Special Report

Retooling the U.S. Economy for Growth

If the United States wants to stay competitive in coming years, boosting productivity is the key, finds a new report by McKinsey Global Institute. FP previews the findings exclusively here.

Preview the full findings of the McKinsey Global Institute's study here.

As the United States crawls out of recession, many commentators have wondered out loud whether the economy can ever get back on a path toward healthy growth. In the immediate term, there are concerns about when and from where the next wave of jobs will come. In the long term, some are questioning whether America's best economic days are now behind it. The Barack Obama administration caught the thread of that conversation early and tried to counter naysayers in the January State of the Union address. "The future is ours to win," Obama told the country, "But to get there, we can't just stand still." Specifically, what's required, the president explained earlier that month, is to "unlock the productivity" of the American people.

He may be on to something. In a report released today by McKinsey Global Institute (MGI), McKinsey & Company's business and economics research arm, we find real, tangible ways that the United States can retool its economy for the coming age of global growth -- and productivity is at the heart of this endeavor. In fact, the United States must increase its productivity growth rate by 30 percent or more to sustain historical economic growth rates in coming years. As the labor force ages and economic rivals crop up the world over, boosting the efficiency of every American worker will be vital to staying ahead in the global economic race.

Why is productivity key now? In short, because two other factors are working against the weak economy: Government and individuals are cutting back on spending in order to pay off debts, even as an aging population no longer gives the economy the natural demographic lift it once did. MGI finds that the United States needs to accelerate productivity growth to an average rate not seen since the 1960s if the economy is to return to the rates of GDP growth witnessed over the past 20 years and sustain the gains in living standards to which Americans have become accustomed.  

Still skeptics abound on all sides. Some doubt whether productivity can really help return the United States back to economic health. Naysayers argue that the U.S. productivity engine is running out of steam anyway. Others yet worry that productivity is little more than business-speak for job cuts. They point to the period since 2000, during which sectors that saw the largest productivity gains -- computers, electronics, and manufacturing -- also lost jobs. Still others see China's pursuit of higher technology manufacturing as a sign of pending U.S. decline.

The numbers tell a different story, however. Since 1929, the United States has recorded simultaneous increases in both productivity and employment every ten-year rolling period except one, research from the MGI report finds. Even on a rolling annual basis, productivity and jobs have grown in tandem the majority of the time. In anything but the short term, it is a fallacy to suggest that there is a trade-off between productivity and jobs.

One reason is that productivity has two components: efficiency and innovation. Getting new, faster computers or organizing production to minimize waste are examples of the first; building better, higher quality products or creating new services are examples of the second. Both types of productivity gains can lead to higher employment when the savings are put to work elsewhere in the economy. In the 1990s, for example, the United States saw productivity growth from both efficiency and innovation, and unemployment hovered below 6 percent. This is a broad balance to which it now needs to return.

And productivity growth needs to accelerate. For half a century, increases in both labor supply and productivity contributed almost equally to robust GDP growth of 3.3 percent. Baby boomers and women streamed into the workforce. Now however, the boomers are retiring and female participation appears to have plateaued. Already, in the first decade of the 21st century, productivity gains have contributed 80 percent of total GDP growth compared with 35 percent in the 1970s. If the United States is to continue to enjoy the same levels of GDP growth experienced by previous generations, productivity will have to bear even more of the burden going forward. To compensate for the coming demographic changes, productivity growth will need to accelerate by 34 percent -- to a rate not that hasn't been seen since the 1960s.

This sounds like a daunting challenge, but meeting it is quite possible. Indeed, even with no change in the current business and regulatory environment, U.S. companies can deliver three-quarters of the productivity growth acceleration that the United States needs just by continuing on the path they are on. It is, in fact, partly because of the efficiencies achieved over the past decade -- which strengthened corporate balance sheets through the better use of technology, for example -- that U.S. businesses are well positioned to take advantage of future opportunities to boost productivity now.

One of those opportunities is for companies to simply adopt the existing best practices of their more productive peers. Many, but not all, U.S. businesses have incorporated information technology and lean management strategies into their operations. Broadening their use would yield one-quarter of the productivity growth acceleration that the United States needs. Even in sectors such as retail, where U.S. businesses have had a strong record on productivity, there is scope to do more, for instance by taking lean practices from the stockroom to the storefront. Health care, most of which faces limited price competition and hence is scarcely encouraged toward efficient practice, has only begun to go lean. Today, nurses still spend less than 40 percent of their time with patients and much of the rest on paperwork.

Companies could deliver another half of the needed productivity acceleration by tapping into the next wave of innovation. For instance, retailers who have made great strides in boosting the efficiency of their supply chains can now manage them even more precisely using a cheaper tracking technology called radiofrequency identification, or RFID. Increasing responsiveness to customers is another way of boosting productivity. The financial industry, for example, is looking at ways to provide a new set of customers -- those who don't currently have a bank -- with financial services such as pre-paid payment cards specifically tailored to their needs. Businesses can also boost productivity by innovating in what and how they provide goods and services to their customers. For example, an office supply company can offer comprehensive procurement services in addition to stocking the paper and pens.

The private sector can get the United States three-quarters of the way on productivity, but to obtain the last one-quarter -- and potentially boost productivity growth by even more -- government and business have some work to do together in removing economic barriers to growth. Efficient infrastructure is an important enabler for business, yet the quality of U.S. infrastructure is ranked only 23rd in the world, below Germany, South Korea, and even Oman. Skills are another necessary ingredient; The United States faces a shortfall of almost 2 million technical and analytical workers and a shortage of several hundred thousand nurses and as many as 100,000 physicians over the next 10 years. Making it easier for seniors to stay working for longer would help; so too would easing the path in the United States of skilled immigrants. The workforce training system in the United States could also be radically improved by aligning more closely to employers' human resources' systems and financing specific educational programs based on job placement results.

Tackling misaligned incentives in public and regulated sectors, including health care, is also a prerequisite for lifting the productivity of the U.S. economy as a whole. These sectors represent more than 20 percent of the U.S. economy but post persistently low productivity growth. If the public sector could halve the estimated efficiency gap with similar private-sector organizational, its productivity would be 5 to 15 percent higher, generating annual savings of between $100 billion and $300 billion.

Finally, the United States needs to ensure that it has the information technology infrastructure in place to fully take advantage of the possible gains from "Big Data" - including everything from data-crunching, to information storage in cloud computing, to IT applications in biology and the life sciences. Although the United States remains the global leader in research and development, other countries are catching up, particularly in new, cutting-edge industries. In 2009, China surpassed the United States for the first time in the size of clean energy investments, for example. Reducing the red tape to deploy new research or manufacturing facilities would help the United States to keep its lead. Obama signaled in January that he would tackle exactly that in a government-wide review.

GDP and productivity growth are vital not just at home, but for American competitiveness worldwide, ensuring that the United States remains an attractive place for businesses to operate, invest, and expand. The core of the United States' competitive strength has been the economy's rapid rate of innovation and productivity growth, as well as the large, expanding, and dynamic U.S. domestic market. The United States has led the world's developed nations in terms of productivity performance for years. However, today emerging economies such as China and India are experiencing rapid GDP and productivity growth, intensifying the competitive pressure on the United States in an increasingly broad range of goods and services.

So companies can do the heavy lifting -- but the government needs to weigh in, too, enabling the private sector to unleash a new era of dynamism that ensures the nation's long-term growth and competitiveness. The United States is certainly capable of this step-change in productivity growth. Not meeting the productivity imperative would risk leaving the next generation of Americans with slower increases in the standard of living than their parents or grandparents experienced. The time to act is now.

View further findings of the McKinsey Global Institute study exclusively here.


Special Report

Where Do We Go From Here?

Foreign Policy asked experts to weigh in on what Egypt means for the future of U.S. foreign policy.

For the last 11 days, eyes around the world have been fixed on every twist and turn the events unfolding in Egypt. Yet almost two weeks after protestors first came to the streets of Cairo and Alexandria, much about Egypt's future remains unclear. What is certain, however, is that 30 years of U.S.-Middle East foreign policy is having to be rethought in a span of days.

So where does American diplomacy go from here? Foreign Policy asked the experts:


Is Revolution What's Best for the Rest?
By Daniel Kurtzer

Under the best circumstances, the U.S.-Egyptian relationship will emerge from the current upheaval deeply scarred and tenuous. Neither the Egyptian regime nor the demonstrators have been satisfied with Washington's stance; each has demanded clarity and a clear expression of support for its preferred outcome. Washington has done a good job of trying to balance U.S. national interests with the concerns of Egypt, but these efforts have nevertheless fallen short of Egyptians' expectations.

At the heart of the U.S.-Egyptian relationship is a complex and confounding policy dilemma. On the one hand, Egypt is a critical partner in our efforts to secure peace in the Middle East; on the other, it is an undemocratic country whose model of governing is at odds with our ideals. Yet for more than 30 years, this relationship, conflicted as it is, has been managed without much fuss because of the absence of an over-riding crisis that pushed the problem to the surface. This all changed last week.

The main elements of our strategic relationship with Egypt are well known but worth repeating. Egypt has been the lynchpin of all efforts to secure Middle East peace. With the critical assistance of the United States, Egypt has undergone transformative economic change over the past three decades -- from being an almost-bankrupt country with a failing infrastructure, to a viable economy with a relatively sound infrastructure. With U.S. cooperation and aid, the Egyptian military has also turned around 180 degrees, from reliance on Soviet doctrine and weapons to a modern force supplied by the United States that is largely interoperable with American forces. Virtually everything the United States sends to support our strategic and military interests in Iraq, the Persian Gulf, and Afghanistan goes through or over Egypt, and the country provides vital facilities on the ground to service our efforts. Egypt has also been a solid ally in the struggle against terrorism, drawing on its own experience to assist in the global effort. Saying that Egypt is critical to U.S. security is not simply lip-service, but rather a reality supported successfully by our investments and diplomacy in that country over the past 30 years.  

And yet because of its undemocratic political system and documented abuse of human rights and religious and personal freedoms, Egypt has also been a place of great concern for the United States. Despite our need to have Egypt as an ally, we have not shied away from expressing our views on this. Washington has spoken out publicly and delivered tough messages privately on individual cases and broader policy issues -- something I can attest to based on meetings I had with President Hosni Mubarak to discuss these very issues during my time as U.S. ambassador to Egypt. We have provided assistance to NGOs and civil society groups in an effort to build their capacity and assist in their efforts to expand freedom and democracy.

Those who say that our relationship with Mubarak was a misguided compromise are wrong. We cannot be fooled by commentators who will now tell us that they were right all along about Egypt and realpolitik, or Egypt and the freedom agenda. These commentators have little understanding of the reality of what the United States has had to balance over the past three decades. For a relationship between a superpower with global interests, interests that drive it in different directions from its counterpart -- a regional power with a far narrower agenda -- to last and prosper over the course of 30 years, is no small achievement.

Every administration since President Ronald Reagan was in office has had to strike a balance between protecting U.S. interests and dealing with a government whose values often contradicted our own. And as we evaluate the situation on the ground in Egypt today, I would argue that the most important goal for the Obama administration should be to maintain this relationship -- for U.S. interests, peace in the Middle East, and the prosperity of our ally. 

There are two possible scenarios for Egypt right now: total collapse of the entire Egyptian system, or more moderate change that leaves the army in control. Despite our democracy-loving inclination to root for the first, we desperately need the second solution.

If the entire Egyptian system collapses, it would likely pave the way for the Muslim Brotherhood to rise to prominence and transform the country to an Islamist state. Some have argued that this would not be so terrible -- that the Brotherhood is a relatively benign Islamist movement that is focused on social issues and religious piety. Nothing could be further from the truth. Since its founding in 1928, the Brotherhood has had the single goal of establishing an Islamist state and society in Egypt and throughout the Muslim world. It has been flexible tactically, but that should not be confused with the idea that the Brotherhood has abandoned its ultimate goal. 

Fortunately, this is an unlikely scenario. The Egyptian army, which is still the ultimate arbiter of power in Egypt, is largely committed to ideals of the 1952 revolution, which would not support a totally Islamist state. Having spent the years since the 1981 assassination of Anwar Sadat -- who was killed by Muslim extremists from inside the army -- rooting out extremists from its ranks, the military would likely counter the installment of a Muslim Brotherhood regime.

A more likely -- and desirable -- scenario is a mildly reformist government that operates within somewhat flexible parameters established by the military. But the military needs to make concessions if it is to maintain its power and do so peacefully. The current unrest in Egypt should teach the military that business as usual will not work. It will need to allow the next government to campaign against corruption, and in favor of expanded freedoms, increased political participation, and a more transparent political system. To be sure, the military will ensure that any liberalization proceeds cautiously so that events do not spiral out of control. But that doesn't mean it has to oppose these reforms.

In this more likely (and in my view, more hopeful) scenario, there will be time and reason to repair the U.S.-Egyptian relationship. Both sides will approach the post-Mubarak period somewhat warily, as trust has been stretched thin. Words and signals will continue to be parsed carefully, and suspicions will linger. But because the fundamental interests that have kept us together for more than three decades have not changed, even as a result of this crisis, it is likely that the relationship can continue and be repaired.

And what if this analysis is wrong? The implications of a complete breakdown of the Egyptian system and/or a break between the Washington and Cairo are extraordinarily challenging and dangerous for the United States. Even as the current crisis approaches its own moment of truth, it is important for the United States to steer a course toward the outcome that will allow our relations with Egypt to continue.

Daniel Kurtzer, former U.S. ambassador to Egypt and Israel, is lecturer and the S. Daniel Abraham Visiting Professor of Middle East policy studies at Princeton University's Woodrow Wilson School of Public and International Affairs.

Time to think about the consequences of our alliances
By Thomas Pickering

Egypt is in a situation of crisis and potential sea change. No one is sure precisely how it will end. But in every possible scenario, the United States has two principle national interests in Egypt and in the region: First, promoting some kind of stability, and second, supporting some kind of change. The struggle for American foreign policy will be to keep the balance of these two particular questions right, even as we move ahead in a situation in which there are several uncertainties.

In the immediate term, the biggest question is who will lead in Egypt, and here, there are several possibilities: the Army, the Muslim Brotherhood, and the young people demonstrating together with the many organized and disorganized opposition parties who are now out on the streets. None of these possible leaders can move forward without taking into account the others; none can succeed on its own. For the United States, there is always an identification of the person with the politics, and we have yet to see any individuals emerge who could give us confidence about the future political order. The ideal for now would look something like a transitional authority, in which Mubarak would go and leave the government in the hands of someone or something. Vice President Omar Suleiman is the most frequently mentioned someone here. He is not known as a reformer and is still closely associated in the minds of the public with Mubarak and the intelligence establishment in Egypt.

The second priority after leadership is to think about firm and forthright political change -- in the electoral process and in Egypt's constitution. As progress moves forward, the government will need to deal with the long-term grievances of those in the streets. There is a danger that the Muslim Brotherhood, presenting itself as benign force, might move into a position of power, and over time, adopt something of a more Islamic position. But I don't think that needs to be a barrier to what we're talking about, given the changes that are already underway. Egypt has a large and strong middle class as well as a lot of young people who are secular and who are tied together by technology. That can make a serious difference in the outcome.

The impact of all this on American foreign policy will be striking. We have moved away from the notion that the dictatorships out there that are our friends are real moderates, seriously seeking to implement change. Instead, change is now coming up from the inside -- something we have long wished for. And we must support it. That is the challenge, and our policy is moving in that direction in my own view. We need to be careful, however; we tend to always assume the mantle that our role is to teleguide these changes. And yet now in Egypt, we are in a situation in which we have lost considerable influence and authority. We should think foremost about the first principle of medicine, and now diplomacy: First, do no harm.

Then, once the dust settles, our new friends in the Middle East will be different. They will come up within their own systems, which we hope will be more democratic than autocratic. In Egypt, things are certainly moving that way. We will need to establish those kinds of new relationships. We will have to cement ties through common values, and we will also have to operate in a more cooperative, open, and sharing mode with them and others around the world who have or will have influence in Egypt.

This new position will compel us to move forward in a more serious way with the Middle East peace process. The United States needs to truly become a facilitator of the process -- and one of the ways (though not only way) to do so would be to put forward more extensively formed ideas about what the solution would look like. We cannot substitute for the parties in negotiating, but we can -- because of national interest, which is if anything enhanced by the ongoing events in the Middle East -- be strong in advocating to the parties a solution that is fair, balanced, just, and will require painful compromises on both the Palestinian and Israeli side. And we can help rule out the many positions from the parties that are clearly out of the ball park of negotiations. We need to put ourselves in that kind of situation and work to design something with which people can live.

So if there is one takeaway from the events unfolding in Egypt, it is that, even in areas of the world that seem quiescent and quiet for the moment, we [Americans] need to conduct our policies with as much vision of the longterm consequences of our diplomacy for change and reform as we do the short-term consequences when crises like these erupt.

Thomas Pickering is vice chairman of Hill and Co. During a five-decade-long career in the U.S. foreign service, he served as U.S. ambassador to United Nations, Russia, India, Israel, and Jordan, among other appointments.

A Complicated Post-Mubarak Egypt Ahead
By Aaron David Miller

Post-Hosni Mubarak Egypt -- whenever it comes -- is going to be a decidedly more complicated place for the American interests in the years ahead.

It's not that the worst case scenarios of the gloom and doomers will come to pass; Egypt is not going to return the $1 billion check in U.S. aid, abrogate the peace treaty with Israel, return to the confrontation line, or morph into an Iran-like mullahcracy. For starters, the Egyptian military, which will play a key role in the new balance of power, has no stake in that kind of outcome.

But the logic of the Freedom Express, now rushing through the streets of Cairo, has an inexorable quality about it. A new polity and political contract will emerge -- one that is much more open and responsive to public opinion and the diverse views of a country of 80 million people, whose freedom of expression has been frozen for decades. And by definition, that diversity -- whether it's manifested in secular nationalism or an Islamist orientation -- will be much less accepting of American policies on a range of issues and much more outspoken in criticizing them.

In short, the political space that American policymakers enjoyed for years will contract. And the irony is that contraction will not come in response to an ideological, anti-American revolution but as a consequence of the very values Americans so cherish -- free speech, accountable government, and transparency. On issues from the Arab-Israeli peace process to counterterrorism to the containment of Iran, whoever governs Egypt will be looking in the rear-view mirror in a way they have never done before. And what they will see is the influence of an Egyptian public and elite who will be much less willing to give the United States the benefit of the doubt. Back in the day, we could count on Egypt's support or acquiescence for American peace process initiatives, regardless of how half-baked. No longer.

U.S.-Egyptian relations have had their rough patches to be sure. But the old devil's bargain -- you support U.S. policies and we'll give you, more or less, a free pass on how you govern your country -- is dead. Perhaps it's just as well. With the exception of the Egyptian-Israeli peace treaty (which will endure anyways as long as it meets Israeli and Egyptian needs), that bargain didn't guarantee much peace, security, or, in view of  events in Cairo today, stability. Whatever new contract can be negotiated remains to be seen. But buckle your seat belt, because it's going to be a wild ride for the United States, not only in Egypt but in other parts of the Arab world as well.

Aaron David Miller is a public policy fellow at the Woodrow Wilson International Center for Scholars. An extended version of his argument can be found in the Washington Post today.

Obama's Difficult Balancing Act
By Nicholas Burns

Most of the critics complaining about President Barack Obama's actions during the Egypt crisis charge that he has been excessively reticent and has failed to send an unequivocal statement of support to the young protesters in Cairo and Alexandria.  They worry that the president risks being left behind by history and that popular anger against the United States in the Arab street will cripple American interaction with the Middle East for years to come.

I find this criticism to be way off the mark. Starting on Jan. 28, Obama has thrown America's open support to the reform movement in Egypt. His transparent attempt to convince Egyptian President Hosni Mubarak to leave office, and his calls for the transition to begin "now," are the actions of a president who has made up his mind to support the Egyptian reformers.

That Obama's actions could be understood in any other way is hard to grasp. Yes, the president has stopped short of calling openly for Mubarak to leave power. But that is just common sense. The United States needs to preserve its influence with Mubarak, his advisors, and the military -- Egypt's ultimate power broker. Obama's "quiet diplomacy," which began last weekend and is ongoing today, is a critical American asset that he should not relinquish to satisfy critics who seem to believe that public statements are the sole measure of an effective foreign policy.

Rather than worrying about Obama's public response, then, I worry about something quite different: I told students in my Harvard Kennedy School class this week that the image I have of Obama is of a lonely figure up on a high wire, without a net, juggling two very important but conflicting American aims.

The first ambition is for the United States to be Thomas Jefferson's "Empire of Liberty" to others struggling for freedom around the world. It does matter what the American president says to the young people of Egypt in this crisis, and it will continue to be vital for Obama to speak out in support of a future of freedom in the Middle East.

But there are other U.S. interests at stake in this crisis -- some of the most important global objectives we have: a continued Egyptian peace with Israel, and Cairo's support in countering al Qaeda, Hezbollah, and Iran in the years ahead. This is the other set of high-priority aims Obama can be seen juggling in the full glare of the international spotlight. I worry today about whether we will do everything possible to ensure that, no matter what happens in Tahrir Square, we protect those core American security interests.

Obama's dilemma is that these security interests, and our responsibility to be true to our values, appear to be -- or may well become -- mutually contradictory. As he has said more than a few times, the United States cannot direct or control this fast-paced crisis. As a result, the president must continue to try to achieve all of these interests as he negotiates the unpredictable, complex, and dangerous twists and turns ahead.

What this tells me is that this president, who is trying mightily to accommodate the pull of idealism and real world interests, has no option but to continue to try to achieve both. It may be that he will have to choose at some point down the line, but he should not do so now.

What does this tell us about how the United States should play-out the drama in Egypt? I see a president convinced that we must support freedom in the Middle East, and I hope he will continue to do so. But, I also hope that Obama will keep to quieter, behind-the-scenes diplomacy to try and convince Mubarak, Vice President Omar Suleiman, and the military to agree to a transition for a new Egypt. And, as that process proceeds, the United States will need to build bridges to Mohamed ElBaradei, other reformers, and even responsible members of the Muslim Brotherhood, so that we have a real chance of avoiding the worst-case actions of any future post-Mubarak government in Egypt -- an abrogation of peace with Israel, accommodation with Iran, and an end to close U.S.-Egyptian military cooperation.

Despite the wishes of some Washington armchair critics, who are unused to the demands of government, a crisis like this does not present clean and easy choices. Obama, in the spotlight of a chaotic and dangerous conflict in the most unstable region in the world, cannot afford the luxury of siding with right or left in Egypt. He has placed himself firmly in the center of the drama, and that is where America's ideals and its self-interest demand that he stay.

Nicholas Burns is professor of the practice of diplomacy and international politics at the Harvard Kennedy School. He spent 27 years in the U.S. foreign service, and served most recently as U.S. under secretary of state for political affairs.

Freedom Must Return to the Agenda
By Elliott Abrams

My concern is that American foreign policy will not be changed enough by the ongoing events in Egypt and the wider Middle East. It's time to bury the unreal, failed "realism" of those who have long thought that dictators brought stability. What we have seen is that the stability they bring -- for years or even decades -- carries with it a curse. For when they go, they leave behind a civic culture that has been drastically weakened and moderate parties that are disorganized, impoverished, and without recognizable leaders. For 30 years, President Hosni Mubarak told us to stick with him, or the opposition Muslim Brotherhood would grow stronger. Well, we stuck with him -- and the Muslim Brotherhood grew stronger. As he crushed the political center and left, the Brotherhood became the main forum for opposition to his regime.

Of course it doesn't have to be this way, in theory: Dictators can theoretically oversee a slow but steady expansion of political space and leave behind a stable democracy. But they don't. Enlightened despots are mythical creatures; real despots seem more interested in stealing money or installing their sons after them.

This crisis should also have put paid to another shibboleth: that everything in the region revolves around the Israeli-Palestinian dispute. What we are witnessing from Tunisia to Egypt to Yemen and beyond has nothing to do with Israel or the Palestinians. Nor would resolving that conflict have satisfied those who have demonstrated against Tunisia's Zine al-Abidine Ben Ali or Mubarak or Yemen's Ali Abdullah Saleh, for protestors' demands were focused on their own countries.

U.S. policy should move toward backing freedom, using the full force of our influence against regimes like those in Syria and Iran, and assisting in every practical way possible the efforts in Tunisia, Egypt, and elsewhere, to build democratic parties, protect human rights, and move toward stable democratic politics.

Elliott Abrams is senior fellow for Middle Eastern studies at the Council on Foreign Relations.

The Interim Plan: What Egypt Needs Next
By Zalmay Khalilzad

The seismic changes underway in Egypt can ultimately be either beneficial or disastrous for the country and the region.?

Both outcomes are equally possible. The key to achieving a positive outcome is a successful transition, specifying the steps to a new order and doing so immediately. Time is not necessarily on the side of a positive outcome, particularly because the violence instigated by Mubarak and his loyalists could resume, American overall leverage is diminishing and anti-Western sentiments are being promoted and exploited.?

The Obama Administration has called for a transition and for that process to start immediately. This is a good step, but it is not enough. It should now focus on -- and play a helpful role in --catalyzing a fair and workable plan between the two key forces in Egypt -- the military and key opposition groups -- before it is too late. The administration should say less publicly and to do more behind the scenes in order to facilitate the formation of a coalition capable of executing an orderly transition to a new democratic system.?

Our role can be critical. The United States still has important leverage, even though we may have little influence with President Hosni Mubarak now that we have called for his immediate departure. However, we have a strong relationship with the Egyptian military, which has a decisive role to play with respect to whether, when, and what kind of transition takes place - including the timing of Mubarak's departure. Our influence is a product of almost four decades of military cooperation, and we have good relations with key military leaders. The United States also can bring to bear immediate assistance to alleviate the humanitarian consequences of mounting economic disruptions and offer to continue or enhance the long-term development program for the country.?


How can we help shape the transition and convert our leverage into progress on the ground -- all while recognizing that the Egyptians will be making the decisions? First, we should reach an understanding with Vice President Omar Suleiman, Defense Minister Hussein Tantawi and other key military leaders on a transition plan and that precludes the resumption of violence against the opposition and civil society.

Second, we need to reach out to the leaders of the opposition, including political figures, the prominent independent Egyptian figures now calling themselves the ‘Council of the Wise,' trade unionists, civil society, and youth leaders. Here, we need to develop relationships and encourage these new forces to constructively negotiate a transitional government.?

Third, we should be prepared to offer advice and propose bridging formulas to assist in resolving differences between the military and the opposition. Sunday's meeting between Vice President Suleiman and the Council of the Wise, a very credible opposition voice, is a positive development. But there is a long way to go, and each side would like to control the transition. How this process will end remains uncertain. ?

Although the transition can take several forms, any agreement will have to deal with several issues:

  • A date of departure for Mubarak: The opposition wants him to leave immediately while Mubarak has stated that he would leave after the next presidential elections in September. A possible compromise would be for Mubarak to leave office on the day that the new transitional government is sworn in and to do so by constitutional means.
  • Selection of the transitional leadership: The most workable arrangement might involve the current vice president remaining as the head of the transition authority. There could be an agreement, if necessary, for the head of the transition authority to have one or two deputies. In such a case, the army could provide one deputy, for example Defense Minister Tantawi. The opposition could select another, perhaps someone from the Council the Wise.
  • Composition of the cabinet: Ministerial assignments should be designed to make the transitional government broadly representative. If both the military and the opposition decide to share in the transition administration, the military should hold the security portfolios. The remainder could be divided among important political leaders, trade unionists, and young technocrats who are untainted by corruption.?

There will also have to be agreement on dissolving the current parliament, which was elected in what all agree was a flawed election. Similarly, the emergency laws imposed by Mubarak to prevent political mobilization and organization will have to be terminated. There will have to be an agreement on a drafting committee for a new constitution and a ratification process and the drafting of a new election law and the timing of new elections for the new president and parliament. Mubarak and his family should be offered amnesty in order to put the past behind as quickly as possible. But this has to be balanced by an agreement on an accountability process.

The timing of elections should be set strategically to enable democratic forces to organize and coalesce around a set of leaders. Too often in the past, the United States has pressed for quick elections, regardless of whether this puts democrats and moderates at a disadvantage.?

From personal experience in Iraq and Afghanistan, I have also seen that the United States is often unwilling to take steps needed to create a level political playing field between democratic forces that have substantial potential support but lack funding and non-democratic forces who receive such support from countries like Iran.

To date, the debate about events in Egypt centers on whether these are dangerous or hopeful. Yet this question can only be judged in retrospect, after the post-Mubarak transition either succeeds or fails to produce a better order, and it will depend, in part, on how its most volatile moments are managed.

The situation at present is highly volatile, and we have an opportunity to assist in shaping the future by encouraging the inclusion of appropriate steps and structures. Western and especially U.S. policymakers should therefore focus on how to engineer the right kind of transition.

This will not be easy, particularly because the opposition is diffuse and lacks clear leaders; they are likely to differ on key issues beyond Mubarak's immediate departure. Yet actions by United States and its democratic allies in Europe can be important in producing the kind of outcome that will serve the interests of the Egyptian people by building toward a democratic order.

The crisis in Egypt -- and its reverberations throughout the Middle East -- signals that the United States and European democracies must become more engaged in the region, supporting reform and establishing a foundation for a democratic order. As a first step, we need to engage our friends, such as Jordan and other countries, and assist them in a developing and implementing a plan for reforms that can preclude the type of crisis happening in Egypt.

More broadly, we need to support civil society and new media throughout the region -- in both friendly and hostile countries. The region's political, economic, and social systems are failing to cope with the demands of modernity, and these dysfunctions are producing political turbulence and threats that the wider world cannot ignore. The United States and its European allies should partner with positive political forces in these countries to work toward the transformation of the region, opening up political and economic systems while ensuring that constructive politics rather than violence shape the future.

This will require patience and commitment, but encouraging the evolution Middle East into a stable and normal region is imperative not only for the people of the region but for our own security and the security of our friends and allies.

Zalmay Khalilzad, a counselor at the Center for Strategic and International Studies, has served as U.S. ambassador to Afghanistan, Iraq, and the United Nations.

Editors note: This post was updated on Monday, February 7, to reflect current circumstances.

The Three Changes Coming to Obama's Approach to the Middle East
By Stephen Sestanovich

These days, all opinions, commentaries, and bold assertions about American foreign policy should come with a disclaimer: "What I am about to say could look awfully foolish by tomorrow morning." With this understood, three changes in the way the Obama administration approaches the Middle East seem likely to me. (And one of them has to do with the analytical and operational timidity that takes hold when people become too worried about being embarrassed by fast-moving events.)

First, the Egyptian crisis cements the primacy of the greater Middle East in American foreign policy as a whole. Perhaps some people thought that the Barack Obama administration, after skillfully closing out its inherited involvements in Iraq and Afghanistan, could then turn to dealing with larger problems of the global future, like the rise of China, nuclear proliferation, or climate change? Well, forget that. The immediate stakes for Washington -- including even for the Obama's political standing at home -- will not seem of comparable significance anywhere outside the Middle East. Obama will regularly face this challenging question: how well are you dealing with new realities in the region? (Remember, although the end of the Cold War was expected to make Eastern Europe less important, people judged Bill Clinton's foreign-policy performance by his handling of the Balkans and NATO enlargement.) Iraq and Afghanistan will be factored into the evaluation. After Egypt, it will be even harder for the president to walk away from Afghanistan with an unsatisfactory outcome. 

Second, the fate of the Hosni Mubarak regime -- whatever it is -- will make the domestic evolution of all states in the region the prime concern of American policy. War and counterterrorism efforts, important as they are, will move to second place. Whatever problem Washington policymakers consider, and whatever measures they devise for addressing it, they will now ask themselves: What effect will this have on the likelihood that very bad guys will take over in Cairo? (And, of course, Amman, Riyadh, and Sanaa.) Some major policy initiatives will be pushed through because they are expected to help prop up the good guys. Others will be ruled out because of fears that they will make it harder to achieve some sort of semi-democratic stability. (The Clinton administration made many of its Russia policy decisions in the 1990s on a similar basis, and frankly, the result was not always positive. If you're always worrying that you've got to support the new -- and generally rather weak -- team that takes over from the ancién regime, you can make bad decisions.)

Finally, political earthquakes like the Cairo events always produce calls for major re-thinking: grand strategy, high concept, neo-Kennanism. Obama will not be the first president to tell his staff he wants a memorable formula -- a profound bumper-sticker -- to describe his new approach. This is understandable -- and, even more, correct. But the results are usually slow in coming and often unsatisfactory when they arrive. Meanwhile, the need for a long-term view will never trump the demand for daily pulse-taking. Dean Acheson used to disparage his critics by comparing them to the farmer who pulled up his seedlings every evening to see how successfully they were taking root. It was a good line, but it did not really describe the success of American policy in the early Cold War. Acheson did not simply plant the right seeds and wait patiently for the harvest. Nor did Henry Kissinger or George Shultz. Effective policy always has in it more experimentation, improvisation, even process of elimination, than its authors like to admit. If a year from now, the Obama administration has not run through at least three or four new ways of thinking about its problems in the Middle East, I'll be very surprised.

Stephen Sestanovich is George F. Kennan senior fellow for Russian and Eurasian studies at the Council on Foreign Relations and former U.S. ambassador-at-large and special adviser to the secretary of state for policy toward the states of the former Soviet Union.


No Need to Panic
By Steven Simon

How, and how much, will American foreign policy toward the Middle East be changed and reshaped by ongoing events? The answer depends on how interconnected the Arab world really is. Accepting that changes taking place in Egypt are likely to change the bilateral relationship with the United States, the question is, are there analogous changes taking place in the region?

In Israel, a transition already seems to be underway, one which has led to diminished U.S. influence. It is probably true that, if Egypt were to abrogate its treaty with Israel, the Barack Obama and Benjamin Netanyahu administrations might find common cause. But most observers don't actually think the treaty at risk, despite the Muslim Brotherhood's talk of preparing the Egyptian military for war.

In Lebanon, a transition is also underway, in which Hezbollah's and Iran's influences have been boosted, and Syria's long-term objectives been made more secure than anytime in the past five years. These changes preceded the Cairo earthquake. Syria itself seems to be at little risk of regime-threatening demonstrations or the kind of rebellion that ended with the suppression of Islamists there 30 years ago. Relations between Damascus and Washington remain frosty and essentially unproductive -- but not as a result of events in Cairo, which are unlikely to change things one way or another when it comes to U.S.-Syrian ties.

Jordan could conceivably contract the Egypt virus, and indeed, there were jitters about its stability in wake of Tahrir Square. The king, however, dusted off the old play book, dismissed his government and consulted the opposition. Partly as a result of these maneuvers, he remains well liked, at least compared with Mubarak, and enjoys a certain legitimacy. Mass uprising or calls for his departure seem highly unlikely.

A seismic transformation, owing to U.S. action, has already swept Iraq; it's hard to see how the sort of government likely to emerge in Egypt will enhance U.S. influence in Baghdad, or erode it further. Saudi Arabia weathered an intifada already, in 2003 and 2004, and high oil prices now enable the kingdom's leaders to fulfill the rentier bargain in a way that probably precludes renewed unrest. The same is true elsewhere on the Arab side of the Gulf, except perhaps in Bahrain. Still, ongoing Shiite demonstrations there predate the turmoil in Egypt.

In Yemen, two insurgencies were already in progress before the demonstrations in Cairo, and in any case, President Ali Abdullah Saleh has now said that he will step down in 2013. The chance of getting less consistent Yemeni help at that point on al Qaeda in the Arabian Peninsula is certainly conceivable -- but if that happens, it won't be because of political reform in Egypt.

That leaves Iran. Granted, Egypt has been a thorn in Iran's side. But as a practical matter, what could Egypt really do to help the United States stymie Iran's pursuit of a nuclear weapons capability, or for that matter, its advances in Lebanon? The key on the nuclear front is in the hands of the U.N. Security Council and U.S. allies in Europe and Asia. There is one respect, however, in which changes in Egypt could complicate U.S. strategy toward Iran: If the United States needs to strength its military position in the Gulf, either to attack Iran or to deter an Iranian move in the wake of a U.S. or Israeli strike. At that point, Egypt's refusal to allow U.S. nuclear-powered warships through the Suez Canal would make rapid response on the part of the U.S. 6th Fleet a vexing problem.

On balance, a lot of reason for depression and maybe some anxiety -- but not panic.

Steven Simon is adjunct senior fellow for Middle Eastern studies at the Council on Foreign Relations.