eastern buyers in Asia continue to accumulate real physical gold, physical gold which is in limited supply. These flows of physical gold from West to East have been ongoing for some time and can even be viewed as a slow and silent bank run on the physical gold market. Classic commercial bank runs either begin when a subset of a bank’s customers suspect that the bank may not have sufficient liquid cash to repay all depositors, or else suspect that the bank’s loan base has soured. Since commercial banks employ fractional reserve banking where only a fraction of depositors’ money is kept in reserve (the majority being lent out in the form of loans), depositors with early suspicions begin withdrawing their money first. Word spreads that the bank is having trouble meeting withdrawal requests and more and more depositors follow suit attempting to make withdrawals. Panic soon sets in with the bank forced to limit withdrawals and request emergency assistance from regulators. The same end-game could be said to be true of fractional-reserve gold banking where holders of claims on physical gold rush to be the first to convert their claims into physical gold. Since the early 2000s, there has been a continual and substantial flow of physical gold from West to East. For example, since 2001, India has net imported over 11,000 tonnes of gold. This imported gold has for the most part stayed within India. Likewise, since 2001, China has imported over 7,000 tonnes of gold. Because exports of gold are prohibited from the Chinese gold market, this gold cannot leave China mainland. In addition, the Chinese central bank has reported a 1400 tonne increase in its gold holdings since 2001. This is gold that the People's Bank of China buys exclusively on international gold markets in the form of wholesale gold bars and imports secretively into China, and is above and beyond reported Chinese gold import figures. In the global gold market, Eastern buyers of physical gold are analogous to the early depositors of a commercial bank withdrawing their cash. In this scenario, a gold market ‘depositor shock’ prompting further withdrawals from the global stock of gold would be analogous to a widespread realization that the outstanding set of traded gold claims is far larger than the dwindling quantity of physical gold backing those claims. This realization would prompt further rotation out of paper gold into physical gold. If at the margin, paper gold market players (later adopters) begin converting their paper gold claims into physical gold, or more realistically cash settle their paper claims and then try to use the proceeds to buy physical gold, this could set the scene for a disconnect between physical gold prices and paper gold prices. On the one hand, a shift towards physical gold would overwhelm available physical gold supply, a situation which could only be rectified via an increase in the physical gold price to induce supply from existing above ground stocks. On the other hand, selling pressure in the paper gold markets to release proceeds to convert into physical gold would drive the paper gold price lower, thus also reinforcing this gold price disconnect. Gold Price $65,000 + But what would the real price of physical gold be in the absence of the subduing influence of the fractional and limitless paper gold market, or how do we even approach calculating a range of such physical gold prices? Throughout history, gold has been the ultimate money and ultimate store of value. Until 1971, physical gold backed the international monetary system. Throughout monetary history and up until the latter half of the 20th century, gold played a critical role in backing paper currencies and in backing monetary debt. It is thus still appropriate to analyse the value of gold in relation to the value of currencies and the value of outstanding debt. Approximately 190,000 metric tonnes of gold have been mined throughout history. Nearly all of this gold can still be accounted for in one form or another and is known as 'above-ground gold'. About 90,000 tonnes of this gold is held in the form of jewellery, 33,000 tonnes of gold are (supposedly) held by central banks, 40,000 tonnes are attributed to private gold holders, with the remainder having been used in industrial and other fabrication uses. While 190,000 tonnes may sound like a lot, at the current gold price of USD 1250 per ounce, all the gold ever mined in the world is valued at less than $8 trillion, and official central bank gold holdings (monetary gold) are valued at just $1.3 trillion. The US Treasury claims to hold 8133 tonnes (or 261.5 million troy ounces) in its official gold reserves (a figure which, by the way, could be far lower since it has never been independently audited). At the current gold price, these US Treasury gold reserves are worth just under $320 billion. Compare these gold valuations to total outstanding money supply figures. The total broad US money supply is currently running in excess of $18 trillion (using a "continuation M3" measure). For the US money supply of $18 trillion to be fully backed by the US Treasury’s gold, this would require a gold price of $68,840 per troy ounce. Even at a 40% gold-backing, a backing which was historically in place for the US money supply in a recent period in US monetary history, this would imply a gold price of $27,500 per ounce. Gold Holdings, Money Supply, Global Debt, and Implied Gold Prices Beyond the US money supply, total world money supply is currently running at over $85 trillion [source: broad money supply CIA World Factbook]. This global money supply of $85 trillion is approximately 11 times more than the current 'valuation' of all the gold ever mined. For the world’s money supply to be fully backed by total worldwide central bank gold holdings [33,000 tonnes] would require a gold price of $82,600 per troy ounce. Even if world money supply was 100% backed by all the gold ever mined, this would require a gold price of $13,900 per ounce. According to a recent study by the high-profile consultancy McKinsey, the world’s total outstanding debt is currently $200 trillion (of which government debt is $58 trillion). For the total outstanding stock of global debt to be backed by all the gold ever mined would require a gold price of $32,700 per ounce. For all government debt to be backed by the world’s official central bank gold reserves would require a gold price of $56,000 per troy ounce. While extrapolating implied prices for physical gold in a world absent of paper gold market distortions will always be estimates, if and when the fractionally-backed paper gold market does cease to function, then ownership of allocated and unencumbered physical gold will become the only way to take advantage of the potential price movements in the physical gold market. This article originally appeared on the website BullionStar.com under the same title.
London-based energy data and analytics firm McKinsey Energy Insights (MEI) has released its latest Offshore Drilling Market Outlook to 2030, saying activity appears to have reached or neared the bottom. Most of the drilling rig overhang from before 2015 has been removed, MEI said.
As the global equity research market continues to wrestle with how they will comply with the European Union's MiFID II regulations, we noted a new study from McKinsey & Co. last week which effectively predicted that investment banks will have no choice but to fire a ton of equity research analysts who write a bunch of stuff that no one ever reads...which seems like a reasonable guess. For those who have managed to avoid this particular distraction, the global equity research industry is in the midst of a major disruption which has been brought on by the European Union’s MiFID II regulations, enforced from Jan. 3, which aim to tackle conflicts of interest by requiring asset managers to separate the trading commissions they pay from investment-research fees. Of course, while consumers of equity research are quite familiar with its 'value' and thus its inevitable fate (i.e. mass layoffs and consolidation of the highly fragmented market), it has hardly stopped overly-confident bankers from putting their best foot forward and demanding exorbitant fees in a futile effort to maintain the status quo. Take, for example, the most recent pricing sheet just released by Credit Agricole which proposes that clients pay 400,000 Euros per year to gain access to all the same research they get today for free as the result of simply being a trading client of the bank...but, at least the "Macro Research" is free with every 400,000 Euro purchase. Or, you could choose the 170,000 Euro 'Basic' package, but you would never be entitled to the honor of speaking with Credit Agrocole's analysts. Meanwhile, Nomura's $134,000 package announced last week is suddenly looking like a bargain. Unfortunately, none of these pricing proposals will change the fact that analysts, like the one below, will have to massively cut back on their budgets over the next couple of years...they might even have to restrict themselves to just 4 monitors...the horror.
What company would spend thousands — or even millions — of dollars, year in and year out, without knowing the return? When it comes to training and workforce development, lots of them. In a 2014 survey, 55% of executives said a major constraint to investing in training was that they did not know how to measure success. Almost half (49%) said that it was difficult to ensure a return on investment (ROI). And in another survey, 87% said they cannot calculate quantifiable returns on their learning investments. In short, companies have little idea whether they are spending too much or not enough. This is a particularly acute issue at the entry level, where employers have come to accept that high levels of attrition and low levels of productivity and quality are normal. The reasons for this lack of understanding are not difficult to identify. For a start, employers don’t often collect or analyze individual performance data. Nor do they quantify the cost of high employee turnover. But it is possible to do better. The business model of Generation, a youth employment nonprofit founded by McKinsey & Company, where we both work, is based on that assertion. Launched in 2015, Generation works in five countries (India, Kenya, Mexico, Spain, and the United States). It has trained and placed 11,000 graduates into entry-level jobs in four sectors: health care, tech, retail/sales, and skilled trades. Once these graduates are on the job, Generation measures their performance relative to peers. The metrics we track include: productivity, cost savings in recruitment and training, quality, retention, and speed to promotion. These metrics can be converted into an estimate of ROI for the employer. Employers pay Generation based on the ROI of the graduates they hire. Ultimately, our aim is that by proving the economic value of our training, Generation can charge employers enough to be entirely self-sustaining. One key to our training is to identify ahead of time the challenges that lead employees to leave positions, which is costly for employers. By tailoring our training to those challenges, we can reduce turnover, therefore saving employers money. For example, in the U.S. and India, we train nurse assistants for hospitals and nursing homes. These are stressful jobs, with high expectations and high turnover. Employers pay for this; we estimated the costs of high turnover at three to four months of salary per year per position. In designing our training program, we began by identifying “breakdown” activities — tasks that differentiate high and low performers — and mapping them to ROI levers. For example, out of 30 activities that a nurse assistant may do in their day, only seven are truly breakdown activities. One such activity was the observation and reporting of changes in patients’ conditions. To do this work well, we found that nurse assistants needed to be able to combine both technical skills, such as understanding what to monitor and how to report the results, and behavioral ones, such as judgment and empathy. Generation therefore provided intensive training that integrated technical, behavioral, and mindset capabilities in the performance of each activity. Three-quarters of our training is practicum, providing hands-on practice through role playing, case studies, and simulations. Finally, we exposed participants to the job environment from the outset through sessions at our employer partners. By concentrating on the activities that mattered the most, we were able to compress the training period to eight weeks, while preparing graduates to succeed. Our goal was to demonstrate to employers the value of this training in terms of productivity, quality, and retention — factors that can be translated into an estimate of ROI. Analysis done by independent evaluator Gallup and our own research team found that each of Generation’s Indian nurse assistants — 97% them get job offers after the training — saved nearly 10% of a nurse supervisor’s shift time, compared with a non-Generation assistant. Employers in the U.S. and India also saw a 70% reduction in hiring and training costs, and retention at 90 days was up to 80%; the industry standard is less than 60%. Nearly 90% of supervisors say that Generation’s graduates perform on par or better than non-Generation peers. No wonder, then, that employers are beginning to pay for Generation’s nurse assistants, moving Generation toward sustainable funding and away from reliance on philanthropic funders. In addition, employers have explored the creation of a new accelerated career path just for Generation’s nurse assistants. The model also benefits students: Graduates of the nurse assistant program see their previous incomes increase fourfold in the U.S. and sixfold in India. Our success shows that companies should see entry-level staff as a source of value rather than cost, and should evaluate the possible ROI of a new hire and take action on that basis. The argument is not just that doing so would help young people find jobs (though it will); it can also improve performance in measurable ways. “Win-win” is an overused term in business, but in this case, the cliché fits neatly. Better, data-driven training for entry-level positions really can benefit both employees and their employers.
Trump effectively owes his election to the promise of bringing factories and manufacturing jobs back to the United States. His relentless, targeted attacks against the 'Big 3' U.S. auto manufacturers for outsourcing jobs to Mexico was undoubtedly a key reason that he was able to shock the world and win Michigan, Wisconsin, Ohio and Pennsylvania...an accomplishment which has eluded Republicans since Ronald Reagan. Unfortunately, while factories may once again be making a comeback in the United States, after chasing low wages all around the globe for decades, they're unlikely to bring the jobs with them. As a new study from McKinsey highlights, if a new factory opens up in the United States you can bet it's only because most of the jobs that used to be performed by humans have since been automated. Per Bloomberg: American manufacturing could be poised to rebound as technological disruption shakes up global production chains, but that will offer little relief to displaced factory workers, according to new research by the McKinsey Global Institute. Now, McKinsey sees conditions changing in a way that could favor U.S. producers: automation is weakening the case for labor arbitrage as wages rise in emerging market economies and developing market residents are coalescing into a new consumer class, among other factors. While the U.S. could seize on those manufacturing growth opportunities, especially if the government and companies invest to make production more competitive, there are catches. Importantly, production might bounce back without bringing a lot of jobs in tow. “Even if we rebuild factories here and you build plants here, they’re just not going to employ thousands of people -- that just doesn’t happen,” said report co-author and McKinsey Global Institute Director James Manyika. “Find a factory anywhere in the world built in the last 5 years -- not many people work there.” Not surprisingly, the biggest beneficiary of the decimation of the America's manufacturing base has been China...which also means they have the most to lose as those jobs get automated. Looking at the likelihood of automation by industry, McKinsey finds that factory employment ranks near the top of the list -- behind accommodation and food services and just ahead of agriculture. Investment in re-training could help employees who are displaced, Manyika said, but it won’t happen overnight. "It’s a bit of a heavy lift -- in the skilling, the investment in the right places, the right skills -- it’s not going to happen by itself." Of course, this wouldn't be the first time that economists had prematurely predicted the demise of labor markets due to technological advances: "We are being afflicted with a new disease of which some readers may not have heard the name, but of which they will hear a great deal in the years to come—namely, technological unemployment" - Keynes, 1930 “Labor will become less and less important. . . More and more workers will be replaced by machines. I do not see that new industries can employ everybody who wants a job” - Leontief, 1952
http://www.weforum.org/ Productivity growth has been slack in many economies since the global financial crisis. How can emerging technologies and innovation help boost productivity growth and living standards over the long term? Speakers: - Tyler Cowen, Professor of Economics, George Mason University, USA - Min Zhu, President, National Institute of Financial Research, People's Republic of China - Joe Ngai, Managing Partner, Greater China, McKinsey & Company, Hong Kong SAR - Babur Ozden, Founder and Chief Executive Officer, Maana, USA - Qin Jun, Chairman, Junzi Capital, People's Republic of China; Young Global Leader Moderated by: - Nina Trentmann, News Editor, Wall Street Journal, United Kingdom
Dow Chemical (DOW) and DuPont have provided an update on the status of their proposed $130 billion mega-merger.
Бестселлер Мартина Форда "Восхождение роботов: технологии и угроза будущего без работы" назван лучшей книгой для бизнеса 2015 г. по версии издания Financial Times и консалтинговой компании McKinsey & Company.