Democracy or Force: The Case of Egypt

In early July 2013, the world was treated to a glimpse of the stark dichotomy punctuated by democracy and civic violence.  Middle-ground is slight to nil between the two, as reflected in the swift taking of sides in the immediate aftermath of the coup by the Egyptian army. Just days after the coup, 51 pro-Morsi protesters and three soldiers were killed, provoking fears of outright civil war.[1] In spite of a top Egyptian cleric going into seclusion to pressure both sides to reconcile, the dramatic snap from democracy to force could not easily be undone. With leaders of Morsi’s party calling for outright rebellion, the military-installed “technocrat” inter-regnum government was on tenuous ground. For when the order that democracy can provide by interiorizing civic discord within the contours of a political process and institutions is tossed away like a dirty rag, a society is left with the instability of force.

Democracy is admittedly far from perfect as a form of governance. Bringing in diverging political interests to legislate together civilizes but does not expunge ideological, financial and personal conflicts. It is difficult to determine the limits of a majority party’s authority and the extent of a minority’s rights. Whereas the filibuster in the U.S. Senate may give the minority party so much authority that the legislative chamber can be vexed into stultifying stagnation, Morsi’s party was deficient in allowing for sufficient  minority participation not only in legislating, but also in drafting the constitution. No wonder the military had scant respect for the document in summarily suspending it during the coup.

The Egyptian experiment with democracy was admittedly quite flawed. Just before the coup, Morsi admitted that he had made mistakes in this regard. Making basic law to serve the interests of a political party is not democratic, and yet democratic elections legitimated Morsi as Egypt’s president. In contrast, the coup was not at all democratic, and thus the military was left to count on the power rather than legitimacy of force. A threshold had been crossed, a net breached.

Yet the picture is not as black and white as I am suggesting. In requiring that all significant political forces participate in writing a new constitution, the military may have laid the groundwork for a sustainable rather than compromised democracy. Rising above his grievances on behalf of Egypt’s future, Morsi would have been wise in announcing that he would participate but not dominate in a constitutional convention. Aware of his mistakes while in office, he could proffer advice to the convention on avoiding certain pitfalls, among which is that of a minority party effectively ruling thanks to the splintering of parties in a parliamentary system. To be legitimate democratically, a majority coalition of parties must be broad enough to represent more than a minority sectional group in society. 

In short, designing a democratic system is far from easy. Allowing one or two parties to dominate the writing and ratification of a constitution risks a less than fully legitimate product.  Egypt’s military was left with the compromised dichotomy between a deeply-flawed “democracy” and force.  Had the democratic system been solid, the hit to democracy itself would have been much worse simply in the ease with which the coup could take place. It is not as though a coup against a viable democracy has never occurred in world history. Even though Egypt’s case is more nuanced, the military crossed a dire threshold in removing a democratically-elected president. From a democratic standpoint, that act is hard to swallow. If the biased constitution will have been fixed following an electoral change in a future election, the military’s decision to oust Morsi was particularly hasty and short-sighted from the standpoint of not only democracy, but civic order itself.

After all, most of the delegates in the American constitutional convention in 1787 were well-off, and thus creditors. In the aftermath of Shays’ Rebellion in Massachusetts the year before by soldier debtors who had not been paid by the continental army and yet faced unyielding creditors, the bias in the convention was significant at the time. Also, federalists so dominated anti-federalists that the states were not even permitted to return suggested improvements to another session of the convention. The outcome has been as one might have been able to predict even then: the “General Government,” now known as the federal government, has encroaches so on the authority of the state governments that the checks and balances in federalism itself can barely hold back the Congress.

As flawed as the drafting and ratification of the U.S. Constitution was, the amendment process has offered significant relief to minority interests and thus can be judged to be much better than a coup. Not the least in importance, going with a flawed design enabled democratic norms and values to take root in the United States. With the Egyptian military hastily pulling up democracy as if it were a young, loosely-rooted plant, Egyptians not only had to start from scratch; they also had to contend with the fact that a democratic system had been so easily replaced by force.  

See the video made to accompany this essay: http://youtu.be/_1yuvnOq5YE

See a related video on Syria: From Protest to War  http://youtu.be/NJm3ZaamhgA

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[1] Sarah El Deeb and Maggie Michael, “Egypt’s Muslim Brotherhood Urges Followers to Rise Up after Deadly Clashes,” The Huffington Post, July 8, 2013.

Comparing the E.U. and U.S. in a Different Way

 The complete essay is at Essays on Two Federal Empires.

Videos on YouTube: http://youtu.be/xinF5zjHV0Q and http://youtu.be/qqemCjiWZSM

My related very brief talk: http://www.blogtalkradio.com/thewordenreport/2013/07/08/the-eu-and-us

The Checks and Balances of Federalism: Hungary vs. the European Parliament

One of the benefits of federalism is the checks and balances between the two systems of government existing in a federal system—that of the states and that of the federal government. That is to say, federalism can be thought of as a governmental system that contains two systems of government—that of the states and that of the federation. Either of these systems can go too far, and the other system should have the wherewithal to pull the other back without compromising its viability. This is why the consolidation of power in one system (e.g., the U.S. Federal Government) compromises the viability of a federal system at least with respect to its checks and balances. One other point: the two systems in a federal system are on the same level; that is, one is not “above” the other. Hence, the supremacy clauses in the E.U. and U.S. refer only to competencies or domains assigned to the federal government.

The full essay is at "Essays on the E.U. Political Economy," available at Amazon.

Banks in Trouble: European Populism?

In reaching agreement on a proposal to deal with state banks in trouble, the E.U. finance ministers sent two messages: taxpayers would be protected from any open-ended obligation to bail out failed banks and those banks would not be allowed to capitalize on being bailed out. Given the furor that had been unleashed when the E.U. went after depositors in the two largest Cypriot banks, the E.U. ministers were careful to point out “that depositors with less than €100,000 ($130,820) in their accounts would always be safe, while small and midsize companies and bigger savers would only be hit during the most severe bank failures.” Systemically important banks whose failure could be expected to cause the E.U. financial system to collapse would be handled on a case by case basis.

Will the euro be fortified by a federal bank-bailout program?   Source: Estonia Free Press.

The full essay is at "Essays on the E.U. Political Economy," available at Amazon.

Federalism and Solving the Democratic Deficit: Causing Bad E.U. Legislation?

One major criticism of the E.U. has concerned its “democratic deficit.” The European Commission, the E.U.’s executive branch, has taken most of the criticism because the bureaucrats are not elected. Even though the European Council consists of elected state executives, the state legislatures are viewed as “closer to the people” and therefore more democratic. At the E.U. level, the European Parliament is the most directly democratic, as the EP’s representatives are directly elected by E.U. citizens. Therefore, one means of reducing the “democratic deficit” has been to increase the Parliament’s authority relative to those of the Commission and the Council. Lest it be thought that this solution has no drawbacks, the case of whether E.U. ships should be permitted to be beached for recycling in South Asia illustrates a problem.

From: "Federalism and the Democratic Deficit: The E.U. as Suboptimal?"

Consolidation From 1913: The Federal Reserve, Megabanks, and the U.S. Government

In 1911, the U.S. Supreme Court ruled that federal anti-trust law required the break-up of Rockefeller’s mammoth Standard Oil Company, which had replaced ruinous competition with coordination in the American refining industry. The ruling’s impact was truncated because each of the resulting companies had the same ownership; the existing trust certificates were simply exchanged for shares in each company. The respective managements even remained in the same office building in New York City. In effect, the court had mandated oligopolistic collusion and still more restraint of trade. Undaunted, the elderly Rockefeller worked on his golf game.

One hundred years later, the U.S. Treasury and the Federal Reserve were still striving to salvage the economy from a near direct-hit in September 2008. The Fed’s massive bond-buying program of some $7 trillion would dwarf the $750 billion in the democratically-enacted TARP (Troubled Assets Relief Program) funds. In 2010, Congress had passed the Dodd-Frank Act, which was designed to solve the problem of banks and other companies being too big to fail without actually breaking any up. Not surprisingly, by 2013 it had become apparent that systemic risk was still much too high. The government that had broken up Rockefeller’s mighty managerial machine had apparently lost its spunk for breaking up enterprises, at least those whose very existence involves an intolerable amount of systemic risk to the economy as a whole.  

A century earlier, in 1913 to be exact, the sixteenth amendment to the U.S. Constitution was ratified, making a federal income tax constitutional. Congress promptly passed the Revenue Act of 1913, which reinstituted the federal income tax and lowered tariffs. The assumption was that the revenue from the income tax would make up for the decrease from the lower tariffs. As the graph below indicates, the income taxes would do more than compensate for reduced tariff revenue. The ratification of the amendment and the passage of the Revenue Act laid the groundwork for an expansion in the fiscal role of the federal government. In the constitutional convention, some delegates had been concerned that a federal income tax would “crowd out” the states as they seek to raise more revenue for domestic purposes.

 

Also in 1913, exactly a century before the Federal Reserve’s board wrestled with whether to reduce the central bank’s bond-buying program, a fiscal stimulus to reduce unemployment, the bill establishing the central bank became law. Charles Lindberg, the father of the famous flyer, predicted from his seat in the U.S. House of Representatives that the Act would establish “the most gigantic trust on earth” that would be an “invisible government by the money power.”[1] At the time, it was assumed that the gold standard would provide sufficient constraint. This assumption would go flat in 1973 with Nixon’s termination of the Bretton Woods agreement. By 2013, the premise of the Act, which specifies three purposes for the Fed: “to furnish ‘an elastic currency,’ to provide a market for commercial paper so that banks would have more liquidity, and to improve supervision of banks,” had been superseded to a degree that would have stunned even the advocates of the original bill.[2]

Speaking before Congress on June 23, 1913, President Wilson said banks should be “the instruments, not the masters, of business.”[3] William Jennings Bryan, the U.S. Secretary of State, went one step further in insisting that banks answer to the public rather than to themselves or business.[4] A century later, was the Fed buying trillions in dollars of bonds to help the banks, whose executives had gone largely unscathed in terms of bonuses, or the public? If the latter, shouldn’t the Congress and the elected U.S. president have played more of a decisive role by legislating the program?

The democracy deficit in the Fed’s increasing “job description” is not the only danger, however. Not even democracy can be relied on to safeguard the checks and balances afforded by federalism or even federalism itself. Simply in being such a consolidated power at the U.S. level, the Federal Reserve further consolidates power as it expands its fiscal power. Federalism pays the price not only directly, but also in that the Fed is prohibited by federal law from buying the bonds of heavily-indebted state governments. That is to say, the Federal Reserve can come to the aid of the U.S. Treasury as well as large consolidated banks, while the state governments are on their own. The bias here favors further consolidation at the expense of federalism.

Europeans have been much more sensitive to the impact of the European Central Bank’s expansive bond-buying program on the E.U.’s federal system. Even though the ECB would be purchasing the bonds of indebted state governments, the centralization in the purchasing and the associated fiscal redistribution delayed agreement on the program. In 1913 as the Federal Reserve legislation was going through Congress, federalism was not sufficiently considered, and thus protected. Paul Warburg, a financier who had immigrated from Germany to New York, thought the banking system was too decentralized in the United States. Oblivious to the American federal mindset that still treated the federal level of government as properly assuming empire-level powers such as defense and regulating commerce between the republics, he wanted to replicate the Reichsbank of his native state for the United States as a whole.[5]

Avoiding that political category mistake, Rep. Carter Glass, the chief sponsor of the Federal Reserve Act, “wanted to restrain federal authority” even in banking and yet he “wanted a more elastic currency to avert money panics and moderate depressions” through banking reform.[6] He proposed privately-owned regional reserve banks and referred to Wilson’s proposal “that a Reserve Board sit atop” those banks as a federalist design at odds with the rights of the states.[7] That the resulting Act was more along Wilson’s lines suggests that the federalism was not sufficiently consulted in the legislative process, which was not coincidentally entirely at the U.S. level. That is to say, federal-level officials established a central bank that would operate to the advantage of that level. Also in 1913, the seventeenth amendment, by which U.S. senators would no longer be elected by their respective state legislatures, was ratified; the state governments would henceforth had even less wherewithal at the federal level to thwart encroachments by the U.S. Government.

In conclusion, a consolidating trend favoring both big business and the U.S. Government at the expense of the states can be discerned from legislation passed in 1913. The consolidation of banking power in a few megabanks like Citigroup and JPMorgan and of political power in the U.S. Government evident in 2013 can thus be viewed as having historical underpinnings.  

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1. Robert Lowenstein, “The Federal Reserve’s Framers Would be Shocked,” The New York Times, June 22, 2013.

2. Ibid.
3. Ibid.
4. Ibid.
5. Ibid.
6. Ibid.
7. Ibid.

Governmental Paralysis in Illinois: Behind the Underfunded Pension Crisis

Sometimes when a government’s fiscal matters get bad enough, dysfunction in the real power-relations at the highest level can suddenly become painfully obvious, or transparent, as when Toto pulls the curtain away to reveal the man behind the “all and powerful” Wizard of Oz. 

The complete essay is at Essays on Two Federal Empires.

European Federalism in E.U.-U.S. Trade Negotiations

When U.S. President Barak Obama and the E.U. Presidents José Barroso and Herman Van Rompuy announced that talks would begin on a free trade agreement between the E.U. and U.S., the hope was that a sweeping deal would “largely eliminate trade tariffs and harmonize regulations across a broad range of industries” in “the world’s biggest two-way economic relationship.” [1] That E.U. ministers meeting days earlier had decided to protect the “cultural exception” to international trade rules “for the sake of preserving” the distinctive cultures of the E.U. states was cause for concern, should the U.S. seek to exempt the financial sector in exchange. [2] France had long been concerned that the English-speaking California film industry would swamp smaller French studios to the detriment of the French language and culture. Even though exceptions threatening a broader trade deal are indeed protectionist, in this case European federalism is also at issue. This factor could legitimate the exemption such that a countering U.S. exemption would not be equivalent and thus justified.

The complete essay is at Essays on Two Federal Empires, available at Amazon.

1. Matthew Dalton, “EU Deal Paves Way for US Trade Talks,” The Wall Street Journal, June 14, 2013.

2. Ibid.

Regulating Snus in the E.U.

Should the E.U. be able to regulate sales of a product that can legally be sold only in one state? Would such regulations encroach too much on the governmental sovereignty of the state? In the U.S., Congress has steadily extended its power to regulate interstate commerce to the point that commercial transactions taking place entirely within one state are routinely covered. Is the E.U. headed toward the same outcome?

The full essay is at "Essays on the E.U. Political Economy," available at Amazon. 

Reinsurance as a Shell Game: Another Bailout to Come?

In the stock market, investors can be quite fastidious in demanding a certain quarterly profit or internal rate of return. The increasing activism of institutional investors exacerbates this trend, as they have the wherewithal to investigate the companies in which they hold stock and the incentive given the number of shares they typically hold in a certain company. This pressure can tempt managements to “go outside the box” in developing novel ways to inflate revenue or hid expenses and risk. In theory at least, companies owned by their employees or customers do not have to contend with that sort of pressure, and thus can manage their books with more transparency and honesty. Has managerial capitalism become too reductionistic in relying so much on the corporate form of ownership? Have we as societies been opening ourselves up to too much financial risk as a result? Further, if shifting more regulatory authority from the state to the federal level in the US (and presumably in the EU as well), what would be the cost to the federal system? The answers for the U.S. and E.U. could differ, given where each union is in its development. The insurance industry in New York is a case in point.

The full essay is in Cases of Unethical Business, which is available at Amazon.

Should the ECB Spend an Unlimited Amount on Bonds?

The European Central Bank did not place any limit on its program in which the bank purchases bonds of heavily indebted states so as to keep their borrowing costs (i.e., the bonds’ interest rates) from increasing. The program, called Outright Monetary Transactions, had already accomplished that even before spending a euro. Anticipation that the ECB would enter a state bond market if its interest rate rose high enough was enough to keep the rates from skyrocketing.  So, the announcement that the ECB would spend what “would be adequate to meet [the] objectives” is perhaps more important than how much the central bank actually spends.[1]  According to Joerg Asmussen, an executive board member of the ECB, the OMT was “economically necessary, legally permissible and effective.”[2]  He made the comment as a court in the state of Germany was preparing to consider whether the OMT “infringes on the constitution’s insistence on sovereign parliamentary control over budget matters.”[3]  Hence, a tension between “legally permissible” and “infringes on . . . sovereign parliamentary control” threatened to kill a program that had already succeeded before buying one bond. Fortunately, legal experts were saying that the German court might defer to the European Court of Justice, the E.U.’s supreme court.

The full essay is at Essays on the E.U. Political Economy, available at Amazon.

Starbucks Takes a Hit for Supporting Gay Marriage

In January 2012, Starbucks joined Microsoft and Nike in publicly supporting the same-sex marriage bill in the U.S. state of Washington. Two months later, the National Organization for Marriage began a “Dump Starbucks” boycott as a result of Starbucks' support of gay marriage. David Barton, whose sermon on May 19, 2013 on “pious caffeine consumption” was posted on the internet, said, “The question is, ‘Can a Christian give money to a group he knows will use it to attack what God supports?’ . . . You can’t drink Starbucks and be Biblically correct on this thing. It’s just a real simple principle.”[1] Barton had earlier likened being gay to smoking and gay marriage to dogs marrying horses. In spite of these rather extreme claims, the boycott gained some traction. At the next Starbucks’ stockholder meeting in March 2013, Tom Stauber, a stockholder, suggested that the company’s sales and earnings were a “bit disappointing” in the quarter after the boycott had begun precisely because of the issue. Whereas the stock and dividends had risen 38% from October 2011 to September 2012, the rise was only 7.6% from March 2012 to March 2013.[2]  If indeed the causal attribution is correct, then it can be asked whether the management (and/or board) of a company taking a political stand on a controversial societal issue that is not expected to save the company money and in fact could result in lost revenue breaches the fiduciary duty to the stockholders unless a majority of shares are voted in support of the position.

Starbucks typically relies on young adults to both work in and manage the stores. Even an excellent vetting process in hiring does not mean that effort is not needed to fortify the mechanism of accountability.  Source: wikimedia.  

The full essay is at "Starbucks: A Shaky Management Wades into Social Issues."

See also, Bucking Starbucks' Star, available at Amazon.

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[1] Meredith Bennett-Smith, “Christians Can’t Drink Starbucks Because Company Supports Gay Marriage, Evangelical Says,” The Huffington Post, June 3, 2013.

[2]Aaron Smith, “Starbucks CEO Holds His Ground on Gay Marriage,” CNN Money, March 28, 2013.

Erdogan Renovating Istanbul: Turkish Prime Minister or Mayor?

Istanbul is the historical seat of three empires, the last of which being the Ottoman Empire. Following World War I, which ended that Empire, the Republic of Turkey was officially established in 1923. In terms of the previous empires, that which would be Turkey can be said to have been the host kingdom, or state, rather than an empire in itself. This distinction can add insight into the protests in 2013 against Recep Erdogen, the Prime Minister of Turkey. Before going on to accurately relate the prime minister to Istanbul, it is important to know what sparked the public unrest against him. 

                     Astonishingly, this protest in Istanbul began against the loss of a city park. In actuality, the protest was against the sitting prime minister.    Source: NYT

 According to CNN, “(t)he protests began with plans to raze Gezi Park, the last green space in central Istanbul.”[1] The Turkish government had been planning to replace the park with a replica of 19^th-century Ottoman barracks, which would include a shopping mall. The New York Times describes the park as “a place of public gathering.” The government had recently ordered the city’s oldest movie theater to be demolished so another mall could be built. Meanwhile, in ghettos across the city, the poor were being paid to give up their homes so that “contractors—many with ties to government officials—can build gated communities.”[2] The presence of cozy corruption aside, the very involvement of Turkey’s prime minister in matters that are municipal in nature was also a matter of controversy. While it would admittedly be strange to find the government of an empire occupied with municipal functions of even a major city in one of the constituent kingdoms or states, such involvement of a government of a republic on the scale of a U.S. or E.U. state is neither improper nor unusual. Conflating a kingdom, republic or state with an empire or union of such polities led to erroneous conclusions regarding the upheaval in Turkey.

 

Asli Aydintasbas, a columnist for Milliyet Newspaper, chided the Turkish prime minister for being too paternalistic in deciding “on the park, the bridge, the city and the constitution.”[3] In effect, Aydintasbas was claiming that Erdogan had been micromanaging in getting involved even on a city park and a bridge. On CNN on June 3, 2013, a commentator likened Erdogan turning the park into a mall to Obama getting involved in renovating Times Square in New York City. The commentator, an American, was conflating a union of states with a republic on the scale of one of those states.  In other words, the commentator was ignoring the vital difference in scale and operations between an empire and a kingdom or simple republic that could fit into an empire. 

Because U.S. President Obama has responsibilities spanning fifty republics, spending his time on a municipal project in a major city of one of those republics would not be an effective use of his time, given the other demands spanning fifty republics on his time. Of course, if a particular urban project has significance spanning the Union, it would not be improper for the government of that Union to get involved. The site of the World Trade Center, for instance, has such significance because the U.S. rather than merely New York had been attacked on September 11, 2001. 

The government of a simple republic or state, like Turkey and New York, can properly get involved in particular urban projects because the government is not so far removed from its cities. In the U.S., city governments are state subjurisdictions, so a state government can even take back the delegated authority, as the Michigan Government has done in the case of bankrupt Detroit. It is therefore not strange for a state legislature or executive to take interest in a particular municipal project.

  

Therefore, the prime minister of Turkey getting involved in a city park project in Istanbul is like the governor of New York getting involved in a public land project in New York City. Thus re-calibrated, Erdogan’s direct involvement on particular large projects in Istanbul is not so astonishing. This is not to say that there are no other possible valid reasons to protest against the prime minister. My sole point here is that Turkey is not a United States of Asia. Rather, the republic would be a state in such a union. To ignore this distinction simply because both empires and states are countries is extremely reductionist and apt to result in erroneous comparisons and prescriptions for policy.

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[1] Ivan Watson and Gul Tuysuz, “Turkey Protests Show No Sign of Letdown,” CNN, June 3, 2013.

[2] Tim Arango, “Protests in Turkey Reveal a Larger Fight Over Identity,” The New York Times, June 2, 2013.

[3] Ivan Watson and Gul Tuysuz, “Turkey Protests Show No Sign of Letdown,” CNN, June 3, 2013. The column itself is at: http://siyaset.milliyet.com.tr/Milliyet.aspx?aType=siyasetYazarTumYazilarV4&AuthorID=220

Genetically-Modified Foods: Health in the E.U. and Rights in the U.S.

With regard to genetically-modified (GM) foodstuffs, an interesting cultural difference between Americans and Europeans surfaces. Even though both peoples are fully capable of over-reacting to a presumed danger, what they select and how they react differently can be instructive, culturally speaking.

The complete essay is at Essays on Two Federal Empires.

Federalism on Different Levels: Switzerland Capitulates to the E.U.

In 1960, Switzerland was one of the two founders of the European Free Trade Association. All of the countries participating in that free-trade agreement except Switzerland went on to ratify the EEA (European Economic Area) free-trade treaty, an agreement akin to NAFTA in America. In a referendum in December 1992, the Swiss turned down the proposed treaty. Rather than gain access to the E.U.’s domestic market through EEA, the Swiss opted to do so through bilateral treaties with the E.U. by which the independent state agreed to E.U. laws relevant to the single market. Switzerland also signed on to the  Schengen arrangement, which became an E.U. law in 1999, and provisions concerning security and asylum. Even so, changes to the relevant E.U. federal law are binding on Switzerland via the bilateral treaties only if a bilateral commission approves. Admittedly, “Bilateral” is somewhat misleading here, as a basic equivalence is erroneously assumed between the E.U. and Switzerland.


The complete essay is at Essays on Two Federal Empires.

 Switzerland, shown in orange, would not even be a large state in the E.U.    Source:  battlecat.net