| 2nd Day of Violence as Police Battle Protesters; Jordan PM Talks With Rivals; Yemen President to Step Down in 2013; Obama Abandons Mubarak Posted: 02 Feb 2011 10:57 PM PST Egyptian president Hosni Mubarak is finding that it's difficult to give the people a "little bit of democracy". Millions of protesters want reform now, not 8 months from now. Following six days of mostly peaceful protests, Mubarak made a decision to counter protesters by unleashing the "baltageya" plainclothes police armed with rocks, knives, and clubs. With that, a peaceful ending that seemed possible two days ago took a sharp turn for the worse. And after days of sitting on the fence, President Obama finally took a decisive stand, calling for Mubarak to leave "Now". Mubarak Supporters Strike Back With Clubs, Rocks, KnivesViolence took an unfortunate turn for the worse as Mubarak's Allies and Foes Clash in EgyptPresident Hosni Mubarak struck back at his opponents, unleashing waves of his supporters armed with clubs, rocks, knives and firebombs in a concerted assault on thousands of antigovernment protesters in Tahrir Square calling for an end to his authoritarian rule.
The deadly clashes that started Wednesday carried into Thursday morning, when shots were fired at the anti-Mubarak protesters, a number of witnesses said. It was unclear whether the shots came from the pro-government demonstrators or from the military forces stationed in the square.
The Egyptian military, with tanks and soldiers stationed around the square, neither stopped the violence on Wednesday nor attacked the protesters. Soldiers watched from behind the iron fence of the Egyptian Museum, occasionally shooting their water cannons, but only to extinguish flames ignited by the firebombs.
Only two days after the military pledged not to fire on protesters, it was unclear where the army stood. Many protesters contended that Mr. Mubarak was provoking a confrontation in order to prompt a military crackdown.
Mohamed ElBaradei, who was designated to negotiate with the government on behalf of the opposition, demanded that the army move in and protect the protesters. "The army has to take a stand," he said in a television interview. "I expect the Egyptian Army to interfere today."
The deployment of plainclothes forces paid by Mr. Mubarak's ruling party — men known here as baltageya — has been a hallmark of the Mubarak government, and there were many signs that the violence was carefully choreographed. Please read the rest of that story. Mubarak planned this violence. I suspect some will now want his head. Arab World Faces Its Uncertain FutureThe New York Times reports Arab World Faces Its Uncertain FutureThe future of the Arab world, perched between revolt and the contempt of a crumbling order, was fought for in the streets of downtown Cairo on Wednesday.
Tens of thousands of protesters who have reimagined the very notion of citizenship in a tumultuous week of defiance proclaimed with sticks, home-made bombs and a shower of rocks that they would not surrender their revolution to the full brunt of an authoritarian government that answered their calls for change with violence.
The Arab world watched a moment that suggested it would never be the same again — and waited to see whether protest or crackdown would win the day. Words like "uprising" and "revolution" only hint at the scale of events in Egypt, which have already reverberated across Yemen, Jordan, Syria and even Saudi Arabia, offering a new template for change in a region that long reeled from its own sense of stagnation. "Every Egyptian understands now," said Magdi al-Sayyid, one of the protesters.
Everyone seemed joined in the moment, fists, batons and rocks banging any piece of metal to rally themselves. A man stood on a tank turret, urging protesters forward. Another cried as he shouted at Mr. Mubarak's men. "Come here!" he said. "Here is where's right." Men and women ferried rocks in bags, cartons and boxes to the barricades. Bassem Yusuf, a heart surgeon, heard news of the clashes on television and headed to the square at dusk, stitching wounds at a makeshift clinic run by volunteers.
"I'm fighting for my freedom," Noha al-Ustaz said as she broke bricks on the curb. "For my right to express myself. For an end to oppression. For an end to injustice."
"Go forward," the cries rang out, and she did, disappearing into a sea of men. Protest GalleryStone Throwing  Cairo Protest  Those are 2 of 115 Photos From the ProtestsThe count goes up every day, with new images added to the front. Obama Abandons MubarakIt took President Obama too long, but finally he got it right. Please consider Sudden Split Recasts U.S. Foreign PolicyAfter days of delicate public and private diplomacy, the United States openly broke with its most stalwart ally in the Arab world on Wednesday, as the Obama administration strongly condemned violence by allies of President Hosni Mubarak of Egypt against protesters and called on him to speed up his exit from power.
Egypt's government hit back swiftly. The Foreign Ministry released a defiant statement saying the calls from "foreign parties" had been "rejected and aimed to incite the internal situation in Egypt." And Egyptian officials reached out to reporters to make clear how angry they were at their onetime friend.
Separately, in an interview, a senior Egyptian government official took aim at President Obama's call on Tuesday night for a political transition to begin "now" — a call that infuriated Cairo.
But the White House was not backing down. "I want to be clear," said Robert Gibbs, the press secretary. " 'Now' started yesterday."
Officials at the Pentagon, the State Department, the Central Intelligence Agency and the White House were running various scenarios across the region in an effort to keep up with events.
What would the covert American war in Yemen look like if the supportive Yemeni president were to be forced out? Will Mr. Mubarak's successor duplicate his support of the Middle East peace process? Will the shifts in the region benefit Islamic extremists, who will try to capitalize on unrest, or will it show the Arab street the power of a secular uprising?
"A full range of events are being discussed in many buildings throughout Washington," Mr. Gibbs said. Hackers Shut Down Egyptian Government SitesThe New York Times reports Hackers Shut Down Government SitesThe online group Anonymous said Wednesday that it had paralyzed the Egyptian government's Web sites in support of the antigovernment protests.
Anonymous, a loosely defined group of hackers from all over the world, gathered about 500 supporters in online forums and used software tools to bring down the sites of the Ministry of Information and President Hosni Mubarak's National Democratic Party, said Gregg Housh, a member of the group who disavows any illegal activity himself. The sites were unavailable Wednesday afternoon.
The attacks, Mr. Housh said, are part of a wider campaign that Anonymous has mounted in support of the antigovernment protests that have roiled the Arab world. Last month, the group shut down the Web sites of the Tunisian government and stock exchange in support of the uprising that forced the country's dictator, Zine el-Abidine Ben Ali, to flee.
Mr. Housh said that the group had used its technical knowledge to help protesters in Egypt defy a government shutdown of the Internet that began last week. "We want freedom," he said of the group's motivation. "It's as simple as that. We're sick of oppressive governments encroaching on people." Yemen's President to Step Down in 2013In a possible ploy to buy time, Yemen's president promises to step down in 2013. In another reverberation of the popular anger rocking the region, the longtime president of Yemen, Ali Abdullah Saleh, announced concessions on Wednesday that included suspending his campaign for constitutional changes that would allow him to remain president for life and pledging that his son would not seek to be his successor.
"No extension, no inheritance, no resetting the clock," Mr. Saleh said Wednesday during a legislative session that was boycotted by the opposition. "I present these concessions in the interests of the country. The interests of the country come before our personal interests."
But it remained to be seen whether Mr. Saleh, whose current term ends in 2013, was simply trying to siphon vigor from the antigovernment protests planned for Thursday. Those demonstrations are intended to build on gatherings last week that turned into the largest protests against Mr. Saleh, who has ruled for 32 years. He promised in 2005 not to run again but changed his mind the next year. Jordan Prime Minister Seeks to Contain UnrestPlease consider Premier of Jordan Holds Talks With Rivals. Jordan's new prime minister began consultations with key political groups, including the Muslim opposition, on Wednesday. The talks came a day after King Abdullah II, caught in a regional wave of discontent, sought to stave off growing public unrest by firing his government and vowing reform.
Even before meeting with the prime minister, Marouf al-Bakhit, leaders of the Muslim Brotherhood here condemned him as a poor choice because of his ties to the military and because what they want is more democracy rather than a change of personnel. But other vital constituents, including former military officers and tribal leaders, were pleased by his selection, and that seems to have been the king's first concern in a country where tribal ties to the monarchy are central. Many here said the king had calmed an important part of public anger and won time for changes.
"This Friday will be the first in a month that we will not go out into the streets to demonstrate," Salem Daifallah, a colonel active in the High National Council for Retired Military Men, representing some 160,000 people, said in an interview. "We will bide our time and see what the new cabinet looks like." The Muslim Brotherhood and leftists are expected to demonstrate again this week, but most predictions are for smaller turnouts than in recent weeks.
Analysts, diplomats and average Jordanians make the point repeatedly that Jordan is not Tunisia or Egypt. It is a monarchy, and thus far the legitimacy of Hashemite family rule here remains largely unchallenged. Moreover, the two groups that make up the country's six million people — the East Bank tribes on one hand and Palestinians on the other — have distinctly different interests, meaning the king is not expected to face a unified movement for change.
"Jordan is not even close to being about to blow up," a Western diplomat here said. "It remains a stable place." Superb Coverage from New York Times, Al JazeerCoverage of these events by the New York Times has been superb. All of the above links, stories, and images are from http://www.nytimes.com/. Please also see excellent videos of Violence in Cairo Square on Al Jazeer. (click on the second image in the series and it will open up a video to play). Also see the Al Jazeer Live Video Stream and the Al Jazeer Live BlogMike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com
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| California Budget Poker: Republicans May Raise the Stakes in Jerry Brown's Special Election Bet Posted: 02 Feb 2011 06:56 PM PST The game of high stakes poker in California might get a lot more interesting. Governor Jerry Brown demanded Republican put his tax hike proposals to a vote. Brown said "let the voter decide". Now some Republicans are considering doing just that, provided the ballot also contains a provision to cut taxes. Please consider Republicans preparing to support Jerry Brown's special election -- on their own terms. California Republicans -- who initially balked at Gov. Jerry Brown's Monday call for a special election to "let voters decide" solutions to the state budget -- may be crafting their own ballot plan, complete with a new twist.
Some leading Republicans and anti-tax figures are now mulling the idea of calling Brown's "bluff" and supporting the special election --if tax cuts, as well as tax extensions, are offered to voters on the ballot, we hear.
Jon Coupal, who heads the influential Howard Jarvis Taxpayers Association, told the Chronicle/SFGate.com today that some Republican lawmakers in Sacramento came up with the idea after Brown argued at Monday's State of the State address that GOP lawmakers may be seen as "thumbing their nose" at voters by blocking a special election to allow them to weigh in on tax extensions and billions in budget cuts.
Asked how Republicans could meet or even counter Brown's challenge, Coupal said: "I think it's quite easy."
"I think the Republicans should agree to put those tax increases on the ballot on one condition: parallel tax reductions."
Said Coupal: "Our response is -- "You want to give the voters a choice? We agree."
Republicans, he said, "know what the answer would be, because Californians already expressed their desire to hold the line on taxes."
Coupal told us it would work like this: Brown has proposed a five year tax extension that includes a .25 percent surtax on personal income tax. That would go on the ballot -- as would a corresponding .25 decrease, he said.
The same would hold true for the vehicle license fee, and the sales tax, he said. That gives voters a chance, on each of the proposed taxes, the option "to increase it by whatever amount, to decrease it or reject both,"Coupal said.
"If the Democrats really want to give Californians a chance to engage in the process, let's do it," he said. Why Stop With Taxes?I strongly endorse this idea. But why stop with taxes? Mish Ballot Proposals- Ending defined benefit plans for state employees
- Scrap prevailing wage laws
- Ending teacher tenure
- Making California a Right to Work State
- Scrapping totally useless departments such as but not limited to: Acupuncture Department, Art Council, Bureau of Automotive repair, Barbering board, Film Commission, Hearing Aid Dispensers Bureau, Home Furnishings Bureau, Independent Living Council, Indoor Air Quality Program, MyCali Youth Portal, Natural Community Planning Program, Railroad Museum, Wetlands Information System
California AgenciesLook at this disgusting list of California Agencies. I sorted out some but not all of the more ridiculous ones. Does the state need a .... - Acupuncture Department
- Office of AIDs
- Air Research Board
- 3 different agencies for alcohol and beverages
- 2 Apprenticeship Councils
- Art Council
- Asian Pacific Islander Legislative Caucus
- Bureau of Automotive repair
- Barbering board
- Biodiversity council
- Calvet Loan program
- Climate Change Portal
- Coastal Commission
- Cool California
- 4 Delta agencies
- Digital Library
- Bureau of Electronic and Appliance Repair
- Employment Training Panel
- Energy Commission
- Equalization Board
- 2 Fair Employment agencies
- Film Commission
- Flex Your Power
- Healthy Family Program
- Hearing Aid Dispensers Bureau
- Home Furnishings Bureau
- Humanities Council
- Independent Living Council
- Indoor Air Quality Program
- Economic Development Bank
- Interagency Ecological Program
- Labor and Workforce Development
- Latino Legislative Caucus
- Learn California
- Little Hoover Commission
- Maritime Academy
- Managed Risk Board
- Museum for History
- MyCali Youth Portal
- Native Heritage Association
- Natural Community Planning Program
- Naturopathic Medicine Community
- Outreach
- Peace Officer Standards Board
- Postsecondary Education Commission
- Prison Industry Authority
- Privacy Protection Office
- Psychology Board
- Railroad Museum
- Recovery Task Force
- Refugee Branch
- Regents of the U of C
- Save Our Water commission
- Smart Growth Caucus
- Status of Women Commission
- Take Charge California
- We Connect
- Wetlands Information System
- Workforce Investment Board
I support a yes-no vote on cutting off funding for every one of those agencies, individually, not in a group, preferably with a provision that "no vote" (nothing checked) counts as "a no vote". I say stick it to Brown big time. He wants a vote, well so do I. Let's have one, and not just on taxes but rather about all issues that affect taxpayers. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com
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| Atlanta Faces Plateful of Pension Reform Choices Posted: 02 Feb 2011 03:08 PM PST Atlanta is in deep trouble over pensions that consume ever-increasing portions of the city's budget. The Business Chronicle discusses a plateful of pension reform choices that Atlanta is considering. The Pension Review Panel wrapped up a year-long effort by laying out alternatives from a simple reduction of the maximum cost-of-living adjustment to scrapping the retirement system altogether.
The COLA change would save the city $5 million to $10 million a year and reduce its long-term pension obligations by $180 million.
On the other extreme, abolishing the retirement system would save up to $60 million annually and slash long-term obligations by up to $640 million.
Whatever choice the city makes, something must be done to reduce the cost of a pension system that is taking up nearly 20 percent of Atlanta's annual budget and is saddling the city with an unfunded accrued liability of an estimated $1.5 billion, Mayor Kasim Reed said.
The Pension Review Panel also found: - Over the past 10 years, Atlanta's pension liability increased $650 million due to poor investment performance.
- Atlanta contributes 39.1 percent of each employee's salary toward pension benefits, while its peers contribute 20.8 percent.
- Atlanta's pension program is funded at 53 percent compared with the national benchmarks of 80 percent of the pension commitment being funded.
Digging out of a Deep Hole The only plan that will work in the long haul is killing defined benefit pension plans entirely. Atlanta assumes its pension program is funded at 53 percent. I strongly suggest it is 53% funded by the same actuarial madness that says Illinois pension plans are 50% funded (smoothed returns and 8% annualized future returns). For a look at state pension plans, please see Interactive Map of Public Pension Plans; How Badly Underfunded are the Plans in Your State?That report says Illinois is 29% funded. The state say 50%. Laws in Congress on sound actuarial processes for states will show 29%. The reality is smoothing is a fraud and 8% annualized returns are not going to happen. Illinois pension plans are in aggregate only 29% funded. I suspect Atlanta is in the same boat. At least Atlanta is discussing the issue. The only thing Illinois does is raise taxes. To get out of a hole the first thing you have to do is stop digging. Atlanta needs to kill defined benefit pension plans going forward (capping all accrued benefits) and scrap COLAs for existing pensioners as well. Anything else just kicks the can down the road, making the problem worse in the meantime. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com
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| New Economic Model For Bloggers? Posted: 02 Feb 2011 12:01 PM PST Barry Ritholtz posed an interesting question for bloggers in Blogonomics: A New ChapterI had a good blogonomics idea several years ago. I pitched it to numerous media outlets, but to no avail. The Street.com, NYT, Conde Nast, WSJ, CNBC. The idea was for a mainstream media outlet, with their ready-built ad sales team, to extend their advertising umbrella to the blogosphere. We bloggers provide content/inventory/page views for free — remember, the MSM is spending millions to crank out content themselves — and they provide high CPM adverts. The bloggers capture 50-60% of the revenue, and the balance goes to the MSM ad teams. For them, its cost-free content to serve the ads they sold anyway — it not only brings the MSM deeper into the internet, it should be found money for them.
No brainer, right?
Only, not so much. There were very few takers. Wired, to their credit, tried it with the Big Picture, but one blog was too small to move the needle much for them.
But the idea makes sense. The next step is to do this with a cooperative of sorts – a network of blogs that perhaps individually may not have huge traffic, but collectively match the traffic of the NYT or the WSJ. A handful of the larger blogs, a substantial run of the up and comers, some established mid-traffic blogs, and collectively you could end up with 25 million page views per month. THAT has to be worth something to advertisers.
And if the blogs are selected carefully – avoid the SEO sites, content farms, and click whoring articles on 20 pages – you would have a tremendous grouping, with a very worthwhile audience. Well-educated, high net worth, discretionary spending, substantial investment portfolios — an advertisers wet dream.
Gee, might a network of Market/Trading/Economics blog reach that desirable audience? What is that worth to an ad buyer?
Indeed, it seems almost obvious.
So why hasn't this been done yet? What am I missing here? Forbes Tried and FailedHello Barry Recall that Forbes tried and failed. To your credit, you spotted problems with Forbes in advance. Calculated Risk and I did give Forbes a whirl. It did not work out particularly well and you stayed away from it. Ironically, Forbes was not even a good model for bloggers but a good model for Forbes. They took 55% and gave bloggers 45%. In spite of an advantageous split for them, Forbes struggled to fill ads. I bet Forbes filled 10-15% of my space at most although they insisted they be listed first in hierarchy. After Forbes, I cascaded to Tribal Fusion, then to Google. I now have a different sole-provider relationship with a few exceptions. Here is my question: If Forbes could not fill ads, could a group of bloggers? In terms of size, beyond the top 5 or so there is not much size. I assume you have seen these Blog Traffic Rankings, perhaps not. Notice how sharply traffic drops off. The top 3 are clustered (Calculated Risk, Big Picture, Mish). Naked Capitalism and Marginal Revolution are clustered at 4-5 with 50-60% of the top blog traffic. The number 6 blog drops dramatically and only has 20% of the traffic of the #1 blog. The number 10 blog has 14% of the traffic of the #1 blog. That number 10 spot barely enough traffic to interest an ad network like Tribal Fusion. Those rankings do not include aggregators or content providers like Seeking Alpha, ZeroHedge, or Minyanville. Nor does it include corporate blogs like Krugman. The list is restrictive, on purpose, to compare individual, non-corporate sponsored bloggers. It is not easy to break into the top 10 or even top 20. Yet the number 20 blog only has 5% of the traffic of the top blog, and little traffic to interest any advertisers other than Google. Thus you are really seeking a consortium of say 10 bloggers at most, and possibly only 5. Otherwise you are back to the failed Forbes model. Maybe this is your answer, maybe not, but arguably it explains why Forbes going after hundreds of bloggers failed. Excellent ContentThe thing is, there are some really excellent blogs out there. I read articles all the time and wonder why isn't this person's traffic higher. To answer my own question, I have a list of reasons: - Inconsistency in posting quality
- Inconsistency in posting frequency
- Content too similar to what the top few blogs post
- Site too new to attract a large following
- Blog author gives up
It takes years to attract a following although there are some exceptions like Zero Hedge. However, ZeroHedge has a dozen authors or guest bloggers (at least) and cannot realistically be compared to an individual blogger. Word of Thanks to BarryOn a side note, Barry Ritholtz is a friend. Many read too much into our disagreement regarding regulation. We simply disagree on the issue of regulation in general. However, we do agree on some pieces of individual regulation. Moreover, we agree many other things, including the role and responsibility of the Greenspan Fed and Bernanke Fed in this mess. Barry was an early proponent of my blog. He helped build my traffic at a critical time. I have publicly and privately stated that on many occasions. Thanks again Barry. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com
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| Teacher Tenure Under Attack by GOP Governors; Perfect Rationale for Ending Tenure Comes from Obama Posted: 02 Feb 2011 10:18 AM PST Teacher tenure is under attack by governors in New Jersey, Florida, Idaho, and Nevada. Moreover, New York City mayor Michael Bloomberg, Newark mayor Cory Booker, and Los Angeles mayor Antonio R. Villaraigosa have all jumped on the tenure reform bandwagon. Please consider G.O.P. Governors Take Aim at Teacher TenureSeizing on a national anxiety over poor student performance, many governors are taking aim at a bedrock tradition of public schools: teacher tenure.
"It's practically impossible to remove an underperforming teacher under the system we have now," said Gov. Brian Sandoval of Nevada, lamenting that his state has the lowest high school graduation rate in the nation. Eliminating tenure, Mr. Sandoval said, would allow school districts to dismiss teachers based on competence, not seniority, in the event of layoffs.
In New York City, Mayor Michael R. Bloomberg has campaigned aggressively for the state to end "last in, first out" protections for teachers. Warning that thousands of young educators face layoffs, Mr. Bloomberg is demanding that Gov. Andrew M. Cuomo scrap the seniority law if the budget he will unveil Tuesday includes state cuts to education.
The former school chancellor of Washington, D.C., Michelle Rhee, who campaigned against tenure as early as 2007, has made abolishing it a cornerstone of a new advocacy group, Students First, which has advised the governors of Florida, Nevada and New Jersey.
In New Jersey, Gov. Chris Christie, whose combativeness with the teachers' union has buoyed his national reputation, appears to have a good chance of getting a bill from the Democratic-controlled Legislature that reshapes tenure.
Florida governor, Rick Scott, told the Greater Miami Chamber of Commerce last month: "Good teachers know they don't need tenure. There is no reason to have it except to protect those that don't perform as they should."
Idaho, Gov. C. L. Otter, a Republican, presented an education plan last month that said bluntly, "The state will phase out tenure."
Obama Praises Colorado School Turnaround In president Obama's State of the Union address, he mentioned the Bruce Randolph school in Denver which went from being one of the worst schools in Colorado to graduating 97 percent of its seniors in three years. You see, we know what's possible from our children when reform isn't just a top-down mandate, but the work of local teachers and principals, school boards and communities. Take a school like Bruce Randolph in Denver. Three years ago, it was rated one of the worst schools in Colorado -- located on turf between two rival gangs. But last May, 97 percent of the seniors received their diploma. Most will be the first in their families to go to college. And after the first year of the school's transformation, the principal who made it possible wiped away tears when a student said, "Thank you, Ms. Waters, for showing that we are smart and we can make it." (Applause.) That's what good schools can do, and we want good schools all across the country. Firing Teachers Key to Success of School's TurnaroundWhat the president forgot to tell you was that ability to fire teachers regardless of tenure was the reason for a successful turnaround of Bruce Randolph. Please consider the Real Story with Obama's Colorado School TurnaroundDuring the state of the union address, Obama praised the Bruce Randolph school in Colorado for turning themselves around rather dramatically in a few short years.
Three years ago, Bruce Randolph was one of the poorest performing schools in Colorado. In 2010, 97% of the seniors graduated. Many of the graduates were the first in their families to get admitted into college.
How did they do it?
Sen. Michael Bennet and the school's principal Kristin Waters, convinced the Colorado government to give the school almost complete autonomy from the state's education bureaucrats over budget, staffing, schedule, school calendar, and curriculum.
One of the first things they did is terminate all of their tenured teachers and told them they could re-apply for their jobs. Only 5% got their jobs back. 95% of the tenured teachers weren't up to par.
The Gate's Foundation has done significant research into why public schools fail. Their conclusion is that it's all about teachers. The producer of the movie "Waiting for Superman" came to the same conclusion. Good teachers succeed and bad teachers fail our children. It's not any more difficult than that.
Unfortunately, the teacher's unions have blocked every attempt to implement these types of common sense reforms.
The big question is whether or not Obama and the Democrats are willing to do battle with their largest specialist interest group so that our kids can have a fighting chance in the global economy? While bad teachers are guaranteed to fail, so are bad parents. Nonetheless, efforts to stick with a corrupt tenure system that makes it all but impossible to get rid of any teachers has to go. The success story of Bruce Randolph should make that clear. I applaud the efforts of New Jersey Governor Chris Christie, Florida Governor Rick Scott, Idaho Governor C. L. Otter, and Nevada Governor Brian Sandoval. It's nice to see the president provide the perfect example for those governors. Now we need the perfect example from the President to get rid of public union collective bargaining as well. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com
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| China's "Borg Strategy" Seeks to Assimilate all Known Technology; US Seeks to Waste $Trillions More in Afghanistan Posted: 02 Feb 2011 12:16 AM PST While the US is hell-bent on meddling (at tremendous expense) in the affairs of at least 140 countries where its troops are stationed, China seeks to assimilate technology at little expense. The Wall Street Journal puts it much more politely. Please consider U.S. Firms, China Are Locked in Major War Over Technology. China's bureaucrats have been rolling out an array of interlocking regulations and state spending aimed at making their country a global technology powerhouse by 2020.
To hear U.S. business executives describe it, Beijing's mammoth new industrial policy is like the Borg in "Star Trek"—an enormous organic machine assimilating everything in its path, in this case the inventions of other nations. Notably, China's road map, which is enshrined in the "National Medium- and Long-Term Plan for the Development of Science and Technology (2006-2020)," talks in those terms. China will build its dominance by "enhancing original innovation through co-innovation and re-innovation based on the assimilation of imported technologies."
The 44-page report, "China's Drive for 'Indigenous Innovation': A Web of Industrial Policies" maps the complex set of new initiatives that foreign companies face.
It also sent up a warning flare over the broader business community. Representatives of companies as diverse as IBM, Praxair, Microsoft, Alstrom, Motorola, Cisco, Corning and Caterpillar got briefings. Chinese academics also lined up. And GE distributed the report to its senior management. China's "Borg Strategy" Inquiring minds are reading China's Drive for 'Indigenous Innovation': A Web of Industrial Policies for details of China's Borg-like strategy. Here are some snips from the 45 page PDF. Indigenous innovation is a massive and complicated plan to turn the Chinese economy into a technology powerhouse by 2020 and a global leader by 2050. The landmark document that launched the campaign carries the bureaucratic title "The National Medium- and Long-Term Plan for the Development of Science and Technology (2006-2020)" (now known in the West as the MLP). Bland as the title may be, the MLP describes itself as the "grand blueprint of science and technology development" to bring about the "great renaissance of the Chinese nation."
The MLP blueprint is full of grand visions, good intentions and gilded rhetoric about international cooperation and friendship. But it is also steeped in suspicion of outsiders.
The MLP explicitly states that a key tool for China to create its own intellectual property and proprietary product lines will be through tweaking foreign technology. Indeed, the MLP defines indigenous innovation as "enhancing original innovation through co-innovation and re-innovation based on the assimilation of imported technologies." It also warns against blindly importing foreign technology without plans to transform it into Chinese technology. The report states: "One should be clearly aware that the importation of technologies without emphasizing the assimilation, absorption and re-innovation is bound to weaken the nation's indigenous research and development capacity."
China so far seems to be oblivious to the impossibility of having it both ways, hunkering behind the "techno-nationalism" moat at home while reaching into the global network of science collaboration and research. What is worrisome for the business community is that these indigenous innovation industrial policies are headed toward triggering contentious trade disputes and inflamed political rhetoric on both sides.
Many multinationals are increasingly dependent on their China profits. As one conglomerate strategist said: "We can't afford to antagonize China." Behind the smiling faces they display in Beijing, many foreign tech executives are rethinking their China plans as they try to figure out whether they should, or how they can, adjust to the new Chinese system. Some figure that they may be better off entering into technology partnerships with Chinese government companies to have their products qualify as indigenous innovation and reap the profits for a few years before unloading those divisions as it becomes apparent their global prospects are likely doomed by the China deal.
As political tensions rise over indigenous innovation, the Obama administration and Congress should understand this is not just another run-of-the-mill China policy dispute that can be addressed through new rounds of bilateral diplomatic discussions and bombastic legislative initiatives.
A RAMBLING PLAN OF BREATHLESS AMBITION
The plan targets 11 key sectors for employing technology development and innovation to solve China's problems. They include energy, water and mineral resources, environment, agriculture, manufacturing, transportation, information and services, population and health, urbanization, public security and national defense. Within these sectors, there are 68 priority areas that have clearly defined missions and expectations of technology breakthroughs. It also earmarks eight fields of technology in which 27 breakthrough technologies are to be pursued. These include biotech, information technology, advanced materials, advanced manufacturing, advanced energy technology, marine technology, laser technology and aerospace technology.
MEGAPROJECTS FOR "ASSIMILATING AND ABSORBING"
According to the MLP, as the "major carriers of uplifting indigenous innovation capacity," the megaprojects are aimed at "assimilating and absorbing" advanced technologies imported from outside China so the country can "develop a range of major equipment and key products that possess proprietary intellectual property rights." The government procurement market is assigned to be a key driver for these projects. The plan calls for creating a buy- China policy for government procurement and expanding the creation of China's own technology standards to get out from under the burden of paying license fees and royalties to foreign companies.
FILLING UP THE TOOLBOX
The goals of China's indigenous innovation campaign and the megaprojects are implicit and clear – capture the market space for domestic Chinese firms with SOEs having the favored position. For example, the official goal of China's "Next Generation Wireless Broadband" megaproject is called the "1225 strategy," the goal of which is to capture 10 percent of global patents, 25 percent of the telecom semiconductor market, 20 percent of the global broadband hardware market and 50 percent of the domestic market.
INTELLECTUAL PROPERTY RIGHTS AND WRONGS
As in many developing countries, much of Chinese industry got started by copying the products of others. Chinese law makes it difficult to find smoking guns if proprietary technology is stolen or leaked. As a result, some companies have become masterful in using pilfered blueprints and designs and sophisticated reverse engineering techniques to copy foreign products and jumpstart their companies. The patent system also enabled Chinese parties to "hijack" patents of others – by claiming a patent on an invention that was not published anywhere in the world or sold in China, such as for a product invented by another and revealed at a foreign trade show. LOCK AND LOAD YOUR PATENTS China's patent regime has been tailored to help accomplish two major indigenous innovation goals. One is to incentivize Chinese companies to file patents that contain little substance so that they can learn the patent process for later filing of real invention patents. The other is for Chinese companies to be able to use domestic patents to retaliate against foreign companies which file intellectual property infringement lawsuits offshore that stymie the international expansion plans of Chinese companies. The key tool for accomplishing this is China's use of the German "Gebrauchsmuster", or "utility model" patent.
Such patents don't exist in the US. Filings of these patents are not reviewed, and require only vague information. They can be used to obtain patents that are merely descriptions of products owned by others with a few small changes added in. China's patent law also follows the European "first to file" and not the American "first to invent" principle. As a result, Chinese companies are able to obtain patents for products they didn't invent but for which they filed the patent first. The definition of "invention" in Chinese patent law is also quite relaxed: "any new technical solution relating to a product, process or improvement…"
FRENCH LESSONS AND HOME COURT ADVANTAGE
These "junk patents" are proving to be a potent weapon against foreign companies. This became clear in September 2007, just three months before the list of 16 indigenous innovation megaprojects was unveiled. IP attorneys globally sent alert memos to their clients after the Intermediate People's Court in the coastal city of Wenzhou ordered the French electronics giant Schneider Electric to pay the Chint Group of Wenzhou RMB 334.8 million (about US $50 million) in damages for infringement of Chint's China "utility model" patent.
DAMNED IF YOU DO, DAMNED IF YOU DON'T
The indigenous innovation drive is forcing foreign technology companies to anguish over balancing today's profits with tomorrow's survival. With its extraordinary infrastructure plans and a continental-sized consumer market that has just begun to really develop, China is a market no multinational can ignore. But the price of admission is getting more expensive by the day as China opens its policy toolbox to ensure that foreign technology allowed into China is accessible for "co-innovation" and "re-innovation" by Chinese companies.
ON THE FAST TRACKS
It is no surprise that the world's train makers are transfixed by China, especially those who make high speed rail equipment. Dragonomics Research estimates that half of that US $730 billion will go toward building 16,000 kilometers of high speed rail lines—four north-south, four east-west and 19 inter-city lines. With 30,000 employees, 90 operating companies and 61 regional offices in China, Siemens tracks these trends very carefully.
BLOWING IN THE WIND
Technology transfer has always been the key priority in China's wind energy sector. China's domestic wind energy industry took off with the help of a set of major policy developments. In 2005, the NDRC required that all wind turbines in China must have at least 70 percent domestic content. Some leading foreign wind turbine manufacturers such as Vestas, Gamesa and Suzlon decided to operate independently despite these regulatory barriers. GE and a few others chose to follow the policy path. Technology transfers together with government financial subsidies, preferential tax policies and preferential treatment in project tendering and bidding have fueled rapid growth of domestic companies. In 2004, foreign wind turbines had a 75 percent market share in China. By 2009, the three largest domestic players, Sinovel, Goldwind and Dongfang alone had 60 percent of the market -- and the foreign share was down to 14 percent.
COME FLY WITH ME
In no other project or sector can the Chinese government's indigenous innovation campaign be seen more clearly than aerospace which is fueled by the country's aspiration to design and manufacture a large commercial aircraft that can compete with Boeing and Airbus. And this endeavor is well underway. China has set the year 2014 as the target for the first test flight of its home-grown 150-seat airliner, known as the C919. Commercial flights are planned to begin in 2016. While China accumulates patents by hook or by crook, the US is bogged down in Afghanistan and Iraq. Moreover, we have troops stationed in 140 countries around the globe in a futile attempt to be the world's policeman. Does China waste money on troops stationed elsewhere? Instead of building bridges like China does, we bomb bridges to smithereens in places like Iraq and Afghanistan, then rebuild them at US taxpayer expense. Bear in mind I certainly am not in favor of China's state-owned-enterprises (SOEs) or its massive unsustainable spending on infrastructure and housing. However, one can make a case that at least China gets something useful out of its investments while the US sends $trillions down a black hole of 100% useless military endeavors, making millions more enemies in the process. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com
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