China's banks are an accident waiting to happen to every one of us
Fitch Ratings has been warning for some time that China's lenders are wading into dangerous water
By Ambrose Evans-Pritchard
Published: 5:38PM BST 28 Jun 2009
telegraph.co.uk
China's banks are veering out of control. The half-reformed economy of the People's Republic cannot absorb the $1,000bn (£600bn) blitz of new lending issued since December.
Money is leaking instead into Shanghai's stock casino, or being used to keep bankrupt builders on life support. It is doing very little to help lift the world economy out of slump.
Fitch Ratings has been warning for some time that China's lenders are wading into dangerous waters, but its latest report is even grimmer than bears had suspected.
"With much of the world immersed in crisis, China appears to be one of the few countries where the financial system continues to function largely without a glitch, but Fitch is growing increasingly wary," it said.
"Future losses on stimulus could turn out to be larger than expected, and it is unclear what share the central and/or local governments ultimately will be willing or able to bear."
Note the phrase "able to bear". Fitch's "macro-prudential risk" indicator for China threatens to jump from category 1 (safe) to category 3 (Iceland, et al). This is a surprise to me but Michael Pettis from Beijing University says China's public debt may be as high as 50pc-70pc of GDP when "correctly counted".
The regime is so hellbent on meeting its growth target of 8pc that it has given banks an implicit guarantee for what Fitch calls a "massive lending spree".
Bank exposure to corporate debt has reached $4,200bn. It is rising at a 30pc rate, even as profits contract at a 35pc rate.
Fitch traces the 2009 bubble to the central bank's decision to cut interest on reserves to 0.72pc. Bankers responded to this "margin squeeze" by ramping up the volume of lending instead. Over half the new debt is short-term. Roll-over risk is rocketing. China's monetary stimulus since November is arguably more extreme than the post-Lehman printing of the US Federal Reserve, though less obvious to the untrained eye.
Under the Taylor Rule, US policy remains tight (for the US). China's policy is loose (for China). New loans doubled in May from a year earlier, almost entirely to companies.
China's Banking Regulatory Commission fired a warning shot last week. "The top priority at the moment is to stop explosive lending. Banks should carefully monitor the process of credit approval and allocation, and make sure that loans flow into the real economy," it said.
Unfortunately, 40pc of the "real economy" consists of exports, mostly to the US and Europe, the consequence of a mercantilist export model that has qcrashed and burned. Chinese exports were down 26pc in May.
World trade may be stabilizing at last after contracting at faster rate than during the early Great Depression. But it will not rebound fast in a world where the US savings rate has risen to a 15-year high of 6.9pc. A trade policy based on the assumption that debtors in the Anglosphere and Europe's Club Med can ruin themselves for ever is absurd.
Andy Xie, a Sino-bear and commentator for Caijing, said Western analysts are in for a rude shock if they think that China's surging demand for raw materials implies genuine recovery.
Commodity speculators have been using cheap credit to play the arbitrage spread between futures and spot on the oil markets. They have even found ways to trade lumber to iron ore by sheer scale of leverage. "They've made everything open to speculation," he said.
Mr Xie thinks the spring recovery is an inventory spike, to be followed a double-dip downturn into next year as stimulus wears off.
Reformers know what must be done to boost consumption. China needs a welfare revolution. But creating a social security net takes time, and right now Beijing is facing a social crisis as 20m jobless workers retreat to the rural hinterland.
So the regime is resorting to hazardous methods to keep excess factories humming: issuing a "Buy China" decree: using a plethora of export subsidies; holding down the price of coke, bauxite, zinc and other resources to lower production costs (prompting a complaint from America and Europe); and suppressing the yuan, again.
Protectionism is a risky game for a country that lives off global trade and runs a surplus near 10pc of GDP. Mr Pettis said he fears China is nearing its "Smoot-Hawley moment", repeating the US tariff blunder of 1930 that brought the world crashing down on Washington's head.
Two facts stand out about China's green shoots. While the Shanghai composite index is up 70pc since November, Chinese imports are down 25pc from a year ago. China is still draining real stimulus from the global economy.
If the world's biggest surplus state ($400bn) is too structurally deformed to help offset the demand shock as Western debtors retrench, we are trapped in a long deflation slump.
Saturday, July 04, 2009
The Abandonment of Democracy
If democracy and human rights are high values, then all societies are not morally equal. This thought cuts sharply against Obama's multicultural sensibilities.
JUNE 29, 2009, 6:31 P.M. ET
wsj.com
BY JOSHUA MURAVCHIK
The most surprising thing about the first half-year of Barack Obama's presidency, at least in the realm of foreign policy, has been its indifference to the issues of human rights and democracy. No administration has ever made these its primary, much less its exclusive, goals overseas. But ever since Jimmy Carter spoke about human rights in his 1977 inaugural address and created a new infrastructure to give bureaucratic meaning to his words, the advancement of human rights has been one of the consistent objectives of America's diplomats and an occasional one of its soldiers.
This tradition has been ruptured by the Obama administration. The new president signaled his intent on the eve of his inauguration, when he told editors of the Washington Post that democracy was less important than "freedom from want and freedom from fear. If people aren't secure, if people are starving, then elections may or may not address those issues, but they are not a perfect overlay."
[Federation Feature]
Secretary of State Hillary Clinton followed suit, in opening testimony at her Senate confirmation hearings. As summed up by the Post's Fred Hiatt, Clinton "invoked just about every conceivable goal but democracy promotion. Building alliances, fighting terror, stopping disease, promoting women's rights, nurturing prosperity—but hardly a peep about elections, human rights, freedom, liberty or self-rule."
A few days after being sworn in, President Obama pointedly gave his first foreign press interview to the Saudi-owned Arabic-language satellite network, Al-Arabiya. The interview was devoted entirely to U.S. relations with the Middle East and the broader Muslim world, and through it all Obama never mentioned democracy or human rights.
A month later, announcing his plan and timetable for the withdrawal of American forces from Iraq, the president said he sought the "achievable goal" of "an Iraq that is sovereign, stable, and self-reliant," and he spoke of "a more peaceful and prosperous Iraq." On democracy, one of the prime goals of America's invasion of Iraq, and one toward which impressive progress had been demonstrated, he was again silent.
While drawing down in Iraq, Obama ordered more troops sent to Afghanistan, where America was fighting a war he had long characterized as more necessary and justifiable than the one in Iraq. But at the same time, he spoke of the need to "refocus on Al Qaeda" in Afghanistan, at least implying that this meant washing our hands of the project of democratization there. The Washington Post reported that "suggestions by senior administration officials . . . that the United States should set aside the goal of democracy in Afghanistan" had prompted that country's foreign minister to make "an impassioned appeal for continued U.S. support for an elected government."
In early April, former New York Times correspondent Joel Brinkley summed up the administration's initial performance:
Neither President Obama nor Secretary of State Hillary Clinton has even uttered the word democracy in a manner related to democracy promotion since taking office more than two months ago. The State Department's Bureau of Democracy, Human Rights and Labor has put out 30 public releases, so far, and not one of them has discussed democracy promotion. Democracy, it seems, is banished from the Obama administration's public vocabulary.
At a glance, Obama's motives seemed readily apparent. Former State Department official J. Scott Carpenter observed that it was "obvious and understandable" that "the Obama administration wanted to distance itself from the tone and perceived baggage of the Bush administration." But there were two reasons why this explanation did not satisfy.
For one, Obama might have put his own stamp on the issue without turning so sharply away from the goals of human rights and democracy. In 1981, Ronald Reagan came to the presidency with a mandate analogous to Obama's, namely, to undo the works of an unpopular predecessor. At first, Reagan was inclined to eschew human rights as just another part of Jimmy Carter's wooly-minded liberalism. In an early interview, Secretary of State Alexander Haig announced that the Reagan administration would promote human rights mostly by combating terrorism. But soon Reagan had second thoughts: instead of jettisoning the issue, he put his own distinctive spin on it by shifting the rhetoric and the program to focus more on fostering democracy.
In a similar vein, Obama could have faulted the Bush administration for its ineffectiveness in promoting democracy and promised that his own team would do it better. Indeed, Michael McFaul, who handled democracy issues in the Obama campaign, declared after the election that the new administration would "talk less and do more" about democratization than Bush had done. But when McFaul was appointed to the National Security Council staff, he was given the Russia portfolio rather than the job of overseeing democracy promotion. The latter task, which had been entrusted to senior staff during the Bush years, was given to no one.
The other reason why Obama's tack cannot be understood merely by his impulse to be unlike Bush is that his disinterest in democracy and human rights is global. The idea of promoting these values did not originate with Bush but with Carter and Reagan, reinforced by Bill Clinton. Bush's innovation was to apply this to the Middle East, which heretofore largely had been exempted. Repealing Bush's legacy would have meant turning the clock back on America's Middle East policy. But Obama scaled back democracy efforts not only there; he did it everywhere.
Thus for example, Clinton, on a first state visit to China, told reporters she would not say much about human rights or Tibet because "our pressing on those issues can't interfere with the global economic crisis, the global climate change crisis and the security crisis." Amnesty International declared it was "shocked and extremely disappointed" by her words. Unfazed, Clinton moved on to Russia, where she glibly presented its dictator, Vladimir Putin, with a toy "reset button" even while the string of unsolved murders of independent journalists that has marked his reign continued to lengthen.
To be sure, China and Russia are powerful countries with which Washington must do business across a range of issues, and because of their importance, all U.S. administrations have been guilty of unevenness in lobbying them to respect human rights. However, the Obama administration has downplayed human rights not only with the likes of Beijing and Moscow but also with weak countries whose governments have no leverage over America.
For example, Clinton ordered a review of U.S. sanctions against the military dictatorship of Burma because they haven't "influenced the Burmese government." This softening may have emboldened that junta to place opposition leader Aung San Suu Kyi on trial in May after having been content to keep her under house arrest most of the last eighteen years. The government of Sudan is even weaker and more of an international pariah than Burma's, but the Obama administration also let it be known that it was considering easing Bush-era sanctions applied against Khartoum in response to the campaign of murder and rape in Darfur. According to the Washington Post:
Many human rights activists have been shocked at the administration's apparent willingness to consider easing sanctions on Burma and Sudan. The Obama presidential campaign was scornful of Bush's handling of the killings in Sudan's Darfur region, which Bush labeled as genocide, but since taking office, the administration has been caught flat-footed by Sudan's recent ousting of international humanitarian organizations.
While it is hard to see any diplomatic benefit in soft-pedaling human rights in Burma and Sudan, neither has Obama anything to gain politically by easing up on regimes that are reviled by Americans from Left to Right. Even so ardent an admirer of the President as columnist E. J. Dionne, the first to discern an "Obama Doctrine" in foreign policy, confesses to "qualms" about "the relatively short shrift" this doctrine "has so far given to concerns over human rights and democracy."
Whether or not there is something as distinct and important as to warrant the label "doctrine," the consistency with which the new administration has left aside democracy and human rights suggests this is an approach the president has thought through. Following his meeting with the Organization of American states in April, Obama told a press conference: "What we showed here is that we can make progress when we're willing to break free from some of the stale debates and old ideologies that have dominated and distorted the debate in this hemisphere for far too long." His secretary of state echoed the thought: "Let's put ideology aside," she said. "That is so yesterday."
This begs the question of exactly which ideologies are passé or whether all are equally so. Communism, which so roiled the twentieth century, is certainly on its deathbed. Democracy, on the other hand, has flourished and spread in recent decades as never before, to the point where more than sixty percent of the world's governments are chosen in bona fide elections. To lump together these "ideologies" is gratuitously to belittle democracy.
Obama seems to believe that democracy is overrated, or at least overvalued. When asked about the subject in his pre-inaugural interview with the Washington Post, Obama said that he is more concerned with "actually delivering a better life for people on the ground and less obsessed with form, more concerned with substance." He elaborated on this thought during his April visit to Strasbourg, France:
We spend so much time talking about democracy—and obviously we should be promoting democracy everywhere we can. But democracy, a well-functioning society that promotes liberty and equality and fraternity, does not just depend on going to the ballot box. It also means that you're not going to be shaken down by police because the police aren't getting properly paid. It also means that if you want to start a business, you don't have to pay a bribe. I mean, there are a whole host of other factors that people need . . . to recognize in building a civil society that allows a country to be successful.
Whether or not the President was aware of it, he was echoing a theme first propounded long ago by Soviet propagandists and later sung in many variations by all manner of Third World dictators, Left to Right. It has long since been discredited by a welter of research showing that democracies perform better in fostering economic and social well being, keeping the peace, and averting catastrophes. Never mind that it is untoward for a President of the United States to speak of democracy as a mere "form," less important than substance.
The trend of downgrading democracy and human rights has already been evident in some important actions abroad. When Venezuela's would-be dictator, Hugo Chavez, held a referendum to set aside the country's long tradition of presidential term limits, the U.S. government went out of its way to endorse the process. The Associated Press reported:
The Obama administration says the referendum that cleared the way for Venezuelan President Hugo Chavez to run for re-election was democratic. It was rare praise for a U.S. antagonist after years of criticism from the Bush administration. U.S State Department spokesman Gordon Duguid noted "troubling reports of intimidation." But he added Tuesday that "for the most part this was a process that was fully consistent with democratic process."
While focusing on lack of irregularities in the polling, this response studiously ignored the larger issue. Term limits have been a pillar of democracy across Latin America, where there is a lamentable history of elected leaders holding onto office by unscrupulous means.
However punctilious the procedure, this constitutional maneuver on the part Chavez, who makes no secret of his ambition to serve as president for life, posed a dire threat to the preservation of democracy in that country.
Perhaps the clearest shift in U.S. policy has been toward Egypt. By far the largest of the Arab states, and the most influential intellectually, Egypt has also been the closest to Washington. Thus, the Bush administration's willingness to pressure the government of Hosni Mubarak was an earnest sign of its seriousness about democracy promotion.
For their part, Egyptian reformers urged the U.S. to make its aid to Egypt conditional on reforms. The Bush administration never took this step, but the idea had support in Congress, and it hung like a sword over the head of Mubarak's government. Obama has removed the threat. As the Associated Press reported: "Egypt's ambassador to the U.S., Sameh Shukri, said last week that ties are on the mend and that Washington has dropped conditions for better relations, including demands for 'human rights, democracy and religious and general freedoms.'"
"Conditionality" with Egypt "is not our policy," Secretary of State Clinton said in an interview with Egyptian TV earlier this month. "We also want to take our relationship to the next level."
While promising unimpeded assistance to the regime, the Obama administration backed away from aiding independent groups, something the Bush administration had insisted on doing despite objections from the authorities. Announcing the elimination of programs directly supporting Egyptian civil-society organizations, the U.S. ambassador, Margaret Scobey, explained that this would "facilitate" smoother relations with the Egyptian government. The New York Times summarized the Obama administration's steps:
The White House has accommodated President Mubarak by eliminating American funding for civil society organizations that the state refuses to recognize, and by stating publicly that neither military nor civilian funding will be conditioned on reform. This has provoked alarm from liberals, from scholarly experts and from activists in the region.
As the popular young Egyptian blogger, "Sandmonkey," irrepressibly irreverent and scatological, put it: "Let's face it, [Obama] ain't going to push on human rights and democracy. That era is gone. We are all about diplomacy and friendship now, and that's what the American people want, even if the price is that the democracy activists in Egypt get f—ed."
This formed the backdrop to the president's much-anticipated speech to the Muslim world delivered in Cairo on June 4. Of the many thorny issues he was expected to address, the setting necessitated that he spell out his views on democracy and human rights in Middle East more explicitly than before. In the New York Times, James Traub formulated the question this way:
Egypt was the central target of President Bush's Freedom Agenda . . . . But when an opposition Islamist party did well at the polls, Egypt's security apparatus cracked down. The Bush administration, concerned about pushing a key ally too far, responded meekly. . . . President Obama's words in Cairo are presumably being framed in the context of that episode. Should Mr. Bush have pushed harder for democratic reform in Egypt and with other allies? Should his administration have spoken more softly, less publicly? Should he, like his father, have devoted less attention to the way regimes treat their citizens, and more to winning cooperation on America's national security objectives?
In the speech, Obama tackled the issue head-on, making "democracy," "religious freedom," and "women's rights" three of the seven "specific issues" that he said "we must finally confront together." On democracy, he spoke with eloquence:
All people yearn for certain things: the ability to speak your mind and have a say in how you are governed; confidence in the rule of law and the equal administration of justice; government that is transparent and doesn't steal from the people; the freedom to live as you choose. These are not just American ideas; they are human rights. And that is why we will support them everywhere.
Strong as this was, its ultimate import remained elusive. Obama followed these words immediately with the caveat that "there is no straight line to realize this promise." And while he asserted his belief in "governments that reflect the will of the people," he added, "Each nation gives life to this principle in its own way, grounded in the traditions of its own people. America does not presume to know what is best for everyone."
This, alas, is very much the claim advanced by many authoritarian regimes, including the absolute monarchy of Saudi Arabia, which Obama had visited the day before. Nowhere did the president make the critical point that elections are the only known way to determine the will of the people. That, apparently, would have been "presumptuous."
When he turned to women's rights, Obama's strongest words were that women should be educated and free to choose whether or not to live in a traditional manner. Here, too, he was at pains to avoid sounding as if America had a worthier record than the nations he was addressing or had something to teach them. To the contrary: "Women's equality [is] by no means simply an issue for Islam. In Turkey, Pakistan, Bangladesh, Indonesia, we've seen Muslim-majority countries elect a woman to lead. Meanwhile, the struggle for women's equality continues in many aspects of American life, and in countries around the world."
At three different points in the speech, Obama defended a woman's right to wear the hijab, apparently as against the restrictions in French public schools or Turkish government offices or perhaps in the U.S. military, which insists on uniform headgear. But he said not a word about the right not to wear head covering, although the number of women forced to wear religious garments must be tens of thousands of times greater than the number deprived of that opportunity. This was all the more strange since he had just arrived from Saudi Arabia, where abbayas—head-to-toe cloaks put on over regular clothes—are mandatory for women whenever they go out. During Obama's stop in Riyadh the balmy spring temperature was 104 degrees; in the months ahead it will be twenty or thirty degrees hotter. The abbayas must be black, while the men all go around in white which, they explain, better repels the heat.
Nor did Obama mention either directly or indirectly that all Saudi women are required to have male "guardians," who may be a father, husband, uncle or brother or even a son, without whose written permission it is impossible to work, enroll in school or travel, or that they may be forced into marriage at the age of nine. Speaking on women's rights in Egypt, he might—but did not—also have found something, even elliptical, to say about genital mutilation, which is practiced more in that country than almost anywhere else.
On religious freedom, Obama invoked Islam's "proud tradition of tolerance." In one of his more prodding passages, he declared that "the richness of religious diversity must be upheld—whether it is for Maronites in Lebanon or the Copts in Egypt." One of the two institutions co-hosting his speech was Al-Azhar University, which Obama saluted in his opening paragraph as "a beacon of Islamic learning." This may be so, but Al-Azhar admits only Muslims. Foreign as well as native adherents to the message of the Prophet may attend, but Egyptian Christians are excluded. Perhaps this could be understood if it were only a school of Islamic learning (although, even then, why?), but today Al-Azhar offers degrees in medicine, engineering, and a panoply of subjects. Its tens of thousands of students are subsidized by state funds provided by Egyptian taxpayers, ten percent of whom are Copts, barred from Al-Azhar.
In these passages, as throughout the speech, Obama's method was to induce his audience to swallow a few perhaps-unwelcome truths by slathering them over with a thick sauce of soothing half-truths, distortions, omissions and false parallels.
Thus, the Cairo oration was a culmination of the themes of Obama's early months. He had blamed America for the world financial crisis, global warming, Mexico's drug wars, for "failure to appreciate Europe's role in the world," and in general for "all too often" trying "to dictate our terms." He had reinforced all this by dispatching his Secretary of State on what the New York Times dubbed a "contrition tour" of Asia and Latin America. Now he added apologies for overthrowing the government of Iran in 1953, and for treating the Muslim countries as "proxies" in the Cold War "without regard to their own aspirations."
Toward what end all these mea culpas? Perhaps it is a strategy designed, as he puts it, to "restor[e] America's standing in the world." Or perhaps he genuinely believes, as do many Muslims and Europeans, among others, that a great share of the world's ills may be laid at the doorstep of the United States. Either way, he seems to hope that such self-criticism will open the way to talking through our frictions with Iran, Syria, China, Russia, Burma, Sudan, Cuba, Venezuela, and the "moderate" side of the Taliban.
This strategy might be called peace through moral equivalence, and it finally makes fully intelligible Obama's resistance to advocating human rights and democracy. For as long as those issues are highlighted, the cultural relativism that laced his Cairo speech and similar pronouncements in other places is revealed to be absurd. Straining to find a deficiency of religious freedom in America, Obama came up with the claim that "in the United States, rules on charitable giving have made it harder for Muslims to fulfill their religious obligation." He was referring, apparently, to the fact that donations to foreign entities are not tax deductible. This has, of course, nothing to do with religious freedom but with assuring that tax deductions are given only to legitimate charities and not, say, to "violent extremists," as Obama calls them (eschewing the word "terrorist").
Consider this alleged peccadillo of America's in comparison to the state of religious freedom in Egypt, where Christians may not build, renovate or repair a church without written authorization from the President of the country or a provincial governor (and where Jews no longer find it safe to reside). Or compare it to the practices at the previous stop on Obama's itinerary, Saudi Arabia, where no church may stand, where Jews were for a time not allowed to set foot, and where even Muslims of non-Sunni varieties are constrained from building places of worship.
In short, while it may be possible to identify derogations from democracy and human rights in America, those that are ubiquitous in the Muslim world are greater by many orders of magnitude. If democracy and human rights are held as high values, then all societies are not morally equal. This is a thought that cuts sharply against Obama's multicultural sensibilities.
America not only embodies these values, it is also more responsible than any other country for their spread. Many peoples today enjoy the blessings of liberty thanks to the influence of the United States, thanks to its aid, its example, and its leading role in bringing down the Axis powers, the Soviet Union and European colonialism. Moreover, the advancement of human rights and democracy requires the exercise of American influence and in turn may serve to strengthen that influence—neither of these, it seems, processes to be welcomed by apostles of national self-abnegation.
In Cairo, once again, President Obama criticized the Bush administration for having acted "contrary to our ideals" when it infringed rules of due process in the course of the war against terror and authorized "enhanced interrogation techniques" that many believe are tantamount to torture. At worst, these infringements were bad answers to questions to which there were no good ones. Some of these practices may have been wrong, but there has not been a single serious allegation that any official employed them for any ulterior purpose, that is, for anything other than the goal of protecting our country in a time of war and national peril.
To dwell on this subject, as Obama has done, is to place great emphasis on humane values. How odd, then, to remove human rights and democracy from the agenda of our foreign policy. This is not the place to enter the debate about torture, but even if Khaled Sheikh Mohammed—the mastermind of the 9/11 attacks who was the main victim of waterboarding—and others were abused, there is little doubt that they were up to evil. It is hard to understand vociferating over their treatment even while silencing America's voice on behalf of such brave liberals as Ayman Nour and Sa'ad Edin Ibrahim, persecuted by the government that hosted Obama in Cairo for the peaceful advocacy of democracy. In this can be found neither strategic nor moral coherence.
Joshua Muravchik is a fellow at the Foreign Policy Institute of the Johns Hopkins University School of Advanced International Studies. His new book, The Next Founders: Voices of Democracy in the Middle East, has just been released by Encounter.
If democracy and human rights are high values, then all societies are not morally equal. This thought cuts sharply against Obama's multicultural sensibilities.
JUNE 29, 2009, 6:31 P.M. ET
wsj.com
BY JOSHUA MURAVCHIK
The most surprising thing about the first half-year of Barack Obama's presidency, at least in the realm of foreign policy, has been its indifference to the issues of human rights and democracy. No administration has ever made these its primary, much less its exclusive, goals overseas. But ever since Jimmy Carter spoke about human rights in his 1977 inaugural address and created a new infrastructure to give bureaucratic meaning to his words, the advancement of human rights has been one of the consistent objectives of America's diplomats and an occasional one of its soldiers.
This tradition has been ruptured by the Obama administration. The new president signaled his intent on the eve of his inauguration, when he told editors of the Washington Post that democracy was less important than "freedom from want and freedom from fear. If people aren't secure, if people are starving, then elections may or may not address those issues, but they are not a perfect overlay."
[Federation Feature]
Secretary of State Hillary Clinton followed suit, in opening testimony at her Senate confirmation hearings. As summed up by the Post's Fred Hiatt, Clinton "invoked just about every conceivable goal but democracy promotion. Building alliances, fighting terror, stopping disease, promoting women's rights, nurturing prosperity—but hardly a peep about elections, human rights, freedom, liberty or self-rule."
A few days after being sworn in, President Obama pointedly gave his first foreign press interview to the Saudi-owned Arabic-language satellite network, Al-Arabiya. The interview was devoted entirely to U.S. relations with the Middle East and the broader Muslim world, and through it all Obama never mentioned democracy or human rights.
A month later, announcing his plan and timetable for the withdrawal of American forces from Iraq, the president said he sought the "achievable goal" of "an Iraq that is sovereign, stable, and self-reliant," and he spoke of "a more peaceful and prosperous Iraq." On democracy, one of the prime goals of America's invasion of Iraq, and one toward which impressive progress had been demonstrated, he was again silent.
While drawing down in Iraq, Obama ordered more troops sent to Afghanistan, where America was fighting a war he had long characterized as more necessary and justifiable than the one in Iraq. But at the same time, he spoke of the need to "refocus on Al Qaeda" in Afghanistan, at least implying that this meant washing our hands of the project of democratization there. The Washington Post reported that "suggestions by senior administration officials . . . that the United States should set aside the goal of democracy in Afghanistan" had prompted that country's foreign minister to make "an impassioned appeal for continued U.S. support for an elected government."
In early April, former New York Times correspondent Joel Brinkley summed up the administration's initial performance:
Neither President Obama nor Secretary of State Hillary Clinton has even uttered the word democracy in a manner related to democracy promotion since taking office more than two months ago. The State Department's Bureau of Democracy, Human Rights and Labor has put out 30 public releases, so far, and not one of them has discussed democracy promotion. Democracy, it seems, is banished from the Obama administration's public vocabulary.
At a glance, Obama's motives seemed readily apparent. Former State Department official J. Scott Carpenter observed that it was "obvious and understandable" that "the Obama administration wanted to distance itself from the tone and perceived baggage of the Bush administration." But there were two reasons why this explanation did not satisfy.
For one, Obama might have put his own stamp on the issue without turning so sharply away from the goals of human rights and democracy. In 1981, Ronald Reagan came to the presidency with a mandate analogous to Obama's, namely, to undo the works of an unpopular predecessor. At first, Reagan was inclined to eschew human rights as just another part of Jimmy Carter's wooly-minded liberalism. In an early interview, Secretary of State Alexander Haig announced that the Reagan administration would promote human rights mostly by combating terrorism. But soon Reagan had second thoughts: instead of jettisoning the issue, he put his own distinctive spin on it by shifting the rhetoric and the program to focus more on fostering democracy.
In a similar vein, Obama could have faulted the Bush administration for its ineffectiveness in promoting democracy and promised that his own team would do it better. Indeed, Michael McFaul, who handled democracy issues in the Obama campaign, declared after the election that the new administration would "talk less and do more" about democratization than Bush had done. But when McFaul was appointed to the National Security Council staff, he was given the Russia portfolio rather than the job of overseeing democracy promotion. The latter task, which had been entrusted to senior staff during the Bush years, was given to no one.
The other reason why Obama's tack cannot be understood merely by his impulse to be unlike Bush is that his disinterest in democracy and human rights is global. The idea of promoting these values did not originate with Bush but with Carter and Reagan, reinforced by Bill Clinton. Bush's innovation was to apply this to the Middle East, which heretofore largely had been exempted. Repealing Bush's legacy would have meant turning the clock back on America's Middle East policy. But Obama scaled back democracy efforts not only there; he did it everywhere.
Thus for example, Clinton, on a first state visit to China, told reporters she would not say much about human rights or Tibet because "our pressing on those issues can't interfere with the global economic crisis, the global climate change crisis and the security crisis." Amnesty International declared it was "shocked and extremely disappointed" by her words. Unfazed, Clinton moved on to Russia, where she glibly presented its dictator, Vladimir Putin, with a toy "reset button" even while the string of unsolved murders of independent journalists that has marked his reign continued to lengthen.
To be sure, China and Russia are powerful countries with which Washington must do business across a range of issues, and because of their importance, all U.S. administrations have been guilty of unevenness in lobbying them to respect human rights. However, the Obama administration has downplayed human rights not only with the likes of Beijing and Moscow but also with weak countries whose governments have no leverage over America.
For example, Clinton ordered a review of U.S. sanctions against the military dictatorship of Burma because they haven't "influenced the Burmese government." This softening may have emboldened that junta to place opposition leader Aung San Suu Kyi on trial in May after having been content to keep her under house arrest most of the last eighteen years. The government of Sudan is even weaker and more of an international pariah than Burma's, but the Obama administration also let it be known that it was considering easing Bush-era sanctions applied against Khartoum in response to the campaign of murder and rape in Darfur. According to the Washington Post:
Many human rights activists have been shocked at the administration's apparent willingness to consider easing sanctions on Burma and Sudan. The Obama presidential campaign was scornful of Bush's handling of the killings in Sudan's Darfur region, which Bush labeled as genocide, but since taking office, the administration has been caught flat-footed by Sudan's recent ousting of international humanitarian organizations.
While it is hard to see any diplomatic benefit in soft-pedaling human rights in Burma and Sudan, neither has Obama anything to gain politically by easing up on regimes that are reviled by Americans from Left to Right. Even so ardent an admirer of the President as columnist E. J. Dionne, the first to discern an "Obama Doctrine" in foreign policy, confesses to "qualms" about "the relatively short shrift" this doctrine "has so far given to concerns over human rights and democracy."
Whether or not there is something as distinct and important as to warrant the label "doctrine," the consistency with which the new administration has left aside democracy and human rights suggests this is an approach the president has thought through. Following his meeting with the Organization of American states in April, Obama told a press conference: "What we showed here is that we can make progress when we're willing to break free from some of the stale debates and old ideologies that have dominated and distorted the debate in this hemisphere for far too long." His secretary of state echoed the thought: "Let's put ideology aside," she said. "That is so yesterday."
This begs the question of exactly which ideologies are passé or whether all are equally so. Communism, which so roiled the twentieth century, is certainly on its deathbed. Democracy, on the other hand, has flourished and spread in recent decades as never before, to the point where more than sixty percent of the world's governments are chosen in bona fide elections. To lump together these "ideologies" is gratuitously to belittle democracy.
Obama seems to believe that democracy is overrated, or at least overvalued. When asked about the subject in his pre-inaugural interview with the Washington Post, Obama said that he is more concerned with "actually delivering a better life for people on the ground and less obsessed with form, more concerned with substance." He elaborated on this thought during his April visit to Strasbourg, France:
We spend so much time talking about democracy—and obviously we should be promoting democracy everywhere we can. But democracy, a well-functioning society that promotes liberty and equality and fraternity, does not just depend on going to the ballot box. It also means that you're not going to be shaken down by police because the police aren't getting properly paid. It also means that if you want to start a business, you don't have to pay a bribe. I mean, there are a whole host of other factors that people need . . . to recognize in building a civil society that allows a country to be successful.
Whether or not the President was aware of it, he was echoing a theme first propounded long ago by Soviet propagandists and later sung in many variations by all manner of Third World dictators, Left to Right. It has long since been discredited by a welter of research showing that democracies perform better in fostering economic and social well being, keeping the peace, and averting catastrophes. Never mind that it is untoward for a President of the United States to speak of democracy as a mere "form," less important than substance.
The trend of downgrading democracy and human rights has already been evident in some important actions abroad. When Venezuela's would-be dictator, Hugo Chavez, held a referendum to set aside the country's long tradition of presidential term limits, the U.S. government went out of its way to endorse the process. The Associated Press reported:
The Obama administration says the referendum that cleared the way for Venezuelan President Hugo Chavez to run for re-election was democratic. It was rare praise for a U.S. antagonist after years of criticism from the Bush administration. U.S State Department spokesman Gordon Duguid noted "troubling reports of intimidation." But he added Tuesday that "for the most part this was a process that was fully consistent with democratic process."
While focusing on lack of irregularities in the polling, this response studiously ignored the larger issue. Term limits have been a pillar of democracy across Latin America, where there is a lamentable history of elected leaders holding onto office by unscrupulous means.
However punctilious the procedure, this constitutional maneuver on the part Chavez, who makes no secret of his ambition to serve as president for life, posed a dire threat to the preservation of democracy in that country.
Perhaps the clearest shift in U.S. policy has been toward Egypt. By far the largest of the Arab states, and the most influential intellectually, Egypt has also been the closest to Washington. Thus, the Bush administration's willingness to pressure the government of Hosni Mubarak was an earnest sign of its seriousness about democracy promotion.
For their part, Egyptian reformers urged the U.S. to make its aid to Egypt conditional on reforms. The Bush administration never took this step, but the idea had support in Congress, and it hung like a sword over the head of Mubarak's government. Obama has removed the threat. As the Associated Press reported: "Egypt's ambassador to the U.S., Sameh Shukri, said last week that ties are on the mend and that Washington has dropped conditions for better relations, including demands for 'human rights, democracy and religious and general freedoms.'"
"Conditionality" with Egypt "is not our policy," Secretary of State Clinton said in an interview with Egyptian TV earlier this month. "We also want to take our relationship to the next level."
While promising unimpeded assistance to the regime, the Obama administration backed away from aiding independent groups, something the Bush administration had insisted on doing despite objections from the authorities. Announcing the elimination of programs directly supporting Egyptian civil-society organizations, the U.S. ambassador, Margaret Scobey, explained that this would "facilitate" smoother relations with the Egyptian government. The New York Times summarized the Obama administration's steps:
The White House has accommodated President Mubarak by eliminating American funding for civil society organizations that the state refuses to recognize, and by stating publicly that neither military nor civilian funding will be conditioned on reform. This has provoked alarm from liberals, from scholarly experts and from activists in the region.
As the popular young Egyptian blogger, "Sandmonkey," irrepressibly irreverent and scatological, put it: "Let's face it, [Obama] ain't going to push on human rights and democracy. That era is gone. We are all about diplomacy and friendship now, and that's what the American people want, even if the price is that the democracy activists in Egypt get f—ed."
This formed the backdrop to the president's much-anticipated speech to the Muslim world delivered in Cairo on June 4. Of the many thorny issues he was expected to address, the setting necessitated that he spell out his views on democracy and human rights in Middle East more explicitly than before. In the New York Times, James Traub formulated the question this way:
Egypt was the central target of President Bush's Freedom Agenda . . . . But when an opposition Islamist party did well at the polls, Egypt's security apparatus cracked down. The Bush administration, concerned about pushing a key ally too far, responded meekly. . . . President Obama's words in Cairo are presumably being framed in the context of that episode. Should Mr. Bush have pushed harder for democratic reform in Egypt and with other allies? Should his administration have spoken more softly, less publicly? Should he, like his father, have devoted less attention to the way regimes treat their citizens, and more to winning cooperation on America's national security objectives?
In the speech, Obama tackled the issue head-on, making "democracy," "religious freedom," and "women's rights" three of the seven "specific issues" that he said "we must finally confront together." On democracy, he spoke with eloquence:
All people yearn for certain things: the ability to speak your mind and have a say in how you are governed; confidence in the rule of law and the equal administration of justice; government that is transparent and doesn't steal from the people; the freedom to live as you choose. These are not just American ideas; they are human rights. And that is why we will support them everywhere.
Strong as this was, its ultimate import remained elusive. Obama followed these words immediately with the caveat that "there is no straight line to realize this promise." And while he asserted his belief in "governments that reflect the will of the people," he added, "Each nation gives life to this principle in its own way, grounded in the traditions of its own people. America does not presume to know what is best for everyone."
This, alas, is very much the claim advanced by many authoritarian regimes, including the absolute monarchy of Saudi Arabia, which Obama had visited the day before. Nowhere did the president make the critical point that elections are the only known way to determine the will of the people. That, apparently, would have been "presumptuous."
When he turned to women's rights, Obama's strongest words were that women should be educated and free to choose whether or not to live in a traditional manner. Here, too, he was at pains to avoid sounding as if America had a worthier record than the nations he was addressing or had something to teach them. To the contrary: "Women's equality [is] by no means simply an issue for Islam. In Turkey, Pakistan, Bangladesh, Indonesia, we've seen Muslim-majority countries elect a woman to lead. Meanwhile, the struggle for women's equality continues in many aspects of American life, and in countries around the world."
At three different points in the speech, Obama defended a woman's right to wear the hijab, apparently as against the restrictions in French public schools or Turkish government offices or perhaps in the U.S. military, which insists on uniform headgear. But he said not a word about the right not to wear head covering, although the number of women forced to wear religious garments must be tens of thousands of times greater than the number deprived of that opportunity. This was all the more strange since he had just arrived from Saudi Arabia, where abbayas—head-to-toe cloaks put on over regular clothes—are mandatory for women whenever they go out. During Obama's stop in Riyadh the balmy spring temperature was 104 degrees; in the months ahead it will be twenty or thirty degrees hotter. The abbayas must be black, while the men all go around in white which, they explain, better repels the heat.
Nor did Obama mention either directly or indirectly that all Saudi women are required to have male "guardians," who may be a father, husband, uncle or brother or even a son, without whose written permission it is impossible to work, enroll in school or travel, or that they may be forced into marriage at the age of nine. Speaking on women's rights in Egypt, he might—but did not—also have found something, even elliptical, to say about genital mutilation, which is practiced more in that country than almost anywhere else.
On religious freedom, Obama invoked Islam's "proud tradition of tolerance." In one of his more prodding passages, he declared that "the richness of religious diversity must be upheld—whether it is for Maronites in Lebanon or the Copts in Egypt." One of the two institutions co-hosting his speech was Al-Azhar University, which Obama saluted in his opening paragraph as "a beacon of Islamic learning." This may be so, but Al-Azhar admits only Muslims. Foreign as well as native adherents to the message of the Prophet may attend, but Egyptian Christians are excluded. Perhaps this could be understood if it were only a school of Islamic learning (although, even then, why?), but today Al-Azhar offers degrees in medicine, engineering, and a panoply of subjects. Its tens of thousands of students are subsidized by state funds provided by Egyptian taxpayers, ten percent of whom are Copts, barred from Al-Azhar.
In these passages, as throughout the speech, Obama's method was to induce his audience to swallow a few perhaps-unwelcome truths by slathering them over with a thick sauce of soothing half-truths, distortions, omissions and false parallels.
Thus, the Cairo oration was a culmination of the themes of Obama's early months. He had blamed America for the world financial crisis, global warming, Mexico's drug wars, for "failure to appreciate Europe's role in the world," and in general for "all too often" trying "to dictate our terms." He had reinforced all this by dispatching his Secretary of State on what the New York Times dubbed a "contrition tour" of Asia and Latin America. Now he added apologies for overthrowing the government of Iran in 1953, and for treating the Muslim countries as "proxies" in the Cold War "without regard to their own aspirations."
Toward what end all these mea culpas? Perhaps it is a strategy designed, as he puts it, to "restor[e] America's standing in the world." Or perhaps he genuinely believes, as do many Muslims and Europeans, among others, that a great share of the world's ills may be laid at the doorstep of the United States. Either way, he seems to hope that such self-criticism will open the way to talking through our frictions with Iran, Syria, China, Russia, Burma, Sudan, Cuba, Venezuela, and the "moderate" side of the Taliban.
This strategy might be called peace through moral equivalence, and it finally makes fully intelligible Obama's resistance to advocating human rights and democracy. For as long as those issues are highlighted, the cultural relativism that laced his Cairo speech and similar pronouncements in other places is revealed to be absurd. Straining to find a deficiency of religious freedom in America, Obama came up with the claim that "in the United States, rules on charitable giving have made it harder for Muslims to fulfill their religious obligation." He was referring, apparently, to the fact that donations to foreign entities are not tax deductible. This has, of course, nothing to do with religious freedom but with assuring that tax deductions are given only to legitimate charities and not, say, to "violent extremists," as Obama calls them (eschewing the word "terrorist").
Consider this alleged peccadillo of America's in comparison to the state of religious freedom in Egypt, where Christians may not build, renovate or repair a church without written authorization from the President of the country or a provincial governor (and where Jews no longer find it safe to reside). Or compare it to the practices at the previous stop on Obama's itinerary, Saudi Arabia, where no church may stand, where Jews were for a time not allowed to set foot, and where even Muslims of non-Sunni varieties are constrained from building places of worship.
In short, while it may be possible to identify derogations from democracy and human rights in America, those that are ubiquitous in the Muslim world are greater by many orders of magnitude. If democracy and human rights are held as high values, then all societies are not morally equal. This is a thought that cuts sharply against Obama's multicultural sensibilities.
America not only embodies these values, it is also more responsible than any other country for their spread. Many peoples today enjoy the blessings of liberty thanks to the influence of the United States, thanks to its aid, its example, and its leading role in bringing down the Axis powers, the Soviet Union and European colonialism. Moreover, the advancement of human rights and democracy requires the exercise of American influence and in turn may serve to strengthen that influence—neither of these, it seems, processes to be welcomed by apostles of national self-abnegation.
In Cairo, once again, President Obama criticized the Bush administration for having acted "contrary to our ideals" when it infringed rules of due process in the course of the war against terror and authorized "enhanced interrogation techniques" that many believe are tantamount to torture. At worst, these infringements were bad answers to questions to which there were no good ones. Some of these practices may have been wrong, but there has not been a single serious allegation that any official employed them for any ulterior purpose, that is, for anything other than the goal of protecting our country in a time of war and national peril.
To dwell on this subject, as Obama has done, is to place great emphasis on humane values. How odd, then, to remove human rights and democracy from the agenda of our foreign policy. This is not the place to enter the debate about torture, but even if Khaled Sheikh Mohammed—the mastermind of the 9/11 attacks who was the main victim of waterboarding—and others were abused, there is little doubt that they were up to evil. It is hard to understand vociferating over their treatment even while silencing America's voice on behalf of such brave liberals as Ayman Nour and Sa'ad Edin Ibrahim, persecuted by the government that hosted Obama in Cairo for the peaceful advocacy of democracy. In this can be found neither strategic nor moral coherence.
Joshua Muravchik is a fellow at the Foreign Policy Institute of the Johns Hopkins University School of Advanced International Studies. His new book, The Next Founders: Voices of Democracy in the Middle East, has just been released by Encounter.
Sunday, March 29, 2009
Deals that defined an era
By David Marcus
thedeal.com
Published March 20, 2009 at 2:00 PM
Every era in dealmaking has its landmark mergers whose implications M&A professionals spend years pondering and whose lessons shape the advice they give to clients. Some of the deals result in significant legal decisions; some are embedded in merger agreements whose terms become standard; some mark significant changes in tactics.
With the M&A market in a deep slump, it's an opportune time to look back on the signal deals between 2000 and 2008 -- or, put another way, between Time Warner Inc.'s 2000 merger with America Online Inc. and J.P. Morgan Chase & Co.'s 2008 shotgun purchase of Bear Stearns Cos. The two transactions bookend a period in which three trends had a powerful impact on M&A case law and contract drafting: the rise of private equity; increasing shareholder activism; and a shift in how hostile deals were done.
Time Warner's $105 billion merger with AOL signaled the peak of an M&A market cycle. A big, bold stock swap meant to transform both companies, it was emblematic of the deals of the second half of the '90s. This wasn't necessarily a compliment. Less than three months after Time Warner CEO Gerald Levin and his AOL counterpart, Steve Case, preened for the cameras, the equity boom that fueled such deals topped out as steep declines in stock indexes sapped M&A. And the AOL deal turned out to be a disaster.
After AOL, a different deal market took shape. Cheap debt replaced cheap equity, which gave a big role to private equity. In late 2002, Blackstone Group LP agreed to buy TRW Inc.'s automotive parts unit for $4.7 billion. The deal was a sideshow to Northrop Grumman Corp.'s hostile takeover of TRW, though at the time it was the largest leveraged buyout since that of RJR Nabisco Inc. in 1989. By the time the buyout frenzy reached its zenith in 2007, PE had moved from periphery to center, and an LBO of that size would have elicited yawns.
There were other currents at work as well. In part because of the failures of so-called transformative combinations such as AOL-Time Warner, imperial CEOs became objects of derision, a change hastened by the fraud and failure of companies such as Enron Corp. and WorldCom Inc. Skepticism of CEOs made it harder for target companies to resist hostile bids. As CEOs lost power, shareholders, particularly the increasing numbers of hedge funds, seized it, demanding that companies remove poison pills, eliminate staggered boards and subject management to more vigorous board oversight. Shareholders became more inclined to throw their weight around after the announcement of a deal.
Though shareholders continued to fixate over takeover defenses, target managements and boards rarely used them to thwart hostile bids. Instead, targets wielded defenses to extract the best possible offer, a trend captured by two watershed deals where determined bidders outlasted intransigent targets: Weyerhaeuser Co.'s pursuit of Willamette Industries Inc., which ended in 2002, and Oracle Corp.'s of PeopleSoft Inc., which closed in 2004.
These trends reinforced each another. Shareholder opposition to aggressive takeover defenses not only led to the demise of the spectacular pitched battles of the '80s; it also made managers more receptive to private equity, which offered freedom from the prying eyes of analysts, the intrusive reach of shareholders and the possibility, if successful, of reaping staggering paydays. But shareholders quickly became as suspicious of LBOs as they had been of takeover defenses and by the last year of the boom were winning price bumps from buyers after a deal was signed up -- in retrospect, just another sign of the impending bubble.
Here, then, are the M&A deals that defined one of the great boom periods in American dealmaking.
The taming of the hostile bid
Weyerhaeuser Co. -- Willamette Industries Inc.; Northrop Grumman Corp. -- TRW Inc.; and Oracle Corp. -- PeopleSoft Inc.
Hostile bids were the central issue in M&A law in the 1980s and the first half of the 1990s. In 10 years of jurisprudence, Delaware's Court of Chancery and Supreme Court never definitively answered whether a target could flatly reject a hostile bid regardless of price -- could "just say no," in a phrase dealmakers lifted from Nancy Reagan's anti-drug campaign. Many state legislatures, including those in Pennsylvania and Ohio, passed statutes that expressly gave target boards that right.
The second half of the 1990s threw little light on the issue. "By the end of the 1990s, we'd come to the conclusion that the cases in which the Delaware courts have overturned pills were unusual," says Richard Hall, a partner at Cravath, Swaine & Moore LLP in New York who represented Portland, Ore.-based Weyerhaeuser on the Willamette bid. "So by the late 1990s, if a client asked you how to do a hostile and you saw a staggered board and a pill, particularly in a jurisdiction with a constituency statute, you said the client had to be prepared to go through two years of a proxy fight. We all knew what to do, but no one did it."
Well, almost no one. In 1996, U.S. Surgical Corp. made a $262 million hostile bid for Circon Corp. The bidder won two seats on Circon's staggered seven-member board in 1997 but dropped the bid when it agreed to sell to Tyco International Ltd. in 1998. Shareholder rights advocates pointed to Circon as a prime example of the abuse of takeover defenses.
Two years later, Weyerhaeuser offered $5.2 billion for crosstown papermaking rival Willamette, which rejected the bid. Weyerhauser launched a tender offer within weeks and picked up 48% of the target's shares, then ran a proxy fight and won three seats. The key break may have come in September 2001, almost a year after Weyerhaeuser's bid, when a Willamette founding family member and leading shareholder urged the company to explore a sale. Richard Clark, the representative of the estate of Maurie Dooly Clark, son of Willamette's founders, hoped to settle Clark's estate and said he would back a sale if Weyerhaeuser raised its bid to $55 a share, from $50. The companies agreed on $55.50 per share on Jan. 22, 2002.
A month later, Northrop Grumman Corp. launched a $5.9 billion bid for Cleveland-based TRW Inc. worth $47 a share. As an Ohio corporation, the Cleveland-based aerospace and automotive group had the statutory right to "just say no," to take into account interests of constituencies other than shareholders and to install aggressive takeover defenses.
But instead of digging in, TRW responded by saying it would sell its aeronautical unit and spin out its automotive business. Northrop raised its bid, TRW opened its books and the parties signed a deal at $60 per share on July 1, little more than four months after Northrop launched its bid. TRW agreed to sell its aeronautical systems unit to Goodrich Corp. for $1.5 billion in June, and Blackstone Group LP paid $4.7 billion for the automotive parts unit in November.
"In TRW," says Andrew Bogen, a retired partner at Gibson, Dunn & Crutcher LLP in Los Angeles who represented Northrop, "we got to act on a theory that I had always held, which is that takeover laws didn't change the equation in any important way. I always thought all the pressure a target board would come under would be the same for both a Delaware and a Ohio company."
TRW didn't adopt a scorched-earth defense. PeopleSoft Inc. CEO Craig Conway, also a Bogen client, did in his quest to fend off a bid for the business software company from Oracle Corp. Conway personalized the battle from the June 2003 day when Oracle CEO Larry Ellison announced an offer at a scant 10% premium. Conway called the bid "atrociously bad behavior from a company with a history of atrociously bad behavior." He urged the U.S. Department of Justice to file suit to stop the bid on antitrust grounds. Claiming Oracle sought to ruin PeopleSoft by scaring off customers, Conway had his lawyers develop a so-called customer assurance program in which PeopleSoft customer contracts had clauses that would require that a buyer meet certain conditions or be liable to customers for as much as 5 times the fee paid to license PeopleSoft software.
A federal judge ruled for Oracle after a trial on the antitrust case, setting the stage for a showdown between Ellison and Conway in Delaware's Court of Chancery in October 2004. On the eve of the trial, PeopleSoft's board fired Conway, who somehow refrained from bashing his former employer when he testified before Vice Chancellor Leo E. Strine Jr. Two days later, the judge asked Ellison about Conway's comparison of him to Genghis Khan. Ellison called the Khan "an illiterate Mongol but a hell of general."
But the personalities in the case didn't determine the outcome. After seizing control from Conway, the PeopleSoft board tried to get the best deal it could for shareholders. Despite low-balling the target in its initial bid and threatening to reduce its offer, Oracle agreed to pay $24.50 a share. Strine nudged the parties to come to an agreement but never issued a ruling in what might have been the most important takeover case in a decade. Takeover practice had become so routinized that even the Genghis Khan of Silicon Valley couldn't upset its dictates.
"Since Weyerhaueser and Oracle, we have seen a drop in the use of staggered boards, and I think we've seen a shift in the attitude of hostile bidders and targets," Hall says. "I wonder if the impact of these two deals is that targets just won't try to dig in their heels any more because they know they'll eventually lose. If you're a target, put the buyer to a meaningful test and then get the best price you can."
Shareholders step up
VNU NV and IMS Health Inc.
The rise of shareholder activism has long been one of the most powerful trends in U.S. corporate governance. Institutional investors have held an ever-increasing percentage of the equity of U.S. companies and have become steadily more vocal since the early '80s. As Hall, Bogen and numerous others note, shareholder opposition to poison pills, staggered boards and other takeover defenses have reduced the number of situations where targets try to thwart a bidder. Shareholder pressure has helped lead to a reduction in average CEO tenure and drive the leveraged buyout boom as CEOs found working for PE firms more appealing than answering to public markets.
Pervasive as its effect have been, shareholder power has grown over time, perhaps because shareholders have only a few basic rights. They elect directors and may remove those they deem unworthy. Target shareholders have a vote on mergers and may decide whether to tender their shares into an offer. Shareholders of would-be acquirers listed on U.S. exchanges have a vote on a deal if the buyer is issuing more than 20% of its outstanding stock in the transaction.
This is the right shareholders of VNU NV used to kill the market research company's proposed acquisition of IMS Health Inc. in 2005 for $6.9 billion in stock. Fidelity Management & Research Co. and Templeton Global Advisors Ltd., which respectively owned 15% and 14% of VNU, came out against the deal on Sept. 30, 2005, two months after it was announced; six weeks later the companies parted ways. They didn't even bother putting the deal to shareholders. VNU was listed in the U.S. but based in the Netherlands, which may have made Fidelity's decision to oppose the deal easier; the mutual fund giant has historically shied away from pressuring U.S. companies publicly.
VNU's shareholders weren't finished. The company agreed to sell for $10.3 billion to a private equity consortium that included AlpInvest Partners NV, Blackstone Group LP, Carlyle Group, Hellman & Friedman LLC, Kohlberg Kravis Roberts & Co. and Thomas H. Lee Partners LP in March 2006. Shareholders said the offer was too low, and Institutional Shareholder Services Inc. agreed, forcing the buyers to sue for peace by hiking their bid to €29.50 ($38.15) from €28.75 per share -- a gambit that became common in the final 18 months of the PE boom.
The sale also illustrates two effects of private equity on M&A: the symbiotic relationship between activist shareholders and LBO firms and the rise of buyout activity in Europe, which for several years in this decade topped U.S. levels.
MAEs made clear
Tyson Foods Inc. -- IBP Inc.
Despite its robust body of jurisprudence on defenses in hostile bids, Delaware has little case law on when a buyer may walk from a merger agreement. Strine issued the most important ruling in at least the past decade when he forced Tyson Foods Inc. to complete its purchase of IBP Inc. in 2001. By finding that IBP had not suffered a so-called material adverse effect, the judge showed a reluctance to let a buyer walk from an agreement absent a clear right to do so in an opinion that significantly affected M&A practice.
"For so many years, people would come to me asking, 'Can I sue to get out of this deal?' and I would advise them based on the specific language of their contract, but everyone was kind of guessing because no one had ever pulled the trigger," by trying to walk from a deal, says Alan Stone, who joined Milbank, Tweed, Hadley & McCloy LLP in New York after practicing for 20 years at Morris, Nichols, Arsht & Tunnell LLP in Wilmington. "It was potentially too devastating for someone to try to back out of the deal, given the magnitude of the damages. IBP really set the standard for all the MAC cases that came after it."
Tyson, a chicken processor, agreed to buy beef processor IBP for $4.7 billion on Jan. 1, 2001. The timing was unfortunate, since fears of mad cow disease in Europe generated lots of media coverage that month. Tyson walked from the deal March 29, saying it had been fraudulently induced to sign the agreement. IBP sued in Delaware to force Tyson to close the deal, and Strine heard a two-week trial in May.
Tyson argued that fraud at an IBP unit gave it the right to bail out. IBP countered by arguing that Tyson founder Don Tyson, the father of then-CEO John, decided to kill the deal because of mad cow fears. Strine chose the latter explanation and held that under the terms of the agreement Tyson couldn't walk merely because it was suffering from "buyer's remorse," a term that still echos in Delaware case law. The clause that allowed Tyson to walk if IBP suffered an MAE "is best read as a backstop protecting the acquirer from the occurrence of unknown events that subsequently threaten the overall earnings potential of a target in a durationally significant manner," Strine wrote in his opinion.
Tyson complied with the ruling and closed the deal; Richard Bond, IBP's chief executive, held the same position at Tyson from 2006 to January of this year.
The decision made clear that Chancery would award specific performance of a merger agreement. Many lawyers had wondered whether a judge would grant such an aggressive remedy. By doing so, Strine forced parties to focus even more closely on the negotiation of MAE clauses and other mechanisms allowing buyers to walk.
"IBP still looms huge," says Mark Gordon, a partner at Wachtell, Lipton, Rosen & Katz in New York. (Wachtell represented IBP, but Gordon did not work on the deal.) "The decision basically says buyers should understand that they will never be able to get out of a deal based on an MAE, and deal drafting since then has moved even further in the 'no out' direction. What you ended up with almost says there's no such thing as an MAE in Delaware. People basically agree with it and follow it. The practice with respect to MAEs has taken that further. The MAE definition in IBP was, in that case, about three lines, and now the typical definition is 25 to 40 lines. The increase is due to exceptions that narrows what an MAE was in IBP. As a result, people believe the MAE is like the unicorn -- something that doesn't exist in the real world."
The IBP view of the MAE, combined with the possibility of specific performance, affected the drafting of private equity contracts as well, Gordon says. However carefully merging parties crafted their MAE definition, sellers almost invariably retained the right to sue for specific performance. Buyout firms, on the other hand, did not want to be subject to that liability.
Setting the PE standard
Sungard Data Systems Inc.
The leveraged buyout craze of the 1980s flamed out soon after the RJR Nabisco Inc. buyout when First Boston Corp. was unable to sell hundreds of millions of dollars it had lent to the buyout of Ohio Mattress Co. The deal almost killed the firm, which had to sell to Credit Suisse Group to save itself. After the "burning-bed" episode, private equity became a much lower-profile, if profitable, business, where deals of more than $1 billion were rare and which accounted for 5% or less of M&A volume in most years.
Several factors combined to change that. Stock market declines in 2001 made many strategic buyers reluctant to use what they viewed as undervalued equity for acquisitions, meaning PE funds could compete with strategics on more equal footing. The strong performance of many funds in the 1990s helped them raise more money. And as the U.S. went into recession, the Federal Reserve Bank cut the prime rate from 9.5% in May 2000 to as low as 4% in June 2003, which reduced the PE funds' cost of borrowing.
PE gained momentum from 2002 to 2004, accounting for a larger share of the M&A market in each of those years. As PE firms targeted larger public companies, lawyers had to adapt. After the burning bed, buyout shops and lenders realized the importance of the ability to walk if financing fell through and demanded such a right. PE buyers also saw that they would suffer damage to reputations if they used the financing out to walk and rarely threatened to do so.
But there was a critical exception in 2002 when Diageo plc agreed to sell Burger King Corp. to TPG Capital, Bain Capital LLC and Goldman Sachs Capital Partners for $2.25 billion. The fast-food chain missed performance targets set out in the agreement, and the buyers extracted a 37% price cut from Diageo. Technically, the acquirer was a shell, but the buyers' lawyers were still concerned about the liability of their PE clients if they walked. "We were facing a situation where if the deal went down, we called a [material adverse change] and we were wrong, we were facing a small chance on a large liability," says R. Newcomb Stillwell, a partner at Ropes & Gray LLP in Boston who represented Bain. "Everyone for the first time in a significant way asked if the old technology worked as well as we thought in the context of what was a very large deal at the time. Did the threat of a small chance of a large loss give the seller too much leverage?"
The PE firms wanted to retain their financing out and make absolutely clear that the parent would not be liable for specific performance even if it violated the terms of a contract by walking. They got their wish in a series of deals announced in spring of 2005, most importantly the $10.6 billion buyout of SunGard Data Systems Inc. That deal established as a market standard the reverse termination fee, a provision in the contract that allows the buyer to walk for any reason upon payment of a fee that was usually set at about 3% of deal value to correspond with the breakup fee the bidder would receive from a target that took a better offer. Seen another way, the reverse breakup fee acted as a cap on the bidder's damages, an aspect of the structure that became critical when lending markets collapsed in 2007.
SunGard became a landmark in part because so many advisers had a hand in the deal. Silver Lake Partners LP led a consortium of buyers that included Bain, Blackstone Group LP, Kohlberg Kravis Roberts & Co., TPG, Goldman Sachs and Providence Equity Partners Inc., insuring that those PE shops and their lawyers were exposed to the papers on the deal and understood how they worked. The large number of partners in the buyout group required the creation of a so-called intersponsor agreement that detailed how they would run SunGard and became standard in the many club deals that followed.
Parties in other deals did reach different resolutions on the issue of buyer liability. Neiman Marcus Group Inc. established the concept of a two-tier breakup fee in its 2005 sale to TPG and Warburg Pincus, under which a welshing buyer would pay perhaps 3% of the deal's value if financing fell through and a higher percentage, say 4.5%, if it walked for a reason not otherwise permitted under the merger agreement. A few companies such as Avaya Inc. and Michaels Stores Inc. that sold in robust auctions even got private equity buyers to allow for specific performance.
Despite these exceptions, Stillwell says, "SunGard set up the mechanics that got tested when the deals fell apart."
Setting the PE standard
Lear Corp., Netsmart Technologies Inc. and Topps Co.
One judge pondered the mechanics of buyouts at length. Delaware's Strine issued four key decisions on PE sales, three of which came at the peak of the cycle and displayed a skepticism of all actors in the process and, implicitly, a belief that targets have a reasonable chance at a better deal.
In the first, Strine largely endorsed the auction Toys 'R' Us Inc. used to sell to Texas Pacific Group and Warburg Pincus in 2005. "It is not the concern of our law to set up a process that promotes endless incremental bidding," he wrote. "To do so risks creating an incentive for a lower initial deal price because initial buyers will have less closing certainty."
But in 2007, Strine offered more ambivalent assessments of the proposed buyouts of Netsmart Technologies Inc., Topps Co. and Lear Corp., closely scrutinizing the conditions of a sale. In Netsmart, he noted that as a technology company with a market capitalization of about $100 million, the target was unlikely to attract unsolicited bids from larger rivals once it had agreed to sell in a leveraged buyout.
Strine offered a nuanced view of Topps' sale. The trading card company agreed to a deal with Michael Eisner that included a go-shop clause giving Topps the right to seek out a higher bidder. So far, so good.
But the judge censured the Topps board for refusing to seriously consider a topping bid from industry rival Upper Deck Co. LLC, which, as Strine noted, had made halfhearted passes at Topps before, history that in a less frothy era might have made a judge sufficiently skeptical of Upper Deck to bless the conduct of the Topps board.
Lear ran the most thorough sales process of the three companies. The automotive parts company got rid of its poison pill in 2004. Cerberus Capital Management LP suggested an LBO of Lear at $17 a share in April 2006, but Lear CEO Robert Rossiter rejected the idea.
That was the right call; Rossiter agreed to sell the company to 24% shareholder Carl Icahn for $36 a share in 2007. That wasn't good enough for Strine. He ordered Lear to make additional disclosures on the CEO's talks with the board about restructuring his pension and expressed dismay that the board had not watched Rossiter more closely as he negotiated the deal.
Strine did recognize a good price when he saw it. Lear shareholders did not. They rejected the deal. As of early March, Lear traded at about 50 cents a share.
Strine's four buyout rulings are among the most thorough descriptions of LBOs yet to appear. They're also part of Delaware corporate law, and as such their meaning will continue to evolve as lawyers interpret them in different contexts. Beyond that, they show the influence of the broader economy on corporate law. On Aug. 14, 2007, just a few weeks after the credit markets collapsed, Strine ruled that Inter-Tel Inc.'s board had the right to postpone the shareholder vote on its sale from June 29 to Aug. 2. Inter-Tel was poised to lose the earlier vote because Institutional Shareholder Services had recommended against a $723 million sale to Mitel Networks Corp. and Francisco Partners that Inter-Tel had taken over a higher but less certain offer.
The target's shareholders ended up accepting the deal. By August 2007, the world had changed for judges, shareholders and everyone else.
A trio of collapses
HD Supply, United Rentals Inc. and Hexion Specialty Chemicals-Huntsman
Targets provided the most vulnerable group of players. As Stillwell notes, when buyouts started coming apart, the SunGard template came into play. That template strongly favored the PE firms that crafted it.
The first buyout to come under pressure set the pattern for many that followed. In August 2007, Bain Capital, Carlyle and Clayton, Dubilier & Rice Inc. threatened to walk from their agreement to buy HD Supply from Home Depot Inc. for $10.3 billion. The buyers claimed the target had suffered a material adverse change that gave them the right to walk from a deal they had announced two months earlier. The funding banks lined up beside the buyers.
The merits of the claim mattered less than the parties' negotiating leverage. If buyers walked and Home Depot sued, the most it could have recovered was the $310 million reverse termination fee set out in the sale agreement. But Home Depot wanted the deal and accepted a $1.8 billion price cut to complete it. Home Depot turned out to be lucky.
Many buyers walked rather than renegotiate deals whose pricing no longer made sense. Some paid reverse termination fees; others invested token amounts in the spurned seller; a few escaped scot-free.
Two such standoffs led to trials in Chancery. In December 2007, Chancellor William Chandler III ruled that Cerberus could walk from its $6.6 billion agreement to buy United Rentals Inc. upon payment of a $100 million breakup fee. Chandler called the matter "a good, old-fashioned contract case prompted by buyer's remorse" but found that motive irrelevant in a situation where the merger agreement didn't give the seller the right to seek specific performance.
Huntsman Corp.'s fight to force Hexion Specialty Chemicals Inc. to complete its purchase of Huntsman was long, nasty and convoluted -- the perfect end to a stunning chapter in U.S. finance. Huntsman agreed to sell to Basell NV in June 2007 but accepted a topping bid from Hexion, a portfolio company of Apollo Management LP.
As both credit and chemicals markets deteriorated last spring, Apollo sought a way out of the deal and obtained an opinion from Duff & Phelps Corp. stating Hexion would be insolvent if it closed the deal.
After six days of trial, Vice Chancellor Stephen Lamb found that Hexion had "knowingly and intentionally" breached the agreement. Huntsman had not suffered an MAE, Lamb ruled, leaning heavily on Strine's opinion in IBP Inc. Huntsman finally agreed to let Apollo off the hook in December after payment of $750 million and the purchase of $250 million in Huntsman debt. Huntsman continues to pursue claims in Texas state court against Deutsche Bank AG and Credit Suisse Group, the funding banks.
The week the Huntsman trial ended, a new era in dealmaking -- and, quite possibly, in U.S. history -- began with the bankruptcy of Lehman Brothers Holdings Inc. Some of the old lessons proved immediately relevant. Pfizer Inc. and Wyeth, for example, followed the Neiman Marcus Group Inc. leveraged buyout by barring specific performance and agreeing to a two-tier reverse termination fee in their January agreement. And Pfizer is paying enough cash that its shareholders don't have a vote, perhaps because the parties to the deal wanted to avoid giving them the veto VNU stockholders used to thwart the IMS Health merger. Other lessons will become relevant or irrelevant as time passes and conditions change. It's why we have lawyers and judges.
By David Marcus
thedeal.com
Published March 20, 2009 at 2:00 PM
Every era in dealmaking has its landmark mergers whose implications M&A professionals spend years pondering and whose lessons shape the advice they give to clients. Some of the deals result in significant legal decisions; some are embedded in merger agreements whose terms become standard; some mark significant changes in tactics.
With the M&A market in a deep slump, it's an opportune time to look back on the signal deals between 2000 and 2008 -- or, put another way, between Time Warner Inc.'s 2000 merger with America Online Inc. and J.P. Morgan Chase & Co.'s 2008 shotgun purchase of Bear Stearns Cos. The two transactions bookend a period in which three trends had a powerful impact on M&A case law and contract drafting: the rise of private equity; increasing shareholder activism; and a shift in how hostile deals were done.
Time Warner's $105 billion merger with AOL signaled the peak of an M&A market cycle. A big, bold stock swap meant to transform both companies, it was emblematic of the deals of the second half of the '90s. This wasn't necessarily a compliment. Less than three months after Time Warner CEO Gerald Levin and his AOL counterpart, Steve Case, preened for the cameras, the equity boom that fueled such deals topped out as steep declines in stock indexes sapped M&A. And the AOL deal turned out to be a disaster.
After AOL, a different deal market took shape. Cheap debt replaced cheap equity, which gave a big role to private equity. In late 2002, Blackstone Group LP agreed to buy TRW Inc.'s automotive parts unit for $4.7 billion. The deal was a sideshow to Northrop Grumman Corp.'s hostile takeover of TRW, though at the time it was the largest leveraged buyout since that of RJR Nabisco Inc. in 1989. By the time the buyout frenzy reached its zenith in 2007, PE had moved from periphery to center, and an LBO of that size would have elicited yawns.
There were other currents at work as well. In part because of the failures of so-called transformative combinations such as AOL-Time Warner, imperial CEOs became objects of derision, a change hastened by the fraud and failure of companies such as Enron Corp. and WorldCom Inc. Skepticism of CEOs made it harder for target companies to resist hostile bids. As CEOs lost power, shareholders, particularly the increasing numbers of hedge funds, seized it, demanding that companies remove poison pills, eliminate staggered boards and subject management to more vigorous board oversight. Shareholders became more inclined to throw their weight around after the announcement of a deal.
Though shareholders continued to fixate over takeover defenses, target managements and boards rarely used them to thwart hostile bids. Instead, targets wielded defenses to extract the best possible offer, a trend captured by two watershed deals where determined bidders outlasted intransigent targets: Weyerhaeuser Co.'s pursuit of Willamette Industries Inc., which ended in 2002, and Oracle Corp.'s of PeopleSoft Inc., which closed in 2004.
These trends reinforced each another. Shareholder opposition to aggressive takeover defenses not only led to the demise of the spectacular pitched battles of the '80s; it also made managers more receptive to private equity, which offered freedom from the prying eyes of analysts, the intrusive reach of shareholders and the possibility, if successful, of reaping staggering paydays. But shareholders quickly became as suspicious of LBOs as they had been of takeover defenses and by the last year of the boom were winning price bumps from buyers after a deal was signed up -- in retrospect, just another sign of the impending bubble.
Here, then, are the M&A deals that defined one of the great boom periods in American dealmaking.
The taming of the hostile bid
Weyerhaeuser Co. -- Willamette Industries Inc.; Northrop Grumman Corp. -- TRW Inc.; and Oracle Corp. -- PeopleSoft Inc.
Hostile bids were the central issue in M&A law in the 1980s and the first half of the 1990s. In 10 years of jurisprudence, Delaware's Court of Chancery and Supreme Court never definitively answered whether a target could flatly reject a hostile bid regardless of price -- could "just say no," in a phrase dealmakers lifted from Nancy Reagan's anti-drug campaign. Many state legislatures, including those in Pennsylvania and Ohio, passed statutes that expressly gave target boards that right.
The second half of the 1990s threw little light on the issue. "By the end of the 1990s, we'd come to the conclusion that the cases in which the Delaware courts have overturned pills were unusual," says Richard Hall, a partner at Cravath, Swaine & Moore LLP in New York who represented Portland, Ore.-based Weyerhaeuser on the Willamette bid. "So by the late 1990s, if a client asked you how to do a hostile and you saw a staggered board and a pill, particularly in a jurisdiction with a constituency statute, you said the client had to be prepared to go through two years of a proxy fight. We all knew what to do, but no one did it."
Well, almost no one. In 1996, U.S. Surgical Corp. made a $262 million hostile bid for Circon Corp. The bidder won two seats on Circon's staggered seven-member board in 1997 but dropped the bid when it agreed to sell to Tyco International Ltd. in 1998. Shareholder rights advocates pointed to Circon as a prime example of the abuse of takeover defenses.
Two years later, Weyerhaeuser offered $5.2 billion for crosstown papermaking rival Willamette, which rejected the bid. Weyerhauser launched a tender offer within weeks and picked up 48% of the target's shares, then ran a proxy fight and won three seats. The key break may have come in September 2001, almost a year after Weyerhaeuser's bid, when a Willamette founding family member and leading shareholder urged the company to explore a sale. Richard Clark, the representative of the estate of Maurie Dooly Clark, son of Willamette's founders, hoped to settle Clark's estate and said he would back a sale if Weyerhaeuser raised its bid to $55 a share, from $50. The companies agreed on $55.50 per share on Jan. 22, 2002.
A month later, Northrop Grumman Corp. launched a $5.9 billion bid for Cleveland-based TRW Inc. worth $47 a share. As an Ohio corporation, the Cleveland-based aerospace and automotive group had the statutory right to "just say no," to take into account interests of constituencies other than shareholders and to install aggressive takeover defenses.
But instead of digging in, TRW responded by saying it would sell its aeronautical unit and spin out its automotive business. Northrop raised its bid, TRW opened its books and the parties signed a deal at $60 per share on July 1, little more than four months after Northrop launched its bid. TRW agreed to sell its aeronautical systems unit to Goodrich Corp. for $1.5 billion in June, and Blackstone Group LP paid $4.7 billion for the automotive parts unit in November.
"In TRW," says Andrew Bogen, a retired partner at Gibson, Dunn & Crutcher LLP in Los Angeles who represented Northrop, "we got to act on a theory that I had always held, which is that takeover laws didn't change the equation in any important way. I always thought all the pressure a target board would come under would be the same for both a Delaware and a Ohio company."
TRW didn't adopt a scorched-earth defense. PeopleSoft Inc. CEO Craig Conway, also a Bogen client, did in his quest to fend off a bid for the business software company from Oracle Corp. Conway personalized the battle from the June 2003 day when Oracle CEO Larry Ellison announced an offer at a scant 10% premium. Conway called the bid "atrociously bad behavior from a company with a history of atrociously bad behavior." He urged the U.S. Department of Justice to file suit to stop the bid on antitrust grounds. Claiming Oracle sought to ruin PeopleSoft by scaring off customers, Conway had his lawyers develop a so-called customer assurance program in which PeopleSoft customer contracts had clauses that would require that a buyer meet certain conditions or be liable to customers for as much as 5 times the fee paid to license PeopleSoft software.
A federal judge ruled for Oracle after a trial on the antitrust case, setting the stage for a showdown between Ellison and Conway in Delaware's Court of Chancery in October 2004. On the eve of the trial, PeopleSoft's board fired Conway, who somehow refrained from bashing his former employer when he testified before Vice Chancellor Leo E. Strine Jr. Two days later, the judge asked Ellison about Conway's comparison of him to Genghis Khan. Ellison called the Khan "an illiterate Mongol but a hell of general."
But the personalities in the case didn't determine the outcome. After seizing control from Conway, the PeopleSoft board tried to get the best deal it could for shareholders. Despite low-balling the target in its initial bid and threatening to reduce its offer, Oracle agreed to pay $24.50 a share. Strine nudged the parties to come to an agreement but never issued a ruling in what might have been the most important takeover case in a decade. Takeover practice had become so routinized that even the Genghis Khan of Silicon Valley couldn't upset its dictates.
"Since Weyerhaueser and Oracle, we have seen a drop in the use of staggered boards, and I think we've seen a shift in the attitude of hostile bidders and targets," Hall says. "I wonder if the impact of these two deals is that targets just won't try to dig in their heels any more because they know they'll eventually lose. If you're a target, put the buyer to a meaningful test and then get the best price you can."
Shareholders step up
VNU NV and IMS Health Inc.
The rise of shareholder activism has long been one of the most powerful trends in U.S. corporate governance. Institutional investors have held an ever-increasing percentage of the equity of U.S. companies and have become steadily more vocal since the early '80s. As Hall, Bogen and numerous others note, shareholder opposition to poison pills, staggered boards and other takeover defenses have reduced the number of situations where targets try to thwart a bidder. Shareholder pressure has helped lead to a reduction in average CEO tenure and drive the leveraged buyout boom as CEOs found working for PE firms more appealing than answering to public markets.
Pervasive as its effect have been, shareholder power has grown over time, perhaps because shareholders have only a few basic rights. They elect directors and may remove those they deem unworthy. Target shareholders have a vote on mergers and may decide whether to tender their shares into an offer. Shareholders of would-be acquirers listed on U.S. exchanges have a vote on a deal if the buyer is issuing more than 20% of its outstanding stock in the transaction.
This is the right shareholders of VNU NV used to kill the market research company's proposed acquisition of IMS Health Inc. in 2005 for $6.9 billion in stock. Fidelity Management & Research Co. and Templeton Global Advisors Ltd., which respectively owned 15% and 14% of VNU, came out against the deal on Sept. 30, 2005, two months after it was announced; six weeks later the companies parted ways. They didn't even bother putting the deal to shareholders. VNU was listed in the U.S. but based in the Netherlands, which may have made Fidelity's decision to oppose the deal easier; the mutual fund giant has historically shied away from pressuring U.S. companies publicly.
VNU's shareholders weren't finished. The company agreed to sell for $10.3 billion to a private equity consortium that included AlpInvest Partners NV, Blackstone Group LP, Carlyle Group, Hellman & Friedman LLC, Kohlberg Kravis Roberts & Co. and Thomas H. Lee Partners LP in March 2006. Shareholders said the offer was too low, and Institutional Shareholder Services Inc. agreed, forcing the buyers to sue for peace by hiking their bid to €29.50 ($38.15) from €28.75 per share -- a gambit that became common in the final 18 months of the PE boom.
The sale also illustrates two effects of private equity on M&A: the symbiotic relationship between activist shareholders and LBO firms and the rise of buyout activity in Europe, which for several years in this decade topped U.S. levels.
MAEs made clear
Tyson Foods Inc. -- IBP Inc.
Despite its robust body of jurisprudence on defenses in hostile bids, Delaware has little case law on when a buyer may walk from a merger agreement. Strine issued the most important ruling in at least the past decade when he forced Tyson Foods Inc. to complete its purchase of IBP Inc. in 2001. By finding that IBP had not suffered a so-called material adverse effect, the judge showed a reluctance to let a buyer walk from an agreement absent a clear right to do so in an opinion that significantly affected M&A practice.
"For so many years, people would come to me asking, 'Can I sue to get out of this deal?' and I would advise them based on the specific language of their contract, but everyone was kind of guessing because no one had ever pulled the trigger," by trying to walk from a deal, says Alan Stone, who joined Milbank, Tweed, Hadley & McCloy LLP in New York after practicing for 20 years at Morris, Nichols, Arsht & Tunnell LLP in Wilmington. "It was potentially too devastating for someone to try to back out of the deal, given the magnitude of the damages. IBP really set the standard for all the MAC cases that came after it."
Tyson, a chicken processor, agreed to buy beef processor IBP for $4.7 billion on Jan. 1, 2001. The timing was unfortunate, since fears of mad cow disease in Europe generated lots of media coverage that month. Tyson walked from the deal March 29, saying it had been fraudulently induced to sign the agreement. IBP sued in Delaware to force Tyson to close the deal, and Strine heard a two-week trial in May.
Tyson argued that fraud at an IBP unit gave it the right to bail out. IBP countered by arguing that Tyson founder Don Tyson, the father of then-CEO John, decided to kill the deal because of mad cow fears. Strine chose the latter explanation and held that under the terms of the agreement Tyson couldn't walk merely because it was suffering from "buyer's remorse," a term that still echos in Delaware case law. The clause that allowed Tyson to walk if IBP suffered an MAE "is best read as a backstop protecting the acquirer from the occurrence of unknown events that subsequently threaten the overall earnings potential of a target in a durationally significant manner," Strine wrote in his opinion.
Tyson complied with the ruling and closed the deal; Richard Bond, IBP's chief executive, held the same position at Tyson from 2006 to January of this year.
The decision made clear that Chancery would award specific performance of a merger agreement. Many lawyers had wondered whether a judge would grant such an aggressive remedy. By doing so, Strine forced parties to focus even more closely on the negotiation of MAE clauses and other mechanisms allowing buyers to walk.
"IBP still looms huge," says Mark Gordon, a partner at Wachtell, Lipton, Rosen & Katz in New York. (Wachtell represented IBP, but Gordon did not work on the deal.) "The decision basically says buyers should understand that they will never be able to get out of a deal based on an MAE, and deal drafting since then has moved even further in the 'no out' direction. What you ended up with almost says there's no such thing as an MAE in Delaware. People basically agree with it and follow it. The practice with respect to MAEs has taken that further. The MAE definition in IBP was, in that case, about three lines, and now the typical definition is 25 to 40 lines. The increase is due to exceptions that narrows what an MAE was in IBP. As a result, people believe the MAE is like the unicorn -- something that doesn't exist in the real world."
The IBP view of the MAE, combined with the possibility of specific performance, affected the drafting of private equity contracts as well, Gordon says. However carefully merging parties crafted their MAE definition, sellers almost invariably retained the right to sue for specific performance. Buyout firms, on the other hand, did not want to be subject to that liability.
Setting the PE standard
Sungard Data Systems Inc.
The leveraged buyout craze of the 1980s flamed out soon after the RJR Nabisco Inc. buyout when First Boston Corp. was unable to sell hundreds of millions of dollars it had lent to the buyout of Ohio Mattress Co. The deal almost killed the firm, which had to sell to Credit Suisse Group to save itself. After the "burning-bed" episode, private equity became a much lower-profile, if profitable, business, where deals of more than $1 billion were rare and which accounted for 5% or less of M&A volume in most years.
Several factors combined to change that. Stock market declines in 2001 made many strategic buyers reluctant to use what they viewed as undervalued equity for acquisitions, meaning PE funds could compete with strategics on more equal footing. The strong performance of many funds in the 1990s helped them raise more money. And as the U.S. went into recession, the Federal Reserve Bank cut the prime rate from 9.5% in May 2000 to as low as 4% in June 2003, which reduced the PE funds' cost of borrowing.
PE gained momentum from 2002 to 2004, accounting for a larger share of the M&A market in each of those years. As PE firms targeted larger public companies, lawyers had to adapt. After the burning bed, buyout shops and lenders realized the importance of the ability to walk if financing fell through and demanded such a right. PE buyers also saw that they would suffer damage to reputations if they used the financing out to walk and rarely threatened to do so.
But there was a critical exception in 2002 when Diageo plc agreed to sell Burger King Corp. to TPG Capital, Bain Capital LLC and Goldman Sachs Capital Partners for $2.25 billion. The fast-food chain missed performance targets set out in the agreement, and the buyers extracted a 37% price cut from Diageo. Technically, the acquirer was a shell, but the buyers' lawyers were still concerned about the liability of their PE clients if they walked. "We were facing a situation where if the deal went down, we called a [material adverse change] and we were wrong, we were facing a small chance on a large liability," says R. Newcomb Stillwell, a partner at Ropes & Gray LLP in Boston who represented Bain. "Everyone for the first time in a significant way asked if the old technology worked as well as we thought in the context of what was a very large deal at the time. Did the threat of a small chance of a large loss give the seller too much leverage?"
The PE firms wanted to retain their financing out and make absolutely clear that the parent would not be liable for specific performance even if it violated the terms of a contract by walking. They got their wish in a series of deals announced in spring of 2005, most importantly the $10.6 billion buyout of SunGard Data Systems Inc. That deal established as a market standard the reverse termination fee, a provision in the contract that allows the buyer to walk for any reason upon payment of a fee that was usually set at about 3% of deal value to correspond with the breakup fee the bidder would receive from a target that took a better offer. Seen another way, the reverse breakup fee acted as a cap on the bidder's damages, an aspect of the structure that became critical when lending markets collapsed in 2007.
SunGard became a landmark in part because so many advisers had a hand in the deal. Silver Lake Partners LP led a consortium of buyers that included Bain, Blackstone Group LP, Kohlberg Kravis Roberts & Co., TPG, Goldman Sachs and Providence Equity Partners Inc., insuring that those PE shops and their lawyers were exposed to the papers on the deal and understood how they worked. The large number of partners in the buyout group required the creation of a so-called intersponsor agreement that detailed how they would run SunGard and became standard in the many club deals that followed.
Parties in other deals did reach different resolutions on the issue of buyer liability. Neiman Marcus Group Inc. established the concept of a two-tier breakup fee in its 2005 sale to TPG and Warburg Pincus, under which a welshing buyer would pay perhaps 3% of the deal's value if financing fell through and a higher percentage, say 4.5%, if it walked for a reason not otherwise permitted under the merger agreement. A few companies such as Avaya Inc. and Michaels Stores Inc. that sold in robust auctions even got private equity buyers to allow for specific performance.
Despite these exceptions, Stillwell says, "SunGard set up the mechanics that got tested when the deals fell apart."
Setting the PE standard
Lear Corp., Netsmart Technologies Inc. and Topps Co.
One judge pondered the mechanics of buyouts at length. Delaware's Strine issued four key decisions on PE sales, three of which came at the peak of the cycle and displayed a skepticism of all actors in the process and, implicitly, a belief that targets have a reasonable chance at a better deal.
In the first, Strine largely endorsed the auction Toys 'R' Us Inc. used to sell to Texas Pacific Group and Warburg Pincus in 2005. "It is not the concern of our law to set up a process that promotes endless incremental bidding," he wrote. "To do so risks creating an incentive for a lower initial deal price because initial buyers will have less closing certainty."
But in 2007, Strine offered more ambivalent assessments of the proposed buyouts of Netsmart Technologies Inc., Topps Co. and Lear Corp., closely scrutinizing the conditions of a sale. In Netsmart, he noted that as a technology company with a market capitalization of about $100 million, the target was unlikely to attract unsolicited bids from larger rivals once it had agreed to sell in a leveraged buyout.
Strine offered a nuanced view of Topps' sale. The trading card company agreed to a deal with Michael Eisner that included a go-shop clause giving Topps the right to seek out a higher bidder. So far, so good.
But the judge censured the Topps board for refusing to seriously consider a topping bid from industry rival Upper Deck Co. LLC, which, as Strine noted, had made halfhearted passes at Topps before, history that in a less frothy era might have made a judge sufficiently skeptical of Upper Deck to bless the conduct of the Topps board.
Lear ran the most thorough sales process of the three companies. The automotive parts company got rid of its poison pill in 2004. Cerberus Capital Management LP suggested an LBO of Lear at $17 a share in April 2006, but Lear CEO Robert Rossiter rejected the idea.
That was the right call; Rossiter agreed to sell the company to 24% shareholder Carl Icahn for $36 a share in 2007. That wasn't good enough for Strine. He ordered Lear to make additional disclosures on the CEO's talks with the board about restructuring his pension and expressed dismay that the board had not watched Rossiter more closely as he negotiated the deal.
Strine did recognize a good price when he saw it. Lear shareholders did not. They rejected the deal. As of early March, Lear traded at about 50 cents a share.
Strine's four buyout rulings are among the most thorough descriptions of LBOs yet to appear. They're also part of Delaware corporate law, and as such their meaning will continue to evolve as lawyers interpret them in different contexts. Beyond that, they show the influence of the broader economy on corporate law. On Aug. 14, 2007, just a few weeks after the credit markets collapsed, Strine ruled that Inter-Tel Inc.'s board had the right to postpone the shareholder vote on its sale from June 29 to Aug. 2. Inter-Tel was poised to lose the earlier vote because Institutional Shareholder Services had recommended against a $723 million sale to Mitel Networks Corp. and Francisco Partners that Inter-Tel had taken over a higher but less certain offer.
The target's shareholders ended up accepting the deal. By August 2007, the world had changed for judges, shareholders and everyone else.
A trio of collapses
HD Supply, United Rentals Inc. and Hexion Specialty Chemicals-Huntsman
Targets provided the most vulnerable group of players. As Stillwell notes, when buyouts started coming apart, the SunGard template came into play. That template strongly favored the PE firms that crafted it.
The first buyout to come under pressure set the pattern for many that followed. In August 2007, Bain Capital, Carlyle and Clayton, Dubilier & Rice Inc. threatened to walk from their agreement to buy HD Supply from Home Depot Inc. for $10.3 billion. The buyers claimed the target had suffered a material adverse change that gave them the right to walk from a deal they had announced two months earlier. The funding banks lined up beside the buyers.
The merits of the claim mattered less than the parties' negotiating leverage. If buyers walked and Home Depot sued, the most it could have recovered was the $310 million reverse termination fee set out in the sale agreement. But Home Depot wanted the deal and accepted a $1.8 billion price cut to complete it. Home Depot turned out to be lucky.
Many buyers walked rather than renegotiate deals whose pricing no longer made sense. Some paid reverse termination fees; others invested token amounts in the spurned seller; a few escaped scot-free.
Two such standoffs led to trials in Chancery. In December 2007, Chancellor William Chandler III ruled that Cerberus could walk from its $6.6 billion agreement to buy United Rentals Inc. upon payment of a $100 million breakup fee. Chandler called the matter "a good, old-fashioned contract case prompted by buyer's remorse" but found that motive irrelevant in a situation where the merger agreement didn't give the seller the right to seek specific performance.
Huntsman Corp.'s fight to force Hexion Specialty Chemicals Inc. to complete its purchase of Huntsman was long, nasty and convoluted -- the perfect end to a stunning chapter in U.S. finance. Huntsman agreed to sell to Basell NV in June 2007 but accepted a topping bid from Hexion, a portfolio company of Apollo Management LP.
As both credit and chemicals markets deteriorated last spring, Apollo sought a way out of the deal and obtained an opinion from Duff & Phelps Corp. stating Hexion would be insolvent if it closed the deal.
After six days of trial, Vice Chancellor Stephen Lamb found that Hexion had "knowingly and intentionally" breached the agreement. Huntsman had not suffered an MAE, Lamb ruled, leaning heavily on Strine's opinion in IBP Inc. Huntsman finally agreed to let Apollo off the hook in December after payment of $750 million and the purchase of $250 million in Huntsman debt. Huntsman continues to pursue claims in Texas state court against Deutsche Bank AG and Credit Suisse Group, the funding banks.
The week the Huntsman trial ended, a new era in dealmaking -- and, quite possibly, in U.S. history -- began with the bankruptcy of Lehman Brothers Holdings Inc. Some of the old lessons proved immediately relevant. Pfizer Inc. and Wyeth, for example, followed the Neiman Marcus Group Inc. leveraged buyout by barring specific performance and agreeing to a two-tier reverse termination fee in their January agreement. And Pfizer is paying enough cash that its shareholders don't have a vote, perhaps because the parties to the deal wanted to avoid giving them the veto VNU stockholders used to thwart the IMS Health merger. Other lessons will become relevant or irrelevant as time passes and conditions change. It's why we have lawyers and judges.
Thursday, March 05, 2009
Lessons Unlearned
Empire Falls
They called it “the American Century,” but the past hundred years actually saw a shift away from Western dominance. Through the long lens of Edward Gibbon’s history, The Decline and Fall of the Roman Empire, Rome 331 and America and Europe 2006 appear to have more than a few problems in common.
by Niall Ferguson October 2006
vanityfair.com
The decline of Rome was the natural and inevitable effect of immoderate greatness. Prosperity ripened the principle of decay; the causes of destruction multiplied with the extent of conquest. —Edward Gibbon, The Decline and Fall of the Roman Empire, “General Observations on the Fall of the Roman Empire in the West.”
I. It was 230 years ago that Edward Gibbon published the first volume of The Decline and Fall of the Roman Empire, a work conceived, as he put it, “amidst the ruins of the Capitol” in Rome. It was among the shining and still-intact buildings of another capital that I began (presumptuously, no doubt) to imagine a sequel that might be written: the history of the decline of the West, meaning that distinctive complex of beliefs and institutions which originated with the Greeks, was planted across Europe by the Romans, embraced Christianity under the Emperor Constantine, and crossed to the New World with Columbus.
The idea of Western decline is hardly a new one. In the aftermath of the First World War, a prematurely retired German schoolteacher named Oswald Spengler published the first volume of one of the most influential books of the 20th century, Der Untergang des Abendlandes, usually translated as The Decline of the West. These days, however, few people bother with Spengler; his prose is too turgid, his debt to the philosopher Friedrich Nietzsche too large, his influence on the Nazis (for whom he voted but against whom he later turned) too obvious. And no one takes seriously his idiosyncratic theory that civilizations, like the weather, pass through seasons. In any case, events since 1945 have tended to discredit Spengler’s central idea of a Western downfall. It has seemed much more convincing—and perhaps also more gratifying—to portray the history of the 20th century as part of a protracted Occidental ascendancy. “Much of the last three centuries,” wrote the late British historian J. M. Roberts in his book Triumph of the West, published in 1985, “is the story of a triumph of the outright power of the West.” But not only a triumph of Western power, he argued—above all, the triumph of Western civilization.
Just four years later, the 20th century appeared to culminate in a comprehensive Western victory, with the breakup of the Soviet empire in Eastern Europe and the collapse of the Soviet Union itself. Famously, on the very eve of those events, Francis Fukuyama, professor at Johns Hopkins University, was moved to proclaim “the end of history” and the victory of the Western model of liberal and democratic capitalism. Far from suffering its downfall in the 20th century, as Spengler had anticipated, the West appeared to attain its historic zenith. Neoconservatives in the United States, intoxicated by their country’s unrivaled status as a “hyperpower” and its achievement of “full-spectrum dominance” in warfare, wondered only how American primacy could be perpetuated for another “American century.”
Yet in many ways this inversion of Spengler is a fundamental misreading of the trajectory of the last hundred years. Far from being a time of Western ascendancy, the past century has in reality witnessed something more like a re-orientation of the world—albeit only a partial re-orientation—and the relative decline of the West.
In 1900 the West really did rule the world. From the Bosporus to the Bering Strait, from Siberia to Ceylon, nearly all of what was then known as the Orient was under some form of Western imperial rule. The British had long ruled India, the Dutch the East Indies, and the French Indochina; the Americans had just seized the Philippines; the Russians aspired to control Manchuria. All the imperial powers had established parasitical outposts in China. The East, in short, had been subjugated, even if that process involved far more complex negotiations and compromises between rulers and ruled than used to be acknowledged.
Western hegemony was one of the great asymmetries of world history. Taken together, the metropoles of all the Western empires—the American, Belgian, British, Dutch, French, German, Italian, Portuguese, and Spanish—accounted for 7 percent of the world’s land surface and just 18 percent of its population. Their possessions, however, amounted to 37 percent of global territory and 28 percent of mankind. And if we regard the Russian empire as effectively another European empire extending into Asia, the total share of these Western empires rises to more than half the world’s area and population. This was a political globalization unseen before or since.
What enabled the minority in the West to rule the majority in the East in 1900 was not so much scientific knowledge in its own right as its systematic application to both production and destruction. By contrast, the empires of the East, from the Ottoman to the Qing, failed disastrously to modernize themselves. Their economies remained trapped in subsistence agriculture while the West forged ahead, colonizing and industrializing, devouring sugar and burning coal. Their tax systems were inefficient, forcing Oriental rulers to borrow from Western capital bankers. Eastern armies remained long on pageantry and short on firepower, while the West could deploy well-drilled troops equipped with machine guns and heavy artillery. Eastern navies stood no chance against the Western combination of steam and steel.
Nothing symbolized better the humiliation of the East than the Western military intervention to suppress the Boxer Rebellion, in China, in 1900. The rebels, who had menaced Western diplomats and missionaries, relied on martial arts and magic. Having wiped them out, the Western expeditionary force staged a “grand march” through Beijing’s Forbidden City and then undertook punitive raids deep into Shanxi Province, Inner Mongolia, and Manchuria.
Just a few years later, however, the East began to re-assert itself. Japan’s defeat of Russia on land and at sea in 1904–5 marked a turning point in world history. From that point on, the balance of geopolitical power began to turn, slowly and painfully, back toward the more populous part of the world. It is only when the extent of Western dominance in 1900 is appreciated that the true narrative arc of the 20th century reveals itself. This was not “the triumph of the West,” but rather the crisis of the European empires, the ultimate result of which was the revival of the East—beginning in Japan—and the relative decline of the West.
This has not been a decline in the sense that Spengler envisaged: a kind of corrosive metropolitan ennui. Rather, it has been an unexpected but inexorable military decline. It has been a scarcely perceptible economic decline. It has been a subtle but unmistakable cultural decline. Above all, it has been a creeping demographic decline. In short, it has been a decline in precisely the sense that Gibbon understood the decline of Rome’s empire.
According to Gibbon, Rome fell through a combination of external overreach, internal corruption, religious transformation, and barbarian invasion. That the United States—and, perhaps even more, the European Union—might have something to learn from his account is too seldom acknowledged, perhaps because Americans and Europeans like to pretend that their polities today are something more exalted than empires. But suppose for a moment (as the Georgetown University historian Charles Kupchan has suggested in The End of the American Era) that Washington really is the Rome of our time, while Brussels, the headquarters of the European Union, is Byzantium, the city transformed in the fourth century into the second imperial capital, Constantinople. Like the later Roman Empire, the West today has its Western and Eastern halves, though they are separated by the Atlantic rather than the Adriatic. And that is not the only thing we have in common with our Roman predecessors of a millennium and a half ago.
II. The Romans … had acquired the virtues of war and government; by the vigorous exertion of those virtues … they had obtained, in the course of the three succeeding centuries, an absolute empire over many countries.… The limits of the Roman empire still extended from the Western Ocean to the Tigris … but the animating health and vigour were fled.… The barbarians … soon discovered the decline of the Roman empire. —Gibbon, Chapter VII.
There is a well-established American tradition, perhaps best expressed by Gore Vidal in The Decline and Fall of the American Empire, of worrying that the United States might go the way of Rome. But the perennial liberal fear is of the early Roman predicament more than the late one. It is the fear that the republican institutions of the United States—above all, its hallowed Constitution, based on the careful separation of powers—could be corrupted by the ambitions of an imperial presidency. Every time a commander in chief attempts to increase the power of the executive branch, pleading wartime exigency, there is a predictable chorus of “The Republic is in danger.” We have heard that chorus most recently with respect to the status of prisoners detained without trial at Guantánamo Bay and the use of torture in the interrogation of suspected insurgents in Iraq.
Gibbon could scarcely ignore the question of the Roman republic’s decay. Indeed, there is an important passage in The Decline and Fall that specifically deals with the revival of torture as a tool of tyranny. Few generations of Englishmen were more sensitive than Gibbon’s to the charge that their own ideals of liberty were being subverted by the temptations of empire. The year when his first volume appeared was also the year the American colonies used precisely that charge to justify their own bid for independence.
Yet Gibbon’s real interest lay elsewhere, with the period of Roman decline long after republican virtue had yielded to imperial vice. The Decline and Fall is not concerned with the fall of the republic. It is a story that properly begins with the first signs of imperial overstretch. Until the time of the Emperor Julian (A.D. 331–63), Rome could still confidently send its legions as far as the river Tigris. Yet Julian’s invasion of Mesopotamia (present-day Iraq, but then under Persian rule) proved to be his undoing. According to Gibbon, he had resolved, “by the final conquest of Persia, to chastise the haughty nation which had so long resisted and insulted the majesty of Rome.” Although initially victorious at Ctesiphon (approximately 20 miles southeast of modern Baghdad), Julian was forced by his enemy’s scorched-earth policy to retreat back to Roman territory. “As soon as the flames had subsided which interrupted [his] march,” Gibbon relates, “he beheld the melancholy face of a smoking and naked desert.” The Persians harried his famished legions as they withdrew. In one skirmish, Julian himself was fatally wounded.
What had gone wrong? The answer sheds revealing light on some of the problems the United States currently faces in the same troubled region. A recurrent theme of Gibbon’s work is that the Romans gradually lost “the animating health and vigour” which had made them militarily invincible in the glory days of Julian’s predecessor Trajan. They had lost their discipline. They started complaining about the weight of their armor. In a word, they had gone soft. At the same time, like most armies, their fighting effectiveness diminished the farther they were from home.
Most of us take it for granted that the United States Army is the best in the world. It might be more accurate to say that it is the best equipped and the best fed. More doubtful is how well it is configured to win a protracted low-intensity conflict in a country such as Iraq. One sign of the times that might have amused Gibbon has been the recent relaxation of conditions for recruits undergoing basic training. (A friend of mine who was in the army snorted with derision on hearing that trainees are now allowed eight and a half hours of sleep a night.) Another symptom of military malaise has been the heavy reliance of the Defense Department on National Guard and reserve troops, who have at times accounted for about half of the U.S. contingent deployed in Iraq.
The real problem, however, is a simple matter of numbers. To put it bluntly, the United States has a chronic manpower deficit, which means it cannot put enough boots on the ground to maintain law and order in conquered territory. This is not because it lacks young men; it has at least seven times as many as Iraq. It is that it chooses, for a variety of reasons, to employ only a tiny proportion of its population (half of 1 percent) in its armed forces, and to deploy only a fraction of these in overseas conflict zones.
In 1920, to illustrate the difficulty, when British forces quelled a major insurgency in Iraq, they numbered around 135,000. Coincidentally, that is very close to the number of American military personnel currently in that country. The trouble is that the population of Iraq was just over 3 million in 1920, whereas today it is around 26 million. Thus the ratio of Iraqis to foreign forces in 1920 was, at most, 23 to 1. Today it is around 210 to 1. To arrive at a ratio of 23 to 1, roughly one million American troops would be needed. Reinforcements on that scale are, needless to say, inconceivable.
This is the reality of what Michael Ignatieff, the Canadian Liberal politician and scholar, has called “empire lite” in his book of that name. In theory, the American military is a lean and mean fighting machine. In practice, however, downsizing has left it with too few combat soldiers to make a success of imperial policing—a labor-intensive task that renders redundant much of its high-tech hardware.
III. The tranquil and prosperous state of the empire was warmly felt, and honestly confessed, by the provincials as well as Romans.… It was scarcely possible that the eyes of contemporaries should discover in the public felicity the latent causes of decay and corruption. —Gibbon, Chapter II.
You are still not convinced. So, you say, the war in Iraq is not going well. But what about the bigger picture? How can the West possibly be regarded as being in decline when it is so economically dominant in the world? Today the combined output of the six biggest Western economies—Canada, France, Germany, Italy, the United Kingdom, and the United States—exceeds half of total global output. Gross domestic product (G.D.P.) per capita in the United States is more than 30 times higher than it is in the economies of East Asia and the Pacific.
Yet the difference between the West and the Rest is much narrower than it once was. As recently as 1968, American G.D.P. per capita was 127 times higher than that of East Asia. By this measure alone, the gap between West and East has narrowed dramatically in our time. And it will continue to narrow. The International Monetary Fund estimates that the Chinese economy is growing at a rate roughly three times that of the United States. According to Goldman Sachs, China’s G.D.P. will overtake Britain’s this year. By 2041 it is likely to be the biggest economy in the world.
At the same time, the Western economies have vulnerabilities that have been largely obscured by the debt-financed boom of the past five years. America’s gross federal debt now exceeds $8.5 trillion, and if the Congressional Budget Office’s outlook turns out to be correct, we are just a decade away from a $12.8 trillion debt—more than double what President Bush inherited from his predecessor. Moreover, the officially stated borrowings of the federal government are only a small part of the U.S. debt problem. Ordinary American households, too, have gone on a borrowing spree of unprecedented magnitude. U.S. household credit-market debt has risen from just above 45 percent of G.D.P. in the early 1980s to more than 70 percent in recent years. The remarkable resilience of American consumer spending in the past 15 years has been based partly on a collapse in the personal savings rate from around 7.5 percent of income to below zero.
For demographic reasons, Americans need to be saving much more than this. According to the United Nations’ intermediate projections, male life expectancy in the United States will rise from 75 to 80 between now and 2050. The share of the American population that is aged 65 or over will rise from 12 percent to nearly 21 percent. By 2050 the elderly-dependency ratio (the ratio of the population aged 65 years or over to the population aged 15–64) could double. Only a minority of Americans have made adequate private provision for their retirement. That implies that most new retirees in the years ahead will depend to some extent on Social Security, Medicare, and Medicaid. Today, the average retiree receives benefits totaling $21,000 a year from these programs. Multiply that by 37 million (the current number of elderly Americans) and you can see why these programs already consume 42 percent of federal outlays.
All this implies that the federal government has much larger unfunded liabilities than official data imply. If you compare the current value of all projected future government expenditures—including debt-service payments—with the current value of all projected future government receipts, the gap is about $66 trillion, according to calculations by economists Jagadeesh Gokhale, of the Cato Institute, and Kent Smetters, professor at the Wharton School.
Americans, however, are not just borrowing from one another and, in effect, from the next generation. They are also, to a vast extent, borrowing from foreigners. In all but two years since 1992, the gap between the amount of goods and services the United States exports and the amount it imports has grown wider. This year, the current account deficit—which is largely a trade deficit—could rise as high as 7 percent of G.D.P., or nearly double its peak in the mid-1980s. The result is a remarkable accumulation of foreign debt. Estimates of the net international investment position of the United States—the difference between the overseas assets owned by Americans and the American assets owned by foreigners—have declined from a modest positive balance of 8 percent of G.D.P. in the mid-1980s to a huge net liability of minus 22 percent today. In other words, foreigners are accumulating large claims on the future output of the United States. Around 20 percent of corporate bonds are now in foreign hands, and nearly 10 percent of the U.S. stock market.
These are largely hidden weaknesses at present. Yet it cannot be a sign of Western strength that the annual bill for Social Security in the United States ($554 billion) is now larger than the bill for national security ($512 billion). And it cannot be a sign of imperial vigor that the United States needs to rely so heavily on foreign investors—including Asian central banks and Middle Eastern treasuries—to help finance a foreign policy that currently has minimal international support.
IV. The minds of men were gradually reduced to the same level, the fire of genius was extinguished.… The name of Poet was almost forgotten; that of Orator was usurped by the sophists. A cloud of critics, of compilers, of commentators, darkened the face of learning, and the decline of genius was soon followed by the corruption of taste.… This diminutive stature of mankind … was daily sinking below the old standard. —Gibbon, Chapter II.
Perhaps our most perplexing vulnerability, however, is cultural. Gibbon was acute in identifying literary decline as one symptom of a more profound Roman malaise. And if his barbed allusion to the “darkened … face of learning” does not immediately strike a chord, then some of the other symptoms may. While “the corrupt and opulent nobles of Rome gratified every vice that could be collected from the mighty conflux of nations and manners,” Gibbon wrote, “the most lively and splendid amusement of the idle multitude depended on the frequent exhibition of public games and spectacles.” Orgies and circuses are not precisely the favorite pastimes of Western society today. But if you substitute pornography and NASCAR, the parallel is not so far-fetched.
Outwardly, it is true, the institutions that exist to preserve and propagate our culture are in good shape. Never has the percentage of young people attending college been higher. Never have American universities dominated higher education and academic research as they do today. Our museums and concert halls offer more exhibitions and recitals than the enthusiast can possibly hope to attend. And to enter any branch of Barnes & Noble is to be overwhelmed by the sheer number of books being published.
Yet beneath this upper crust of high culture there simmers a less appetizing stew. Few children read for pleasure. Most boys would rather fritter away their time on brutalizing video games such as Grand Theft Auto. Girls no longer play with dolls; they are themselves the dolls, dressed according to the dictates of the fashion industry. Endlessly gaming, chatting, and chilling with their iPods, the next generation already has a more tenuous connection to “Western civilization” than most parents appreciate.
Gibbon’s argument against Roman “luxury” was in part that it sapped the empire’s martial strength. Here, too, there is a striking analogy. For our culture’s sedentary character—our strong preference for watching over doing, for virtual over real action—seems closely correlated to our changing physical shape. Gibbon’s Romans became metaphorical pygmies. We, by contrast, are being transformed into actual giants. We are certainly taller on average than past generations, a consequence of improvements in nutrition. But we are also wider, since we now consume significantly more fats and carbohydrates than we actually need. According to the standard measure of obesity, the body-mass index, the percentage of Americans classified as obese nearly doubled, from 12 percent to 21 percent, between 1991 and 2001. Nearly two-thirds of all American men are officially considered overweight, and nearly three-quarters of those between 45 and 64. Only Western Samoans and Kuwaitis are fatter.
V. The natives of Europe … no longer possessed that public courage which is nourished by the love of independence, the sense of national honor, the presence of danger, and the habit of command.… They … trusted for their defence to a mercenary army. The posterity of their boldest leaders was contented with the rank of citizens. —Gibbon, Chapter II.
Often fat and sometimes fatheaded, the new Romans of the United States are nevertheless less decadent than their counterparts in that part of the new West across the Atlantic, governed from the new Constantinople, Brussels. The United States remains a vigorously Christian country, thanks in part to the invigorating competition there has always been among its multiple denominations and sects. Americans also remain capable of a robust patriotism (though this seems to require regular foreign attacks on U.S. soil to be sustained). And—unlike the Romans—they still have a resilient work ethic.
Things are different in Europe. The Europeans have all but renounced warfare as a tool of policy. Their armies are puny, their weapons inferior. In some areas, standards of physical fitness are even lower than in Middle America. Take Scotland, the land of my birth. Male life expectancy in some parts of Glasgow is now as low as 54. There has been a 350 percent rise in alcohol-related deaths in the last two decades. About 13,000 people die from smoking-related diseases every year. More than a third of Scotland’s 12-year-olds are overweight or clinically obese.
While Americans work, young Europeans are to a remarkable extent idle. In Britain as a whole, more than 5 million adults of working age—nearly 15 percent of the workforce—are now dependent on benefits. Nearly half of those have been living on welfare for more than five years. The reason these people do not show up in the official unemployment statistics is that many of them are counted as unfit for work rather than jobless. Every day, 23 more teenagers in Britain sign up for “incapacity benefit.” This reflects a crisis of public education as much as of public health. As the Organization for Economic Cooperation and Development recently pointed out, an exceptionally large share of British pupils leave school without any qualifications at all. One in six British adults lacks the literacy skills of an 11-year-old. It may be technically correct that the incapacitated are not unemployed. The reality is that they are unemployable.
Most striking of all, Europe has become the world’s first post-Christian society. There was a time when Europe could justly refer to itself as “Christendom”; indeed, this was the most enduring legacy of both Rome and Byzantium. Europeans built the continent’s great cathedrals to accommodate their acts of worship. As pilgrims, missionaries, and conquistadores, they sailed to the four corners of the earth, intent on converting the heathens to the true faith. Now, however, it is they who are the heathens. According to the Gallup International Millennium Survey of religious attitudes, barely 20 percent of Western Europeans attend church services at least once a week, while 47 percent of North Americans and 82 percent of West Africans do. And fully 15 percent of Western Europeans deny that there is any kind of “spirit, God, or life force”—more than 7 times the American figure and 15 times the West African.
The exceptionally low level of British religiousness was perhaps the most striking revelation of a recent ICM Research poll. One in five Britons claims to “attend an organized religious service regularly,” less than half the American figure. And only 19 percent would be willing to die for his or her beliefs, while 71 percent of Americans say they would.
The de-Christianization of Britain is a relatively recent phenomenon, as British religious and cultural historian Callum Brown has shown. For most of the first half of the 20th century, Anglican Easter Day communicants accounted for between 5 and 6 percent of the population of England; it was only after 1960 that the proportion slumped to 2 percent. Figures for the Church of Scotland show a similar trend: steady until 1960, then falling by roughly half. As those figures suggest, British Protestants were not especially observant (compared, for example, with Irish Catholics), but until the late 1950s established-church membership, if not attendance, was relatively high and steady.
Prior to 1960, most marriages in England and Wales were solemnized in a church; then the slide began, down to around 40 percent in the late 1990s. Especially striking is the decline in confirmations of baptized children. Fewer than a fifth of those baptized are now confirmed, roughly half the figure for the period from 1900 to 1960.
Contrary to popular belief, it was not the British Catholic writer G. K. Chesterton who said, “When men stop believing in God, they don’t believe in nothing. They believe in anything.” But he could have said it. Chesterton viewed atheism with the utmost suspicion. Those who disbelieve in God on supposedly rational grounds, he argued, merely become prey to pseudo-religions and superstitions. His neatest formulation was in The Miracle of Moon Crescent, where he wrote, “You all swore you were hard-shelled materialists; and as a matter of fact you were all balanced on the very edge of belief—of belief in almost anything.” Evidence to support his point is now abundantly available in post-Christian Europe, where all kinds of New Age cults and irrational beliefs flourish. Otherwise intelligent people choose apartments on the basis of feng shui. They delude themselves into thinking that attendance at a concert will reduce poverty in Africa. They are simultaneously against poverty and against global warming, when it is precisely the reduction of poverty in Asia that is increasing emissions of carbon dioxide. Drawn to conspiracy theories as the ancients were to superstitions, some Europeans blame the U.S. government for rising sea levels (not to mention the 9/11 terrorist attacks).
With the decline of Christianity, Europe is also experiencing a rise in what politicians euphemistically call “antisocial behavior.” The restrained civility that was once a hallmark of English life has all but vanished, to be replaced by a startling rudeness. Profanity in the street and on television has become the norm. Once, a lifetime ago, an English writer warned of a future in which the state would keep the population under permanent surveillance. Today, George Orwell’s imaginary Big Brother is the name of a television series in which individuals volunteer for surveillance by the rest of the population. Far from being inhibited by their loss of privacy, they glory in mutual degradation. Shame has gone; so has civility. On Friday and Saturday nights, most English city centers become no-go zones where drunken, knife-wielding youths brawl with one another and the police. Another striking symptom of this new primitivism is the extraordinary surge in the popularity of tattoos, once associated with the unruly Picts of the Far North. In this modern decline and fall, it seems, at least some of the barbarians come from within the empire.
VI. A perpetual stream of strangers and provincials flowed into the capacious bosom of Rome. Whatever was strange or odious, whoever was guilty or suspected, might hope, in the obscurity of that immense capital, to elude the vigilance of the law.… It was the just complaint of the ingenuous natives that the capital had attracted the vices of the universe and the manners of the most opposite nations. —Gibbon, Chapters XV and XXXI.
Nothing changed Rome more than immigration. The same is true of the West today. But whereas a large proportion of immigrants to the United States come from countries that were colonized by Roman Catholics and quickly find jobs in America’s dynamic labor market, the situation in Europe is altogether different.
The demographic transformation of the West has its roots in feminism. Legislation against sex discrimination opened all kinds of careers to women that had previously been dominated by men. At the same time, the ready availability of contraception and abortion gave women an unprecedented control over their own fertility. Beginning in the late 1970s, the average Western European couple had fewer than two children. Today the figure is around 1.4, whereas it needs to be slightly higher than 2 for a population to remain constant. Europeans, quite simply, have ceased to reproduce themselves. The United Nations Population Division forecasts that, if Spanish fertility persists at such low levels, within 50 years the country’s population will decline by more than 4 million. The population of Italy will fall by a fifth. The overall reduction in native-born European numbers could be as much as 14 million. Not even two World Wars inflicted such an absolute decline in population.
Meanwhile, however, the combination of relative poverty and religious revival had a very different effect on Europe’s southern and eastern neighbors. Since the 1950s, according to U.N. figures, the crude birthrate in seven of the Muslim countries to the south and east of the Mediterranean—Morocco, Algeria, Tunisia, Libya, Egypt, Jordan, and Syria—has been two or three times the European average. The gap between Pakistan and Britain has been even wider. The total number of children per woman in Britain today is around 1.7. The latest figure for Pakistan, one of the principal sources of immigrants to Britain, is 4.3.
The first wave of immigration to Europe after World War II was a post-imperial phenomenon; people from former colonies migrated in response to apparent labor shortages. Many family members later followed. Now, as European societies age, they are attracting immigrants from rather closer to home—from Eastern Europe especially—but the flow from the Muslim periphery continues, much of it illegal. The trouble is that many of the newcomers are moving to residential ghettos with miserable economic prospects. In France, the Western European country with the largest Muslim population, the unemployment rate among foreign-born residents is more than twice the national average, which, at 9 percent, is already high enough.
Today, around 20 million Muslims make their home in the European Union, and that number is certain to rise, even if Middle East expert Bernard Lewis’s recent prophecy—that Muslims would be a majority in Europe by the end of the 21st century—surely goes too far. Fouad Ajami, director of the Middle East Studies Program at Johns Hopkins University, is more realistic when he anticipates that Muslim “colonization” will continue to be concentrated in certain regions of Europe, just as it was when the Moors ruled southern Spain (which they did from the 8th to the 15th century), or when the Ottomans ruled the Balkans (from the 14th to the 19th).
Those historic parallels are a reminder that Islam played a crucial role in Gibbon’s explanation of the decline and fall of the Roman Empire. For it was Islam that struck a heavy blow to what remained of the Roman Empire in the West when the Moors advanced into France as far as Poitiers, where they were finally halted, in 732. And it was again Islam which finally decapitated what remained of the empire in the East when the Turks sacked Constantinople in 1453.
Gibbon’s account of monotheism is certainly the most controversial part of his great work. It was the spread of Christianity within the Roman world, he argues in the notorious 15th chapter of The Decline and Fall, that tended to dilute the martial values of the Romans. Venerating the Virgin Mary was very different from venerating Mars, the god of war. Yet the monotheism of Muhammad had a very different character from that of Christianity. Islam, in Gibbon’s account, was always a belligerent religion. “The intrepid souls of the Arabs were fired with enthusiasm” by it, he notes. “The death which they had always despised became an object of hope and desire.”
That passage resonates in our own time, when suicide bombers stalk our transport systems, dreaming of heavenly trysts with multiple virgins. The problem, as Europeans have come to understand, is that it takes only a few would-be martyrs within a single Muslim community to produce a calamity.
VII. Gibbon called the decline and fall of the Roman Empire “the greatest, perhaps, and most awful scene in the history of mankind.” Could a still more awful scene be unfolding in the form of the West’s decline and fall? For Gibbon, Rome’s decline was the result of military overstretch, inner decadence, religious conversion, and barbarian invasion. To my mind, all of these are operating today to undermine what remains of Western dominance in the world. If the United States suffers mainly from the first and second, the European Union seems even more afflicted by the third and fourth.
A hundred years ago, as we have seen, the West could justly claim to rule the world. After a century during which one Western empire after another has declined and fallen, that can no longer credibly be claimed. Empires, of course, take time to decline and fall. Gibbon begins his narrative in A.D. 96; he ends it in 1430, more than a millennium later. Yet there can be no question that the pace of imperial descent has quickened in modern times. The longest-lived empire after the Romans was the Ottoman Empire, which endured for 469 years. The East European empires of the Habsburgs and the Romanovs each existed for more than three centuries. The Moguls ruled a substantial part of what is now India for 235 years. Of an almost identical duration was the realm of the Safavids in Persia. The Spanish, Dutch, French, and British empires can all be said to have endured about 300 years. The lifespan of the Portuguese empire was closer to 500.
The empires created in the 20th century, on the other hand, were all of comparatively short duration. The Bolsheviks’ Soviet Union (1922–91) lasted less than 70 years, a meager record indeed, though one not yet equaled by the People’s Republic of China, established in 1949. Japan’s colonial empire, which can be dated from the conquest of Taiwan in 1895, lasted barely 50. Most ephemeral of all modern empires was the so-called Third Reich of Adolf Hitler, which did not extend beyond its predecessor’s borders before 1938 and had retreated within them by the end of 1944. The remaining empires of the West are young by Roman standards. But by the standards of modern times, the United States—at 230 years—is quite long in the tooth. The day when the Capitol in Washington, D.C., will be reduced to a picturesque ruin may seem to us infinitely remote. History—including the greatest historian of them all, Edward Gibbon—suggests that it may come sooner than we think.
Niall Ferguson is Laurence A. Tisch Professor of History at Harvard University and a Senior Fellow of the Hoover Institution at Stanford, and the author of The War of the World: Twentieth-Century Conflict and the Descent of the West.
Empire Falls
They called it “the American Century,” but the past hundred years actually saw a shift away from Western dominance. Through the long lens of Edward Gibbon’s history, The Decline and Fall of the Roman Empire, Rome 331 and America and Europe 2006 appear to have more than a few problems in common.
by Niall Ferguson October 2006
vanityfair.com
The decline of Rome was the natural and inevitable effect of immoderate greatness. Prosperity ripened the principle of decay; the causes of destruction multiplied with the extent of conquest. —Edward Gibbon, The Decline and Fall of the Roman Empire, “General Observations on the Fall of the Roman Empire in the West.”
I. It was 230 years ago that Edward Gibbon published the first volume of The Decline and Fall of the Roman Empire, a work conceived, as he put it, “amidst the ruins of the Capitol” in Rome. It was among the shining and still-intact buildings of another capital that I began (presumptuously, no doubt) to imagine a sequel that might be written: the history of the decline of the West, meaning that distinctive complex of beliefs and institutions which originated with the Greeks, was planted across Europe by the Romans, embraced Christianity under the Emperor Constantine, and crossed to the New World with Columbus.
The idea of Western decline is hardly a new one. In the aftermath of the First World War, a prematurely retired German schoolteacher named Oswald Spengler published the first volume of one of the most influential books of the 20th century, Der Untergang des Abendlandes, usually translated as The Decline of the West. These days, however, few people bother with Spengler; his prose is too turgid, his debt to the philosopher Friedrich Nietzsche too large, his influence on the Nazis (for whom he voted but against whom he later turned) too obvious. And no one takes seriously his idiosyncratic theory that civilizations, like the weather, pass through seasons. In any case, events since 1945 have tended to discredit Spengler’s central idea of a Western downfall. It has seemed much more convincing—and perhaps also more gratifying—to portray the history of the 20th century as part of a protracted Occidental ascendancy. “Much of the last three centuries,” wrote the late British historian J. M. Roberts in his book Triumph of the West, published in 1985, “is the story of a triumph of the outright power of the West.” But not only a triumph of Western power, he argued—above all, the triumph of Western civilization.
Just four years later, the 20th century appeared to culminate in a comprehensive Western victory, with the breakup of the Soviet empire in Eastern Europe and the collapse of the Soviet Union itself. Famously, on the very eve of those events, Francis Fukuyama, professor at Johns Hopkins University, was moved to proclaim “the end of history” and the victory of the Western model of liberal and democratic capitalism. Far from suffering its downfall in the 20th century, as Spengler had anticipated, the West appeared to attain its historic zenith. Neoconservatives in the United States, intoxicated by their country’s unrivaled status as a “hyperpower” and its achievement of “full-spectrum dominance” in warfare, wondered only how American primacy could be perpetuated for another “American century.”
Yet in many ways this inversion of Spengler is a fundamental misreading of the trajectory of the last hundred years. Far from being a time of Western ascendancy, the past century has in reality witnessed something more like a re-orientation of the world—albeit only a partial re-orientation—and the relative decline of the West.
In 1900 the West really did rule the world. From the Bosporus to the Bering Strait, from Siberia to Ceylon, nearly all of what was then known as the Orient was under some form of Western imperial rule. The British had long ruled India, the Dutch the East Indies, and the French Indochina; the Americans had just seized the Philippines; the Russians aspired to control Manchuria. All the imperial powers had established parasitical outposts in China. The East, in short, had been subjugated, even if that process involved far more complex negotiations and compromises between rulers and ruled than used to be acknowledged.
Western hegemony was one of the great asymmetries of world history. Taken together, the metropoles of all the Western empires—the American, Belgian, British, Dutch, French, German, Italian, Portuguese, and Spanish—accounted for 7 percent of the world’s land surface and just 18 percent of its population. Their possessions, however, amounted to 37 percent of global territory and 28 percent of mankind. And if we regard the Russian empire as effectively another European empire extending into Asia, the total share of these Western empires rises to more than half the world’s area and population. This was a political globalization unseen before or since.
What enabled the minority in the West to rule the majority in the East in 1900 was not so much scientific knowledge in its own right as its systematic application to both production and destruction. By contrast, the empires of the East, from the Ottoman to the Qing, failed disastrously to modernize themselves. Their economies remained trapped in subsistence agriculture while the West forged ahead, colonizing and industrializing, devouring sugar and burning coal. Their tax systems were inefficient, forcing Oriental rulers to borrow from Western capital bankers. Eastern armies remained long on pageantry and short on firepower, while the West could deploy well-drilled troops equipped with machine guns and heavy artillery. Eastern navies stood no chance against the Western combination of steam and steel.
Nothing symbolized better the humiliation of the East than the Western military intervention to suppress the Boxer Rebellion, in China, in 1900. The rebels, who had menaced Western diplomats and missionaries, relied on martial arts and magic. Having wiped them out, the Western expeditionary force staged a “grand march” through Beijing’s Forbidden City and then undertook punitive raids deep into Shanxi Province, Inner Mongolia, and Manchuria.
Just a few years later, however, the East began to re-assert itself. Japan’s defeat of Russia on land and at sea in 1904–5 marked a turning point in world history. From that point on, the balance of geopolitical power began to turn, slowly and painfully, back toward the more populous part of the world. It is only when the extent of Western dominance in 1900 is appreciated that the true narrative arc of the 20th century reveals itself. This was not “the triumph of the West,” but rather the crisis of the European empires, the ultimate result of which was the revival of the East—beginning in Japan—and the relative decline of the West.
This has not been a decline in the sense that Spengler envisaged: a kind of corrosive metropolitan ennui. Rather, it has been an unexpected but inexorable military decline. It has been a scarcely perceptible economic decline. It has been a subtle but unmistakable cultural decline. Above all, it has been a creeping demographic decline. In short, it has been a decline in precisely the sense that Gibbon understood the decline of Rome’s empire.
According to Gibbon, Rome fell through a combination of external overreach, internal corruption, religious transformation, and barbarian invasion. That the United States—and, perhaps even more, the European Union—might have something to learn from his account is too seldom acknowledged, perhaps because Americans and Europeans like to pretend that their polities today are something more exalted than empires. But suppose for a moment (as the Georgetown University historian Charles Kupchan has suggested in The End of the American Era) that Washington really is the Rome of our time, while Brussels, the headquarters of the European Union, is Byzantium, the city transformed in the fourth century into the second imperial capital, Constantinople. Like the later Roman Empire, the West today has its Western and Eastern halves, though they are separated by the Atlantic rather than the Adriatic. And that is not the only thing we have in common with our Roman predecessors of a millennium and a half ago.
II. The Romans … had acquired the virtues of war and government; by the vigorous exertion of those virtues … they had obtained, in the course of the three succeeding centuries, an absolute empire over many countries.… The limits of the Roman empire still extended from the Western Ocean to the Tigris … but the animating health and vigour were fled.… The barbarians … soon discovered the decline of the Roman empire. —Gibbon, Chapter VII.
There is a well-established American tradition, perhaps best expressed by Gore Vidal in The Decline and Fall of the American Empire, of worrying that the United States might go the way of Rome. But the perennial liberal fear is of the early Roman predicament more than the late one. It is the fear that the republican institutions of the United States—above all, its hallowed Constitution, based on the careful separation of powers—could be corrupted by the ambitions of an imperial presidency. Every time a commander in chief attempts to increase the power of the executive branch, pleading wartime exigency, there is a predictable chorus of “The Republic is in danger.” We have heard that chorus most recently with respect to the status of prisoners detained without trial at Guantánamo Bay and the use of torture in the interrogation of suspected insurgents in Iraq.
Gibbon could scarcely ignore the question of the Roman republic’s decay. Indeed, there is an important passage in The Decline and Fall that specifically deals with the revival of torture as a tool of tyranny. Few generations of Englishmen were more sensitive than Gibbon’s to the charge that their own ideals of liberty were being subverted by the temptations of empire. The year when his first volume appeared was also the year the American colonies used precisely that charge to justify their own bid for independence.
Yet Gibbon’s real interest lay elsewhere, with the period of Roman decline long after republican virtue had yielded to imperial vice. The Decline and Fall is not concerned with the fall of the republic. It is a story that properly begins with the first signs of imperial overstretch. Until the time of the Emperor Julian (A.D. 331–63), Rome could still confidently send its legions as far as the river Tigris. Yet Julian’s invasion of Mesopotamia (present-day Iraq, but then under Persian rule) proved to be his undoing. According to Gibbon, he had resolved, “by the final conquest of Persia, to chastise the haughty nation which had so long resisted and insulted the majesty of Rome.” Although initially victorious at Ctesiphon (approximately 20 miles southeast of modern Baghdad), Julian was forced by his enemy’s scorched-earth policy to retreat back to Roman territory. “As soon as the flames had subsided which interrupted [his] march,” Gibbon relates, “he beheld the melancholy face of a smoking and naked desert.” The Persians harried his famished legions as they withdrew. In one skirmish, Julian himself was fatally wounded.
What had gone wrong? The answer sheds revealing light on some of the problems the United States currently faces in the same troubled region. A recurrent theme of Gibbon’s work is that the Romans gradually lost “the animating health and vigour” which had made them militarily invincible in the glory days of Julian’s predecessor Trajan. They had lost their discipline. They started complaining about the weight of their armor. In a word, they had gone soft. At the same time, like most armies, their fighting effectiveness diminished the farther they were from home.
Most of us take it for granted that the United States Army is the best in the world. It might be more accurate to say that it is the best equipped and the best fed. More doubtful is how well it is configured to win a protracted low-intensity conflict in a country such as Iraq. One sign of the times that might have amused Gibbon has been the recent relaxation of conditions for recruits undergoing basic training. (A friend of mine who was in the army snorted with derision on hearing that trainees are now allowed eight and a half hours of sleep a night.) Another symptom of military malaise has been the heavy reliance of the Defense Department on National Guard and reserve troops, who have at times accounted for about half of the U.S. contingent deployed in Iraq.
The real problem, however, is a simple matter of numbers. To put it bluntly, the United States has a chronic manpower deficit, which means it cannot put enough boots on the ground to maintain law and order in conquered territory. This is not because it lacks young men; it has at least seven times as many as Iraq. It is that it chooses, for a variety of reasons, to employ only a tiny proportion of its population (half of 1 percent) in its armed forces, and to deploy only a fraction of these in overseas conflict zones.
In 1920, to illustrate the difficulty, when British forces quelled a major insurgency in Iraq, they numbered around 135,000. Coincidentally, that is very close to the number of American military personnel currently in that country. The trouble is that the population of Iraq was just over 3 million in 1920, whereas today it is around 26 million. Thus the ratio of Iraqis to foreign forces in 1920 was, at most, 23 to 1. Today it is around 210 to 1. To arrive at a ratio of 23 to 1, roughly one million American troops would be needed. Reinforcements on that scale are, needless to say, inconceivable.
This is the reality of what Michael Ignatieff, the Canadian Liberal politician and scholar, has called “empire lite” in his book of that name. In theory, the American military is a lean and mean fighting machine. In practice, however, downsizing has left it with too few combat soldiers to make a success of imperial policing—a labor-intensive task that renders redundant much of its high-tech hardware.
III. The tranquil and prosperous state of the empire was warmly felt, and honestly confessed, by the provincials as well as Romans.… It was scarcely possible that the eyes of contemporaries should discover in the public felicity the latent causes of decay and corruption. —Gibbon, Chapter II.
You are still not convinced. So, you say, the war in Iraq is not going well. But what about the bigger picture? How can the West possibly be regarded as being in decline when it is so economically dominant in the world? Today the combined output of the six biggest Western economies—Canada, France, Germany, Italy, the United Kingdom, and the United States—exceeds half of total global output. Gross domestic product (G.D.P.) per capita in the United States is more than 30 times higher than it is in the economies of East Asia and the Pacific.
Yet the difference between the West and the Rest is much narrower than it once was. As recently as 1968, American G.D.P. per capita was 127 times higher than that of East Asia. By this measure alone, the gap between West and East has narrowed dramatically in our time. And it will continue to narrow. The International Monetary Fund estimates that the Chinese economy is growing at a rate roughly three times that of the United States. According to Goldman Sachs, China’s G.D.P. will overtake Britain’s this year. By 2041 it is likely to be the biggest economy in the world.
At the same time, the Western economies have vulnerabilities that have been largely obscured by the debt-financed boom of the past five years. America’s gross federal debt now exceeds $8.5 trillion, and if the Congressional Budget Office’s outlook turns out to be correct, we are just a decade away from a $12.8 trillion debt—more than double what President Bush inherited from his predecessor. Moreover, the officially stated borrowings of the federal government are only a small part of the U.S. debt problem. Ordinary American households, too, have gone on a borrowing spree of unprecedented magnitude. U.S. household credit-market debt has risen from just above 45 percent of G.D.P. in the early 1980s to more than 70 percent in recent years. The remarkable resilience of American consumer spending in the past 15 years has been based partly on a collapse in the personal savings rate from around 7.5 percent of income to below zero.
For demographic reasons, Americans need to be saving much more than this. According to the United Nations’ intermediate projections, male life expectancy in the United States will rise from 75 to 80 between now and 2050. The share of the American population that is aged 65 or over will rise from 12 percent to nearly 21 percent. By 2050 the elderly-dependency ratio (the ratio of the population aged 65 years or over to the population aged 15–64) could double. Only a minority of Americans have made adequate private provision for their retirement. That implies that most new retirees in the years ahead will depend to some extent on Social Security, Medicare, and Medicaid. Today, the average retiree receives benefits totaling $21,000 a year from these programs. Multiply that by 37 million (the current number of elderly Americans) and you can see why these programs already consume 42 percent of federal outlays.
All this implies that the federal government has much larger unfunded liabilities than official data imply. If you compare the current value of all projected future government expenditures—including debt-service payments—with the current value of all projected future government receipts, the gap is about $66 trillion, according to calculations by economists Jagadeesh Gokhale, of the Cato Institute, and Kent Smetters, professor at the Wharton School.
Americans, however, are not just borrowing from one another and, in effect, from the next generation. They are also, to a vast extent, borrowing from foreigners. In all but two years since 1992, the gap between the amount of goods and services the United States exports and the amount it imports has grown wider. This year, the current account deficit—which is largely a trade deficit—could rise as high as 7 percent of G.D.P., or nearly double its peak in the mid-1980s. The result is a remarkable accumulation of foreign debt. Estimates of the net international investment position of the United States—the difference between the overseas assets owned by Americans and the American assets owned by foreigners—have declined from a modest positive balance of 8 percent of G.D.P. in the mid-1980s to a huge net liability of minus 22 percent today. In other words, foreigners are accumulating large claims on the future output of the United States. Around 20 percent of corporate bonds are now in foreign hands, and nearly 10 percent of the U.S. stock market.
These are largely hidden weaknesses at present. Yet it cannot be a sign of Western strength that the annual bill for Social Security in the United States ($554 billion) is now larger than the bill for national security ($512 billion). And it cannot be a sign of imperial vigor that the United States needs to rely so heavily on foreign investors—including Asian central banks and Middle Eastern treasuries—to help finance a foreign policy that currently has minimal international support.
IV. The minds of men were gradually reduced to the same level, the fire of genius was extinguished.… The name of Poet was almost forgotten; that of Orator was usurped by the sophists. A cloud of critics, of compilers, of commentators, darkened the face of learning, and the decline of genius was soon followed by the corruption of taste.… This diminutive stature of mankind … was daily sinking below the old standard. —Gibbon, Chapter II.
Perhaps our most perplexing vulnerability, however, is cultural. Gibbon was acute in identifying literary decline as one symptom of a more profound Roman malaise. And if his barbed allusion to the “darkened … face of learning” does not immediately strike a chord, then some of the other symptoms may. While “the corrupt and opulent nobles of Rome gratified every vice that could be collected from the mighty conflux of nations and manners,” Gibbon wrote, “the most lively and splendid amusement of the idle multitude depended on the frequent exhibition of public games and spectacles.” Orgies and circuses are not precisely the favorite pastimes of Western society today. But if you substitute pornography and NASCAR, the parallel is not so far-fetched.
Outwardly, it is true, the institutions that exist to preserve and propagate our culture are in good shape. Never has the percentage of young people attending college been higher. Never have American universities dominated higher education and academic research as they do today. Our museums and concert halls offer more exhibitions and recitals than the enthusiast can possibly hope to attend. And to enter any branch of Barnes & Noble is to be overwhelmed by the sheer number of books being published.
Yet beneath this upper crust of high culture there simmers a less appetizing stew. Few children read for pleasure. Most boys would rather fritter away their time on brutalizing video games such as Grand Theft Auto. Girls no longer play with dolls; they are themselves the dolls, dressed according to the dictates of the fashion industry. Endlessly gaming, chatting, and chilling with their iPods, the next generation already has a more tenuous connection to “Western civilization” than most parents appreciate.
Gibbon’s argument against Roman “luxury” was in part that it sapped the empire’s martial strength. Here, too, there is a striking analogy. For our culture’s sedentary character—our strong preference for watching over doing, for virtual over real action—seems closely correlated to our changing physical shape. Gibbon’s Romans became metaphorical pygmies. We, by contrast, are being transformed into actual giants. We are certainly taller on average than past generations, a consequence of improvements in nutrition. But we are also wider, since we now consume significantly more fats and carbohydrates than we actually need. According to the standard measure of obesity, the body-mass index, the percentage of Americans classified as obese nearly doubled, from 12 percent to 21 percent, between 1991 and 2001. Nearly two-thirds of all American men are officially considered overweight, and nearly three-quarters of those between 45 and 64. Only Western Samoans and Kuwaitis are fatter.
V. The natives of Europe … no longer possessed that public courage which is nourished by the love of independence, the sense of national honor, the presence of danger, and the habit of command.… They … trusted for their defence to a mercenary army. The posterity of their boldest leaders was contented with the rank of citizens. —Gibbon, Chapter II.
Often fat and sometimes fatheaded, the new Romans of the United States are nevertheless less decadent than their counterparts in that part of the new West across the Atlantic, governed from the new Constantinople, Brussels. The United States remains a vigorously Christian country, thanks in part to the invigorating competition there has always been among its multiple denominations and sects. Americans also remain capable of a robust patriotism (though this seems to require regular foreign attacks on U.S. soil to be sustained). And—unlike the Romans—they still have a resilient work ethic.
Things are different in Europe. The Europeans have all but renounced warfare as a tool of policy. Their armies are puny, their weapons inferior. In some areas, standards of physical fitness are even lower than in Middle America. Take Scotland, the land of my birth. Male life expectancy in some parts of Glasgow is now as low as 54. There has been a 350 percent rise in alcohol-related deaths in the last two decades. About 13,000 people die from smoking-related diseases every year. More than a third of Scotland’s 12-year-olds are overweight or clinically obese.
While Americans work, young Europeans are to a remarkable extent idle. In Britain as a whole, more than 5 million adults of working age—nearly 15 percent of the workforce—are now dependent on benefits. Nearly half of those have been living on welfare for more than five years. The reason these people do not show up in the official unemployment statistics is that many of them are counted as unfit for work rather than jobless. Every day, 23 more teenagers in Britain sign up for “incapacity benefit.” This reflects a crisis of public education as much as of public health. As the Organization for Economic Cooperation and Development recently pointed out, an exceptionally large share of British pupils leave school without any qualifications at all. One in six British adults lacks the literacy skills of an 11-year-old. It may be technically correct that the incapacitated are not unemployed. The reality is that they are unemployable.
Most striking of all, Europe has become the world’s first post-Christian society. There was a time when Europe could justly refer to itself as “Christendom”; indeed, this was the most enduring legacy of both Rome and Byzantium. Europeans built the continent’s great cathedrals to accommodate their acts of worship. As pilgrims, missionaries, and conquistadores, they sailed to the four corners of the earth, intent on converting the heathens to the true faith. Now, however, it is they who are the heathens. According to the Gallup International Millennium Survey of religious attitudes, barely 20 percent of Western Europeans attend church services at least once a week, while 47 percent of North Americans and 82 percent of West Africans do. And fully 15 percent of Western Europeans deny that there is any kind of “spirit, God, or life force”—more than 7 times the American figure and 15 times the West African.
The exceptionally low level of British religiousness was perhaps the most striking revelation of a recent ICM Research poll. One in five Britons claims to “attend an organized religious service regularly,” less than half the American figure. And only 19 percent would be willing to die for his or her beliefs, while 71 percent of Americans say they would.
The de-Christianization of Britain is a relatively recent phenomenon, as British religious and cultural historian Callum Brown has shown. For most of the first half of the 20th century, Anglican Easter Day communicants accounted for between 5 and 6 percent of the population of England; it was only after 1960 that the proportion slumped to 2 percent. Figures for the Church of Scotland show a similar trend: steady until 1960, then falling by roughly half. As those figures suggest, British Protestants were not especially observant (compared, for example, with Irish Catholics), but until the late 1950s established-church membership, if not attendance, was relatively high and steady.
Prior to 1960, most marriages in England and Wales were solemnized in a church; then the slide began, down to around 40 percent in the late 1990s. Especially striking is the decline in confirmations of baptized children. Fewer than a fifth of those baptized are now confirmed, roughly half the figure for the period from 1900 to 1960.
Contrary to popular belief, it was not the British Catholic writer G. K. Chesterton who said, “When men stop believing in God, they don’t believe in nothing. They believe in anything.” But he could have said it. Chesterton viewed atheism with the utmost suspicion. Those who disbelieve in God on supposedly rational grounds, he argued, merely become prey to pseudo-religions and superstitions. His neatest formulation was in The Miracle of Moon Crescent, where he wrote, “You all swore you were hard-shelled materialists; and as a matter of fact you were all balanced on the very edge of belief—of belief in almost anything.” Evidence to support his point is now abundantly available in post-Christian Europe, where all kinds of New Age cults and irrational beliefs flourish. Otherwise intelligent people choose apartments on the basis of feng shui. They delude themselves into thinking that attendance at a concert will reduce poverty in Africa. They are simultaneously against poverty and against global warming, when it is precisely the reduction of poverty in Asia that is increasing emissions of carbon dioxide. Drawn to conspiracy theories as the ancients were to superstitions, some Europeans blame the U.S. government for rising sea levels (not to mention the 9/11 terrorist attacks).
With the decline of Christianity, Europe is also experiencing a rise in what politicians euphemistically call “antisocial behavior.” The restrained civility that was once a hallmark of English life has all but vanished, to be replaced by a startling rudeness. Profanity in the street and on television has become the norm. Once, a lifetime ago, an English writer warned of a future in which the state would keep the population under permanent surveillance. Today, George Orwell’s imaginary Big Brother is the name of a television series in which individuals volunteer for surveillance by the rest of the population. Far from being inhibited by their loss of privacy, they glory in mutual degradation. Shame has gone; so has civility. On Friday and Saturday nights, most English city centers become no-go zones where drunken, knife-wielding youths brawl with one another and the police. Another striking symptom of this new primitivism is the extraordinary surge in the popularity of tattoos, once associated with the unruly Picts of the Far North. In this modern decline and fall, it seems, at least some of the barbarians come from within the empire.
VI. A perpetual stream of strangers and provincials flowed into the capacious bosom of Rome. Whatever was strange or odious, whoever was guilty or suspected, might hope, in the obscurity of that immense capital, to elude the vigilance of the law.… It was the just complaint of the ingenuous natives that the capital had attracted the vices of the universe and the manners of the most opposite nations. —Gibbon, Chapters XV and XXXI.
Nothing changed Rome more than immigration. The same is true of the West today. But whereas a large proportion of immigrants to the United States come from countries that were colonized by Roman Catholics and quickly find jobs in America’s dynamic labor market, the situation in Europe is altogether different.
The demographic transformation of the West has its roots in feminism. Legislation against sex discrimination opened all kinds of careers to women that had previously been dominated by men. At the same time, the ready availability of contraception and abortion gave women an unprecedented control over their own fertility. Beginning in the late 1970s, the average Western European couple had fewer than two children. Today the figure is around 1.4, whereas it needs to be slightly higher than 2 for a population to remain constant. Europeans, quite simply, have ceased to reproduce themselves. The United Nations Population Division forecasts that, if Spanish fertility persists at such low levels, within 50 years the country’s population will decline by more than 4 million. The population of Italy will fall by a fifth. The overall reduction in native-born European numbers could be as much as 14 million. Not even two World Wars inflicted such an absolute decline in population.
Meanwhile, however, the combination of relative poverty and religious revival had a very different effect on Europe’s southern and eastern neighbors. Since the 1950s, according to U.N. figures, the crude birthrate in seven of the Muslim countries to the south and east of the Mediterranean—Morocco, Algeria, Tunisia, Libya, Egypt, Jordan, and Syria—has been two or three times the European average. The gap between Pakistan and Britain has been even wider. The total number of children per woman in Britain today is around 1.7. The latest figure for Pakistan, one of the principal sources of immigrants to Britain, is 4.3.
The first wave of immigration to Europe after World War II was a post-imperial phenomenon; people from former colonies migrated in response to apparent labor shortages. Many family members later followed. Now, as European societies age, they are attracting immigrants from rather closer to home—from Eastern Europe especially—but the flow from the Muslim periphery continues, much of it illegal. The trouble is that many of the newcomers are moving to residential ghettos with miserable economic prospects. In France, the Western European country with the largest Muslim population, the unemployment rate among foreign-born residents is more than twice the national average, which, at 9 percent, is already high enough.
Today, around 20 million Muslims make their home in the European Union, and that number is certain to rise, even if Middle East expert Bernard Lewis’s recent prophecy—that Muslims would be a majority in Europe by the end of the 21st century—surely goes too far. Fouad Ajami, director of the Middle East Studies Program at Johns Hopkins University, is more realistic when he anticipates that Muslim “colonization” will continue to be concentrated in certain regions of Europe, just as it was when the Moors ruled southern Spain (which they did from the 8th to the 15th century), or when the Ottomans ruled the Balkans (from the 14th to the 19th).
Those historic parallels are a reminder that Islam played a crucial role in Gibbon’s explanation of the decline and fall of the Roman Empire. For it was Islam that struck a heavy blow to what remained of the Roman Empire in the West when the Moors advanced into France as far as Poitiers, where they were finally halted, in 732. And it was again Islam which finally decapitated what remained of the empire in the East when the Turks sacked Constantinople in 1453.
Gibbon’s account of monotheism is certainly the most controversial part of his great work. It was the spread of Christianity within the Roman world, he argues in the notorious 15th chapter of The Decline and Fall, that tended to dilute the martial values of the Romans. Venerating the Virgin Mary was very different from venerating Mars, the god of war. Yet the monotheism of Muhammad had a very different character from that of Christianity. Islam, in Gibbon’s account, was always a belligerent religion. “The intrepid souls of the Arabs were fired with enthusiasm” by it, he notes. “The death which they had always despised became an object of hope and desire.”
That passage resonates in our own time, when suicide bombers stalk our transport systems, dreaming of heavenly trysts with multiple virgins. The problem, as Europeans have come to understand, is that it takes only a few would-be martyrs within a single Muslim community to produce a calamity.
VII. Gibbon called the decline and fall of the Roman Empire “the greatest, perhaps, and most awful scene in the history of mankind.” Could a still more awful scene be unfolding in the form of the West’s decline and fall? For Gibbon, Rome’s decline was the result of military overstretch, inner decadence, religious conversion, and barbarian invasion. To my mind, all of these are operating today to undermine what remains of Western dominance in the world. If the United States suffers mainly from the first and second, the European Union seems even more afflicted by the third and fourth.
A hundred years ago, as we have seen, the West could justly claim to rule the world. After a century during which one Western empire after another has declined and fallen, that can no longer credibly be claimed. Empires, of course, take time to decline and fall. Gibbon begins his narrative in A.D. 96; he ends it in 1430, more than a millennium later. Yet there can be no question that the pace of imperial descent has quickened in modern times. The longest-lived empire after the Romans was the Ottoman Empire, which endured for 469 years. The East European empires of the Habsburgs and the Romanovs each existed for more than three centuries. The Moguls ruled a substantial part of what is now India for 235 years. Of an almost identical duration was the realm of the Safavids in Persia. The Spanish, Dutch, French, and British empires can all be said to have endured about 300 years. The lifespan of the Portuguese empire was closer to 500.
The empires created in the 20th century, on the other hand, were all of comparatively short duration. The Bolsheviks’ Soviet Union (1922–91) lasted less than 70 years, a meager record indeed, though one not yet equaled by the People’s Republic of China, established in 1949. Japan’s colonial empire, which can be dated from the conquest of Taiwan in 1895, lasted barely 50. Most ephemeral of all modern empires was the so-called Third Reich of Adolf Hitler, which did not extend beyond its predecessor’s borders before 1938 and had retreated within them by the end of 1944. The remaining empires of the West are young by Roman standards. But by the standards of modern times, the United States—at 230 years—is quite long in the tooth. The day when the Capitol in Washington, D.C., will be reduced to a picturesque ruin may seem to us infinitely remote. History—including the greatest historian of them all, Edward Gibbon—suggests that it may come sooner than we think.
Niall Ferguson is Laurence A. Tisch Professor of History at Harvard University and a Senior Fellow of the Hoover Institution at Stanford, and the author of The War of the World: Twentieth-Century Conflict and the Descent of the West.
Subscribe to:
Posts (Atom)
Blog Archive
-
►
2008
(1065)
- ► 12/21 - 12/28 (2)
-
►
11/30 - 12/07
(6)
- China 'faces mass social unrest' Published: 2008/1...
- U.S. Supreme Court to decide on military detention...
- At least 22 dead in Pakistan blast By Pir Zubair S...
- Fund Investors Sue Countrywide Over Loan Modificat...
- China’s President Cites Threat of Global Slowdown ...
- Georgia and Ukraine split NATO members By Steven E...
-
►
11/16 - 11/23
(15)
- Major Al-Qaeda operative killed in US missile stri...
- Yemen 'faces crisis as oil ends' By Martin Plaut B...
- China fund in talks to acquire AIG's Alico Nikkei:...
- Wall Street The $58 Trillion Elephant in the Room ...
- The Reckoning How the Thundering Herd Faltered and...
- Surprises in a Closer Look at Credit-Default Swaps...
- Debt Linked to Buyouts Tightens the Economic Vise ...
- New Anxiety Grips Russia’s Economy By ANDREW E. KR...
- High & Low Finance A Clever Move by Porsche on VW’...
- A Question for A.I.G.: Where Did the Cash Go? By M...
- Russia Seeks to Trade Oil for Loans From China By ...
- ► 10/26 - 11/02 (1)
- ► 10/19 - 10/26 (1)
- ► 10/12 - 10/19 (10)
- ► 09/28 - 10/05 (17)
- ► 09/21 - 09/28 (1)
- ► 09/14 - 09/21 (8)
- ► 08/10 - 08/17 (1)
- ► 07/20 - 07/27 (6)
- ► 06/29 - 07/06 (1)
- ► 05/18 - 05/25 (104)
- ► 05/11 - 05/18 (81)
- ► 05/04 - 05/11 (74)
- ► 04/27 - 05/04 (109)
- ► 04/20 - 04/27 (67)
- ► 04/13 - 04/20 (5)
- ► 04/06 - 04/13 (15)
- ► 03/30 - 04/06 (37)
- ► 03/23 - 03/30 (24)
- ► 03/16 - 03/23 (6)
- ► 03/09 - 03/16 (7)
- ► 03/02 - 03/09 (143)
- ► 02/24 - 03/02 (14)
- ► 02/17 - 02/24 (3)
- ► 02/10 - 02/17 (2)
- ► 02/03 - 02/10 (40)
- ► 01/27 - 02/03 (55)
- ► 01/20 - 01/27 (76)
- ► 01/13 - 01/20 (77)
- ► 01/06 - 01/13 (54)
-
►
2007
(3845)
- ► 12/30 - 01/06 (44)
- ► 12/23 - 12/30 (48)
- ► 12/16 - 12/23 (92)
- ► 12/09 - 12/16 (131)
- ► 12/02 - 12/09 (53)
- ► 11/25 - 12/02 (79)
- ► 11/18 - 11/25 (17)
- ► 11/11 - 11/18 (55)
- ► 11/04 - 11/11 (64)
- ► 10/28 - 11/04 (59)
- ► 10/21 - 10/28 (76)
- ► 10/14 - 10/21 (87)
- ► 10/07 - 10/14 (60)
- ► 09/30 - 10/07 (10)
- ► 09/23 - 09/30 (45)
- ► 09/16 - 09/23 (108)
- ► 09/09 - 09/16 (100)
- ► 09/02 - 09/09 (194)
- ► 08/26 - 09/02 (85)
- ► 08/19 - 08/26 (171)
- ► 08/12 - 08/19 (61)
- ► 08/05 - 08/12 (34)
- ► 07/29 - 08/05 (8)
- ► 07/22 - 07/29 (31)
- ► 07/15 - 07/22 (57)
- ► 07/08 - 07/15 (75)
- ► 07/01 - 07/08 (54)
- ► 06/24 - 07/01 (7)
- ► 06/17 - 06/24 (20)
- ► 06/10 - 06/17 (59)
- ► 06/03 - 06/10 (50)
- ► 05/27 - 06/03 (154)
- ► 05/20 - 05/27 (112)
- ► 05/13 - 05/20 (144)
- ► 05/06 - 05/13 (167)
- ► 04/29 - 05/06 (93)
- ► 04/22 - 04/29 (86)
- ► 04/08 - 04/15 (77)
- ► 04/01 - 04/08 (143)
- ► 03/25 - 04/01 (77)
- ► 03/18 - 03/25 (194)
- ► 03/11 - 03/18 (64)
- ► 03/04 - 03/11 (132)
- ► 02/25 - 03/04 (44)
- ► 02/18 - 02/25 (25)
- ► 02/11 - 02/18 (42)
- ► 02/04 - 02/11 (51)
- ► 01/28 - 02/04 (85)
- ► 01/21 - 01/28 (44)
- ► 01/14 - 01/21 (39)
- ► 01/07 - 01/14 (38)
-
►
2006
(3601)
- ► 12/31 - 01/07 (81)
- ► 12/24 - 12/31 (50)
- ► 12/17 - 12/24 (35)
- ► 12/10 - 12/17 (8)
- ► 12/03 - 12/10 (1)
- ► 11/26 - 12/03 (25)
- ► 11/19 - 11/26 (37)
- ► 11/12 - 11/19 (47)
- ► 11/05 - 11/12 (188)
- ► 10/29 - 11/05 (120)
- ► 10/22 - 10/29 (66)
- ► 10/15 - 10/22 (150)
- ► 10/08 - 10/15 (107)
- ► 10/01 - 10/08 (83)
- ► 09/24 - 10/01 (123)
- ► 09/17 - 09/24 (120)
- ► 09/10 - 09/17 (133)
- ► 09/03 - 09/10 (18)
- ► 08/27 - 09/03 (206)
- ► 08/20 - 08/27 (24)
- ► 06/25 - 07/02 (124)
- ► 06/18 - 06/25 (121)
- ► 06/11 - 06/18 (130)
- ► 06/04 - 06/11 (56)
- ► 05/28 - 06/04 (27)
- ► 05/14 - 05/21 (3)
- ► 05/07 - 05/14 (65)
- ► 04/30 - 05/07 (148)
- ► 04/23 - 04/30 (116)
- ► 04/16 - 04/23 (163)
- ► 04/09 - 04/16 (34)
- ► 04/02 - 04/09 (68)
- ► 03/26 - 04/02 (69)
- ► 03/19 - 03/26 (65)
- ► 03/12 - 03/19 (41)
- ► 03/05 - 03/12 (66)
- ► 02/26 - 03/05 (86)
- ► 02/19 - 02/26 (55)
- ► 02/12 - 02/19 (73)
- ► 02/05 - 02/12 (51)
- ► 01/29 - 02/05 (69)
- ► 01/22 - 01/29 (68)
- ► 01/15 - 01/22 (75)
- ► 01/08 - 01/15 (94)
- ► 01/01 - 01/08 (112)
-
►
2005
(1023)
- ► 12/25 - 01/01 (59)
- ► 12/18 - 12/25 (142)
- ► 12/11 - 12/18 (61)
- ► 12/04 - 12/11 (77)
- ► 11/27 - 12/04 (75)
- ► 11/20 - 11/27 (49)
- ► 11/13 - 11/20 (31)
- ► 11/06 - 11/13 (61)
- ► 10/30 - 11/06 (71)
- ► 10/23 - 10/30 (39)
- ► 10/16 - 10/23 (35)
- ► 10/09 - 10/16 (37)
- ► 10/02 - 10/09 (42)
- ► 09/25 - 10/02 (43)
- ► 09/18 - 09/25 (51)
- ► 09/11 - 09/18 (45)
- ► 09/04 - 09/11 (38)
- ► 08/28 - 09/04 (12)
- ► 08/21 - 08/28 (26)
- ► 08/14 - 08/21 (29)
