– Jonathan R. Hoganson is the deputy executive director of the Technology CEO Council, a public policy advocacy group that includes the CEOs of Intel, HP, Dell, Applied Materials, EMC, Motorola, Micron Technology and IBM. He previously was the legislative director for Rep. Rahm Emanuel and policy director for the House Democratic Caucus. The views expressed are his own. –

A few years from now, when our economy has regained its stride, we may look back to a little-noticed announcement last Monday that spurred the resurgence. Amid swine-flu hysteria and First 100 Days hoopla, President Obama quietly announced a commitment to spending three percent of the U.S. GDP on science research and development.

This is a profoundly important step, but if we are to continue to lead the world, the United States must also develop a comprehensive policy to foster innovation. For too long, the United States has lived in a “next month” mindset when it came to our economy. This short-termitis has led to sub-prime lending, credit card debt and a general lack of long-term planning. And in no place has this been more evident than in the sciences.

For the past decade our spending on research and development has been anemic at best, and beginning in 2005, federal funding of academic research actually began to decline. This was happening at the same time our overseas competitors were increasing their commitment. For example, China has increased its R&D spending by an average of 17 percent each year in an effort to catch and surpass developed nations’ spending.

Currently, the United States ranks seventh among developed countries in R&D spending as a ratio of its GDP. Is that a recipe for continued economic and technology leadership?

There is, in fact, a direct correlation between R&D and scientific leadership. As the commitment to science ebbed, so did the U.S. share of worldwide patents and research articles in peer-reviewed journals. And R&D has been proven to catalyze economic growth and enable comparative advantage for developed companies and economies.

Now is the time to make technology and innovation a cornerstone. In the last three months we have made a good start, making broadband, health-care information technology and green tech key components of the stimulus package. The president has proposed a 10-year extension of the R&D tax credit to give businesses the incentive to continue to invest in cutting-edge technologies and products. By advancing these initiatives, we are developing the foundation of a national innovation strategy, but Congress must work with the president to advance a comprehensive strategy.

In recent years, countries such as Germany, France, Japan, New Zealand, Finland, Australia, Denmark, and Australia have established or expanded agencies to promote technology and innovation. While the United States is unlikely to create a new agency, the White House can develop an inter-agency strategy that will restore America’s preeminence as the world’s leader in innovation.

This strategy could synergize the Obama administration’s efforts in clean energy, broadband, and health reform, with new initiatives in education and R&D. It could also develop a system for partnering with venture capital to foster entirely new companies and industries. At the same time, we could remove non-tariff trade barriers, enforce international agreements, open new markets and provide a globally competitive corporate tax structure. All of these are crucial components of any inter-agency innovation strategy.

The last time our government put this type of concerted effort into scientific research was President Kennedy’s challenge to land a man on the moon by the end of the 1960s. Not only did we achieve that goal, it also spawned a generation of scientists and technologies that shaped the 1980’s and 1990’s. What followed was an era of Internet, communications and medical advances that spurred an unprecedented period of economic prosperity.

President Obama’s bold commitment to R&D carries an important reminder that the 1960’s space race was more than a demonstration of increased federal funding; it was a comprehensive strategy to ensure that America led the world. The president seems willing and able to replicate that success today; Congress and industry need to work with his team to make this happen. It’s time for America to take another giant leap for mankind.

– Diana Furchtgott-Roth, former chief economist at the U.S. Department of Labor, is a senior fellow at the Hudson Institute.  The views expressed are her own. —

In his first one hundred days, President Obama has shown himself to be one of the most radical U.S. presidents in history.  He is harming America’s defenses by publishing memos on interrogation of detainees and threatening to prosecute lawyers who drafted supportive memos.  He shakes hands with America’s enemies, such as Venezuelan leader Hugo Chavez, and sends mixed signals to its friends, such as Colombia’s President Uribe.

And, in the name of combating a recession, he is destroying the fundamental institutions of America’s free-market economy.

Not only would President Obama’s proposed programs move government spending to levels, in relation to the economy, unseen since the end of World War II, but his administration is increasingly involved in the minutiae of a new, unwise, industrial policy, such as how much firms can pay workers, and which banks are allowed to repay government loans, and which industries and companies deserve a government rescue package.

Under Obama’s proposed budget, the nonpartisan Congressional Budget Office projects the government deficit to hit $1.2 trillion in 2019, or six percent of GDP, after “bottoming out”—if it does—at  $658 billion in 2012, a level more than 40 percent above the highest deficit under the presidency of George W. Bush. By 2019, government spending would take up nearly a quarter of GDP, far higher than at the peak of Iraq war spending and the highest, excepting 2009 and 2010, since 1946.

Much has been written about President Obama’s plans for multi-year, growing expenditures on energy and health care. He has proposed to invest billions of dollars in wind, solar power, and other renewables, which now produce about 3 percent of U.S. energy, yet he neglects nuclear power, which produces 20 percent.  He has suggested a substantial cap-and-trade energy tax, which would raise more than a trillion dollars over time, according to some estimates. And he wants a down payment of $634 billion for a universal health care plan whose details he has not yet confided to the public.

In addition, Obama is pushing for other programs which are both costly and naive.  One of his priorities is high-speed passenger rail service, which was given a downpayment of $8 billion in economic stimulus funds and possibly $5 billion more in the budget.  This proposal is, to put it charitably, poorly-designed. Real high-speed rail, with trains that travel 150 miles an hour and faster, can be found in Europe and Japan, but they have not stemmed the increasing use of road transportation.  And these trains need their own, specially engineered rights-of-way, which would cost much more than $13 billion.

Some of Obama’s economic proposals appear to be aimed at placating labor unions, an important element in his political base, rather than encouraging economic recovery.  In March, even before the swine flu scare, he signed legislation ending a program, opposed by the Teamsters union, allowing a small number of Mexican trucks to enter into the United States.  Mexico is retaliating by imposing tariffs on almost 100 agricultural products, including wheat, beans, beef and rice, hurting American exporters.

In another concession to unions, the president has let the U.S. Labor Department end some disclosure requirements for union finances, originally put in place so that union members can learn how their dues are being spent.

Although Obama lauds transparency, the Labor Department has announced that it would not enforce the filing of the form that requires union officials to report conflicts of interest, such as whether they had personal relationships with firms doing union business.  In addition, unions will no longer be required to disclose supplemental information about officers’ pensions and compensation.

Even as unions are allowed to reveal less about their finances, financial institutions that have taken government funds, some reluctantly and under Treasury Department duress, are subject to an unprecedented level of scrutiny as to their compensation of senior executives.  Goldman Sachs, Morgan Stanley, and J.P. Morgan are being discouraged from repaying their Troubled Assets Relief Program funds, even though pay caps are interfering with retention of talented staff.  A government pressuring banks to do something not required by law is engaged in extra-legal behavior.

The government’s treatment of executive compensation bonuses, standard in many industries, has also been capricious. Some executives working in banks that received TARP funds were paid their bonuses without complaints from Washington.  Others, notably those working at AIG, were demonized both by the press and government.

For those who favor nationalization of the economy, or at least of big business, Obama’s first 100 days have been a roaring success.  Others, however, pray that the economy can survive not only the recession but also the president’s prescriptions.

– Michael O’Hanlon is a senior fellow at the Brookings Institution. The views expressed are his own. –

It’s no great surprise in American politics these days, but already a great partisan debate has broken out about President Obama’s foreign policy effectiveness to date. For his enthusiasts, the United States has hit the “reset” button and is reclaiming its place as not only a strong country, but a respected leader among nations. For his detractors, Obama is making the world dangerous by apologizing for America’s alleged misdeeds of the past, naively talking with dictators, and cutting the defense budget.

And as usual, the truth is neither of these polar positions. But as a past critic of Obama, especially during his days of promising a rapid and unconditional exit from Iraq during the presidential campaign, I would nonetheless argue that he has done a good job overall, and that his supporters have the stronger case to date. Still, making too much of provisionally good decisions in the first 100 days verges on playing a silly game of Potomac Jeopardy that only the evening talk shows and political junkies really care about. The bottom line is that Obama is just getting started. But he is off to a more solid start than almost any of his recent predecessors.

Consider the policy towards five key nations. And start with the wars. These are Category A problems. Obama has inherited a more difficult hand than any president since Nixon in terms of active, ongoing conflicts. Already we have lost almost as many American troops in our two wars on Obama’s watch as died in the first year of all of Obama’s predecessors going back to Carter combined.

But that is not a slight on the president, only a reminder of the difficult world that confronts him. And in dealing with these challenges, to date Obama has wisely listened to the counsel of his commanders and other experts on Iraq and Afghanistan. Our drawdown in the former place, while still rapid, will retain up to 50,000 U.S. troops even after it’s over. That is a lot of combat capability, and as such a departure from what Obama promised last year, and a relief to those of us still nervous about Iraq.

In Afghanistan, Obama will roughly double the American troop presence there in his first year in office. That will finally give commanders the wherewithal (or at least most of the wherewithal) to carry out a proper counterinsurgency strategy–with its twin goals of protecting the civilian population and building up Afghan institutions so they can increasingly do the job on their own.

The other crucial set of problems might be described as the nuclear hot spots–Iran, North Korea, Pakistan. On these, Obama’s record is less impressive to date. That is not, however, because he has done anything particularly wrong. Rather, the problems are extremely nettlesome. If Obama deserves any criticism, it is simply that his campaign rhetoric implied these would be far easier problems once George Bush was out of the White House and a new president was ensconced on Pennsylvania Avenue. In fact, the main reason these problems are hard is because of who we are dealing with in each case, and not because of George Bush or any other American leader. Since Obama is the one who raised expectations, he deserves to take a bit of a hit perhaps for not quickly fulfilling them–but otherwise his hand seems rather steady on the tiller.

Indeed, President Obama’s Pakistan policy is already an improvement over Bush’s in its emphasis on more military and economic aid, the naming of a special envoy, and related efforts. These steps finally begin to recognize our stakes in this crucial part of the world. Still, to call anybody’s policy towards Pakistan a solid one at a time when that country is practically crumbling before our eyes would go too far. Again, his policy is more “incomplete” than anything else. Which is exactly what you’d expect after 100 days.

– Kristin Lord is a fellow at the Brookings Institution and author of the recent report, “Voices of America: U.S. Public Diplomacy for the 21st Century.” The views expressed are her own. –

As Senate confirmation hearings approach, America’s next public diplomacy leaders will get abundant advice about how to improve America’s standing in the world. The Obama administration’s nominees (an under secretary and at least two assistant secretaries in the State Department alone) would be wise to listen.

Yet, in truth, America’s new public diplomacy team can accomplish much by following that age old maxim: first, do no harm.  Seven key “don’ts” are worth bearing in mind.

1) Don’t let the pollsters get you down. Being liked and admired, while useful, should not be the sole metric of success in public diplomacy. The job of American public diplomacy leaders is to promote American national interests through the power of communication, build mutual trust and understanding, strengthen support for universal values Americans share, and build enduring relationships with current and future opinion leaders around the world. Measuring achievement through poll numbers encourages short-term thinking and can jeopardize long-term success.

2) Don’t forget the borders. More than 50 million foreign travelers spend their own money to visit the United States each year, a number that vastly exceeds the number of participants in U.S. government funded exchange programs. Talk of re-booting America’s image in the world will fall flat if those visitors feel badly treated at U.S. borders and consulates.

3) Don’t forget the Pentagon. The State Department controls just a fraction of the U.S. government’s personnel and budget for public diplomacy and strategic communication.  To have impact, the State Department’s public diplomacy leaders should engage the Defense Department and the rest of the U.S. government early on.

4) Don’t go it alone. As the State Department’s new director of policy planning wrote in a recent “Foreign Affairs” article, in today’s world the “measure of power is connectedness,” a fact that should give the United States tremendous advantages.  But to fully embrace the power of networks, the U.S. government must find new ways to mobilize private actors it does not control, support and call attention to the good work of others without taking credit, and (when it advances important American objectives) empower credible voices to speak out even if they fall out of step with official U.S. policies.

5) Don’t forget old standards. New leaders typically want to put their own mark on an institution.  Since U.S. public diplomacy needs fresh perspectives, this is desirable as well as understandable.  Nonetheless, enthusiasm for signature programs and whiz-bang technologies should not be allowed to overshadow the tried and true workhorses of public diplomacy: educational and professional exchanges, visitor programs, and personal outreach by diplomats in the field.

6) Don’t trust your gut. As a former senior official once remarked to me, “we cannot remind ourselves often enough that the rest of the world is not just like us.” Even the most savvy, knowledgeable, and experienced public diplomats can hit off-key notes or design poor public diplomacy programs by forgetting this simple rule.  Public diplomacy leaders must resist the urge for speed and remember to both listen and test new ideas against foreign ears.  They will sometimes be surprised at what they learn – and save themselves a world of trouble.

7)   Don’t forget friends. During the Cold War, the United States devoted substantial public diplomacy resources to winning and maintaining allies in Europe, Asia, Latin America, and Africa.  As we again (quite reasonably) worry about enemies, that lesson is worth remembering.  The United States faces a host of complex transnational challenges ranging from financial crises to narcotics trafficking, climate change to terrorism, and we will need all the help we can get to confront them.

In a world where two-thirds of the world’s nations are democracies and citizens worldwide have unprecedented access to information, the United States must engage foreign publics, not just their governments, if it wishes to garner foreign support.

Public diplomacy is a tough business.  Success usually goes unnoticed, but failures can resound globally.  Avoiding missteps is impossible but avoiding these seven mistakes will give America’s next public diplomacy leaders a useful head start.

– Elena Panaritis is an institutional economist. She spearheaded property rights reform while working at the World Bank, and lectures at Insead, The Wharton School and Johns Hopkins University-SAIS. A social entrepreneur, she now heads the investment advisory firm Panel Group. Her recent book is “Prosperity Unbound: Building Property Markets with Trust”. The views expressed are her own. —

In his speech to Congress, President Obama spoke of how the proper response to the economic crisis is not just a matter of immediate fixes, but also an opportunity to make investments that will serve the nation’s long-term interests. The same idea should govern the housing recovery plan. Otherwise, we get nothing more than a crutch when we need a cure.

As much as short-term help is needed to keep more people from foreclosure, there is a big opportunity to get to the end of the crisis by starting at the beginning of the problem. The conventional wisdom is that subprime mortgages represent the beginning. In fact, the beginning goes back much further. The current crisis stems from the absence of a system that provides stability to the value of properties in the United States.

Instead, real estate “value” in the United States continues to be set through speculation, and that undermines the security – that is, the underlying asset – when mortgages are traded as part of complex financial instruments. We cannot ignore a simple truth of economics: if we are going to treat mortgages as securities, then they must be secured by the tangible asset: namely, land and buildings. To do otherwise has proven to be a recipe for disaster.

The opportunity before the U.S. government with a housing recovery plan is to set up a new system that will keep us from ever getting to this crisis point again. How? The devil is in the details.

It’s no accident that other countries, even those that trade mortgages as financial instruments (such as Australia and Canada) have avoided the levels of off-the-cuff valuation of property we’ve seen in the United States. The reason is that other countries have standardized the information needed to determine the genuine value of real estate and hence mortgage valuation.

This information – actual boundaries, property transfers, claims, liens, and so on – is made available to everyone. The system is sound and transparent. And where do they keep this information? In national property registries, which maintain all the data, in a standardized format, that buyers and sellers need to undertake transactions related to real property.

The United States has a broken registry system, and instead of ever fixing it allowed a title insurance industry to arise as a substitute. Title insurance is non-transparent and (at best) inconsistently regulated, yet it is the main system through which information about property valuation flows. Plus, you have to pay for the information. This leads to all sorts of problems, and fuels speculation.

The Obama Administration’s housing recovery plan ought to look forward. Help people facing foreclosure today, yes, but also establish a national, standardized property registry responsible for the collection of all titles and all information about characteristics of property. Even statewide registries would be a tremendous improvement.

The first step is to mandate an agency to gather whatever exists in state and local registries and title insurance companies around the country, no matter how inadequate, and centralize and standardize that information. Then, establish a mechanism for making this information available to all. Further, figure out how to fill in the missing information. Finally, create a system for the registry to provide remediation in the case of errors.

It is critical that we correct how the value of real estate is established. By finally securing the asset, we can guarantee long-term price stability and rid the system of the speculation that has put us in this crisis. Let’s look at the current housing crisis as an opportunity to make this long-term fix.

This isn’t about setting property prices now and letting them remain static. Rather, it’s about letting a dynamic property market flourish in a way that protects Americans from having to bail out banks or themselves in the future.

– Willis Sparks is a Global Macro analyst at the political risk consulting firm Eurasia Group. The views expressed are his own. –

Few things in life amused my dad more than a good karate movie. I once asked what he found so funny about Bruce Lee’s jaw-dropping display of poise and power. “Nice of the bad guys to attack him one at a time,” he said. In the real world, threats don’t arrive single-file, like jets lining up for takeoff.

President Barack Obama’s toughest foreign-policy challenge will be in managing the sheer number of complex problems he’s inherited and their refusal to arrive in orderly fashion. In addition, the still-metastasizing global financial crisis will exacerbate several of these problems, by depriving a number of governments of the funding they need to maintain social stability and to meet internal and external threats to their security.

AFGHANISTAN AND PAKISTAN

There is clearly a risk of collision at the intersection of Afghanistan and Pakistan, both of them plagued with floundering elected governments and deteriorating security environments. In Afghanistan, once Obama keeps his promise to provide thousands more U.S. troops, he must decide whether his team can afford to work around President Hamid Karzai (who may win reelection in August) and more directly engage tribal leaders and willing members of the Taliban to restore stability.

But Afghanistan’s security continues to depend on the ability of U.S. forces to stem the flow of militants and supplies into the country from tribal areas in Pakistan. Aware that Pakistan’s armed forces are neither reliably willing nor able to help, the Obama team must find a way to neutralize Pakistani militants without arousing broad public anger across the country and destabilizing its cash-strapped government.

IRAN

The new president also inherits a central role in the international conflict over Iran’s nuclear program. Publicly committed to warnings that a nuclear Iran is “unacceptable,” some within the Obama team say the steep recent drop in oil prices fueled by the financial crisis will further hobble Iran’s already unsteady economy, adding bite to U.S. sanctions and raising hopes that direct engagement might bear fruit.

But however sharp the sticks or sweet the carrots, a broad consensus has developed within Iran in favor of the nuclear program, one that has so far proven immune to external pressure. Obama will eventually face a tough choice: He can accept the need for military action against Iranian nuclear sites or tacitly accept that no one can prevent Iran from becoming a nuclear power.

IRAQ

Across the border in Iraq, recent local election results generally bolstered moderates at the expense of radicals. But the inability of Iraqi lawmakers to forge durable compromises on the equitable distribution of political power and oil revenue, on the disputed status of energy-rich Kirkuk, and on the balance of power between federal and provincial governments leave Obama in a tough spot. He can hold to campaign promises of a near-term withdrawal of all U.S. combat troops or accept the political fallout that comes with approving Pentagon requests for a go-slow approach meant to protect recent security gains.

RUSSIA

There are plenty more potential flashpoints, but the most important international relationships Obama must cultivate are those with newly insecure Russia and increasingly self-confident China. Some within the Kremlin fear that U.S. influence in Russia’s neighborhood threatens the country’s long-term security, even as the global recession thins its (still considerable) financial reserves. A series of recent confrontations—over Kosovo, U.S. missile defense systems in Central Europe, Russia’s war with Georgia—have allowed Russian officials to capitalize on domestic anti-American sentiment and have pushed U.S. policymakers in search of a new approach.

But willingness to “press the reset button,” as Vice President Biden recently suggested, might breed misunderstanding. If Russians believe this signals that Obama will turn a blind eye toward Kremlin bullying at home or abroad, a luxury the new U.S. president cannot afford, his administration may have to reboot again—and sooner rather than later.

CHINA

The Bush administration’s first international test came in April 2001, when a U.S. spy plane collided with a Chinese fighter jet, killing the Chinese pilot and provoking a diplomatic standoff over detention of the U.S. flight crew. But China has become a status-quo power in recent years, as the leadership’s reliance on strong growth to bolster its domestic political capital has given Beijing a growing stake in global stability. Over time, the Bush team helped cultivate steady and predictable bilateral ties with China by focusing negotiations on subjects its leaders are willing to talk about—currency conflicts rather than human rights.

Obama says he means to broaden the conversation—a shift that will require plenty of patience on both sides. The stakes are high, particularly as the global financial crisis provokes anxiety in both capitals. This is the world’s most important bilateral relationship. Investing it with predictability and mutual trust will take considerable time and care.

So far, the new president has been lucky. He’s been able to devote time and energy to the stimulus package and financial rescue plan that he hopes will help refloat the U.S. economy. But the administration should recognize that this same financial crisis will add to the complexity of the foreign-policy challenges it faces—challenges that won’t come one at a time.

President Barack Obama inherits a distinctly gloomy outlook for progress in settling the Israeli-Palestinian conflict. Is change really possible?

Reuters asked Oliver McTernan, the director a UK charity called Forward Thinking and two experts from the Brookings Institution in Washington — former Ambassador to Israel Martin S. Indyk and Kenneth Pollack — what steps the Obama administration should take next in the Middle East.

– Peter Schechter is an author and an international political and communications consultant. A founder of one of Washington’s strategic communications consulting firms, he has spent twenty years advising Presidents, writing advertising for political parties, ghost-writing columns for CEO’s, and counseling international organizations out of crises. “Pipeline” is his second novel. The views expressed are his own. –

After an eighteen year sabbatical, we fiction writers have recently put Russia back foursquare into its role as a novelist’s favorite fierce antagonist.  For decades, thrillers were dominated by the threatening Soviet imagery spun by John Le Carré, Tom Clancy and Frederick Forsythe.  Now, recent offerings like Daniel Silva’s “Moscow Rules”, Ted Bell’s “Tsar”, and my own “Pipeline” again reassign Russia its place of concern for political leaders, intelligence agencies and military planners.

That Russia provides good material is no surprise. The non-fiction Russia uses natural resources for coercion.  It militarily overwhelms a small neighbor. It crushes domestic dissension through physical or psychological intimidation. It suffers from near-obsessive mistrust of foreigners’ intentions.  Oligarchs and Kremlin bureaucrats are locked in a maze of corruption, mafia and violence.

So, how does America reconcile this reality with its foreign policy needs? As it considers its options with Russia, the new administration must wrestle with two potentially contradictory considerations.  On the one hand, no matter how good the fodder for fiction, Washington must ”reset” relations that have gone badly off track with this prominent nuclear-tipped, 11 time-zone behemoth.

On the other hand, events in the financial and energy markets may have inadvertently exposed an uncomfortable quandary: Does the New Russia actually matter all that much?

As demand and prices for its commodities soared, Russia has gotten rich without making much of anything.  When is the last time you bought something with a ‘Made in Russia’ label?  No textiles.  No computers.  No cars of any worth. No refrigerators or washing machines. No services. Even Stolichnaya is now bottled in Latvia.

Depressed energy prices and weak demand means that petro-states have lost the saber they used to rattle.  As the Kremlin’s finances flounder, some see a possibility that Vladmir Putin could even lose his hold on power – but not before Putin’s Siloviki (security bureaucrats) apparatus fights tooth and nail to hang on to money and clout.

Worsening matters for Russia, western environmental and national security concerns are accelerating technologies that could reduce the west’s dependence on hydrocarbons.  When the United States announces a serious conservation policy that reduces fossil fuel consumption – and with President Barack Obama this will happen – Moscow could find its long term geostrategic position increasingly eroded.

Yet, notwithstanding its difficulties, let’s remember that engaging Russia is better policy than the previous administration’s pinballing between infatuation and thoughtless antagonism.  Yes, Moscow hasn’t exactly been a reliable ally.   But as Professor Dimitri Simes says: “Nor has it acted like an enemy, much less an enemy with global ambitions and a hostile and messianic ideology.”

It is clear now that the Bush administration’s desire to place advanced warning missile defense systems so close to Russia’s borders was a miscalculation.  Similarly mistaken was the willy-nilly rhetoric of NATO expansion.

At a time of so many competing financial, military and political priorities, U.S. policy must first and foremost prevent Russia’s return to the top of America’s international worries.  U.S. policy needs breathing space to tackle priority number one: the growing arc of Mideast violence from the Mediterranean to the Hindu Kush.

Perhaps the place to start is to communicate a willingness to revisit missile defense. Iran’s early February satellite launch may now have impeded the removal of the Polish-based anti-missile sites.

But the United States can agree to provide Russia ongoing, verifiable reassurances that the systems will remain directed at “rogue states” and have nothing at all to do with Russia.

Given the regime in Moscow, this is a relationship fraught with difficulty. But it can be kept on track through pragmatic engagement.  Both countries will benefit from meaningful cooperation on Iranian nuclear advances, terrorism, non-proliferation and the spread of nuclear materials.

Turning down the rhetoric and finding a few areas of real joint interest would bring an welcoming respite to the frost in Russo-American relations.

Pity us authors, though.  We risk losing this fascinating subject all over again.

– George A. Cloutier, a graduate of Harvard Business School, is the founder and CEO of American Management Services, one of the nation’s largest turnaround and management services firms specializing in small and mid-size companies. He is also the author of the upcoming book, “Profits aren’t Everything, They’re the Only Thing.” The views expressed are his own. –

Why are the Obama Administration, Congress, and the Senate marginalizing the nation’s largest industry in the new stimulus plan?

Small Business Inc. employs about 60 million people, accounts for 70 percent of new jobs each year, and clearly represents the backbone of almost every regional and local economy. For this vital industry, the administration has allocated less than 1 percent ($700 million earmarked vs. $1 trillion in proposals). The nation’s leaders continue the small business program of the Bush years: talk a lot and do practically nothing.

The sponsors of the bill, most likely to succeed, say that small business will benefit indirectly from the spending programs. This is the same discredited thinking of Reagan’s “trickle-down” economics.

Treasury Secretary Timothy Geithner, Federal Reserve Chairman Ben Bernanke and Lawrence Summers, director of the Economic Policy Council, have absolutely no experience with small business.

They have no idea what it’s like to not meet a payroll, have no money because collections are slow, and to be able to only pay a fraction of their bills to stay in business.

Approximately 12,000 small businesses will close their doors every week this year. The Obama administration says it cares about the little guy, but what they should say is that they care about the little guy except for those who own small businesses.

The current proposed stimulus bill offers $630 million to support the loan guarantee program of the SBA, although the SBA’s two largest business loan programs were down 40 percent so far this year and over 30 percent last year. The proposed bill fantasizes that by cutting the loan fees to small business, volume will skyrocket. Loans are down because banks don’t want to take the risk on marginal credit with only a 75 percent guarantee from the government.

The stimulus bill includes various minor tax cuts for small business, as well as additional depreciation and write-off incentives. Of course, these benefits can’t be collected until at least 12-15 months from now in 2010, when small businesses file these tax returns – assuming of course that they made any money in a widely-acknowledged terrible year for small business. Stimulative effect here is, in fact, probably near zero.

And what about the approximately 600,000 plus small businesses that will fail this year, and the millions of businesses that won’t make a profit?

President Obama has continually said he and his administration wants new ideas so let’s see if they are listening. Here are some honest proposals that bear consideration:

1. The stimulus package should immediately allow $25 billion in direct loans to small business, bypassing the recent history of declining bank-guaranteed loans to make sure that the money gets quickly and efficiently to small businesses. Small Business Inc. will never be a gold-plated borrower and the bill must make allowances for this, by broadening the loan criterion ensure the great majority of small businesses are eligible.

Small business loans are no less risky, when we look at the current situation, than those that have already been given by the government and Federal Reserve to the likes of Citibank, Bank of America, AIG, the auto industry, etc.

2. The current SBA bank loan guarantee program should be altered to a 100 percent guarantee by the government rather than the current 75-85 percent allowed. This guarantee program is down 40 percent not because of the fees involved but because the banks are risk averse to losing 25 percent on marginal loans that are costly to collect anyway.

If you and I were running a bank we would not like this program and we would attempt to marginalize it, which is what is actually happening in the marketplace. Actually, the government should pay increased loan fees to ensure that the banks get solidly behind the program.

Small businesses would willingly pay the bank’s fees if they could secure the money they need. For example: right now the fastest growing service offered to small businesses is “merchant advances.” These are small loans made at interest rates of anywhere from 30 percent to 250 percent by legally organized companies. These companies make payday lenders look benign.

3. The SBA budget should be increased fivefold to $3 billion and emphasize management assistance and serious outreach to small business. In surveys we have conducted recently, less than 10 percent of small business owners understood the loan programs offered by the government.

4. There are many other stimulative programs that can be offered including technical assistance, a Small Business Peace Corps, broader and better enforcement of set aside programs.

5. The Federal Reserve should be directed and empowered to make loans to small businesses at 2 percent to 3 percent, which is currently being charged to the mismanaged Wall Street companies.

The Obama Administration repeatedly asks for proposals. They say, “Yes we can!” Small Business Inc. asks, “But will you?”

– Bernd Debusmann is a Reuters columnist. The opinions expressed are his own. –

To understand why the war in Afghanistan, now in its eighth year, is not going well for the United States and its NATO allies, take a look at two statistics.

One is Afghanistan’s ranking on an international index measuring corruption: 176 out of 180 countries. (Somalia is 180th). The other is Afghanistan’s position as the world’s Number 1 producer of illicit opium, the raw material for heroin.

The two statistics are inextricably linked and, a year ago, prompted Richard Holbrooke, the man President Barack Obama has just picked as special envoy for Afghanistan, to write: “Breaking the narco-state in Afghanistan is essential or all else will fail.”

Holbrooke, who was not in government service at the time, took particular issue with the counter-narcotics strategy the Bush administration pursued in Afghanistan.

“The … program, which costs around $1 billion a year, may be the single most ineffective policy in the history of American foreign policy,” he wrote in an op-ed in the Washington Post. “It’s not just a waste of money. It actually strengthens the Taliban and al Qaeda, as well as criminal elements within Afghanistan.”

Exactly what the Obama administration intends to do about that, and how it might break the narco-state, has yet to be articulated. Sending more troops to fight a growing insurgency does not necessarily translate into progress towards dismantling the “narco-state,” eliminating corruption or cutting down on the opium production whose proceeds help finance the Taliban.

“WAR ON DRUGS”

The counter-narcotics strategy Holbrooke criticized so harshly centers on the eradication of drug crops, and has been the main weapon in the “war on drugs” the United States has been waging for decades around the world. That war failed to curb the production of illicit drugs and often proved counter-productive.

In Bolivia, for example, Evo Morales, a left-wing opponent of the United States, rose to political prominence and finally the presidency because he rallied a protest movement against U.S.-sponsored attempts to wipe out the cultivation of coca leaf, the raw material for cocaine.

De-emphasizing eradication in Afghanistan would amount to an implicit admission of the failure of policies pursued since the 1970s by both Democratic and Republican administrations.

Defense Secretary Robert Gates, addressing the Senate Armed Services Committee this week, described Afghanistan as “our greatest military challenge right now” but said there could be no purely military solution — not even with the additional 30,000 troops Obama plans to dispatch over the next 18 months.

So if there’s no purely military solution, what are the chances of progress on the political front? An unnamed White House official sounded hopeful this week that the United States could push Afghan President Hamid Karzai into extending government control beyond the capital and stepping up the fight against corruption.

It is the same Karzai who declared jihad (holy war) on the drugs trade in 2004, a few days after he was sworn in as Afghanistan’s first democratically elected leader. That holy war made no dent in opium production and corruption blossomed.

“Karzai was playing us like a fiddle,” Thomas Schweich, a former top anti-narcotics official in Afghanistan, wrote in the New York Times last summer. “The U.S. would spend billions of dollars on infrastructure improvement; the U.S. and its allies would fight the Taliban; Karzai’s friends would get rich off the drug trade; he could blame the West for his problems; and in 2009 he would be elected to a new term.”

KARZAI THE PROBLEM

In other words, Karzai is not part of the solution, he’s part of the problem. As to solutions: One novel idea on opium-and-corruption comes from James Nathan, a political science professor at Auburn University in Alabama and former State Department official. He argues in a forthcoming paper that the most efficient way to tackle the problem would be for the United States or NATO to buy up the entire Afghan opium crop.

“Purchasing the whole crop would take it away from the traffickers without cutting more than half the economy of Afghanistan,” Nathan said in an interview. “Such a purchase would directly confront Afghanistan’s most corrosive corruption. It would end the Taliban’s money stream.”

And the cost? By Nathan’s reckoning, between $2 billion and $2.5 billion a year, no pocket change but not a large sum compared with the around $200 billion the U.S. taxpayer has already paid for the war in Afghanistan. The idea may sound startling but its logic is not far from the farm subsidies paid to U.S. and European farmers.

On a more modest scale than Nathan’s buy-it-all idea, a European think tank, the International Council on Security and Development (ICOS), is lobbying for an alternative to traditional counter-narcotics policies dubbed Poppy for Medicine.

That involves granting international licenses to poppy farmers in Afghan villages, where the crop would be turned into opiate-based medicines such as morphine or codeine, and then shipped out to the legal market.

It would place Afghanistan alongside Turkey (where the United States helped to introduce a similar program in 1974), India and Australia as legal producers of opium. Could it work? When ICOS, formerly known as the Senlis Council, first came up with the idea, the State Department cold-shouldered it.

But that was before Obama, who promised to listen to new approaches. Both the buy-it-all and the licensing concepts deserve a hearing.

For previous columns by Bernd Debusmann, click here.