Bush Was Right

The former president's Freedom Agenda correctly identified the Middle East's dictatorships as the incubators of extremism.

When mass demonstrations began spreading across the Arab world early last year, conservative commentators lost no time in singing the praises of George W. Bush, the first U.S. president to aggressively push for democratization in the region.

Today, with Islamists dominating politics wherever tyrants have stumbled or fallen, many of those who waxed eloquent about Bush's Freedom Agenda have either fallen silent or taken to arguing that Islamist ascendancy will prove to be a temporary setback on the road to liberal democracy. Those who were critical of it all along are having a field day.

In fact, even if the Arab Spring constitutes "an unshackling of Islam, not an outbreak of fervor for freedom in the Western sense," it is proof positive that the Bush administration correctly diagnosed the causes of Arab political dysfunction and made extraordinarily sound -- if short-lived -- policy changes to combat it.

In the wake of 9/11, the White House openly repudiated the longstanding conventional wisdom that U.S.-backed autocratic regimes in the Middle East served as bulwarks against the regional and international security threat posed by radical Islamism. Al Qaeda was then a largely Saudi and Egyptian network, its leadership drawn primarily from disgruntled subjects of the Arab world's two most powerful pro-American governments. The Bush administration quickly recognized that authoritarianism had swelled the ranks of radical Islamist movements by traumatizing Arab citizens and eradicating alternate channels of political expression, while Washington's longstanding support for this state of affairs infused them with hatred of America.

To make matters worse, Arab regimes typically sought to co-opt Islamists by introducing illiberal religious dogma into education, civil law, and media, allowing them to advance their long-term goal of Islamizing society in exchange for short-term political quietism. Those who persisted in subversive activity were typically imprisoned and tortured, then released into exile to seek other paths to martyrdom.

The Bush administration was not the first to recognize that the political survival strategies of friendly Arab regimes were fueling the growing threat of transnational Islamist terrorism, but it was the first to take bold action to address the problem. President Bill Clinton's administration understood the malignant spillover effects of autocracy in the region, but believed that democratization in the Middle East was a pipe dream in the absence of a comprehensive settlement of the Arab-Israeli conflict. Pushing for political reform before a resolution was in hand, the reasoning went, would only alienate Arab governments whose cooperation was needed to achieve a diplomatic breakthrough.

By the time Bush took office, however, prospects for a peace settlement were at a nadir. Given the multitude of septuagenarian and octogenarian heads of state in the Arab world and the growing impact of communications technology in weakening authoritarian controls, the assumption that political reform could wait for peace was dismissed as untenable.

Bush administration officials feared a repeat of Iran's 1979 revolution, when the collapse of an oppressive, U.S.-backed government led to a power vacuum that violently anti-American Islamists were best positioned to exploit. Iraq aside, the Freedom Agenda was intended less to bring about full-blown transitions to democracy than to treat the pathologies of existing regimes, maximize the capacity of secular opposition groups to compete with Islamists, and dispel the widespread belief among Arabs that the United States, as Al-Quds al-Arabi editor Abdelbari Atwan once put it, "wants us to have dictators and monarchical presidents."

Of course, this policy shift did not gain consensus in Washington purely on the basis of such pragmatic considerations. Bush's soaring rhetoric about democracy gratified conservative perceptions of American exceptionalism, provided ideological cover for the U.S.-led occupation of Iraq, and dovetailed neatly with efforts by Israel's supporters to discredit the claim that Arabs hate the United States primarily because of its support for the Jewish state.

Whatever the motivations of its fair-weather advocates, however, the Bush administration's commitment to effecting political liberalization in the region was genuine. It was uneven in practice, to be sure -- countries heavily dependent on U.S. aid were pressured far more than the oil-rich monarchies, for example, where the United States had little leverage.

The administration's flagship democracy promotion effort targeted Egypt -- recipient of more than $1.5 billion in annual military and economic aid -- and it was no joke. The Bush administration pressured Cairo to hold its freest parliamentary elections in decades, vastly increased U.S. aid to Egyptian NGOs working for political reform, and directed the U.S. Embassy to devote a large portion of its resources to civil society outreach. While his predecessor never dreamed of publicly pressuring a friendly Arab leader to release a political prisoner, Bush launched high-profile campaigns of diplomatic and economic pressure to win the release of liberal Egyptian dissidents Saad Eddin Ibrahim and Ayman Nour.

In the wake of Islamist electoral advances in Egypt and Gaza, deteriorating security conditions in Iraq, and the resurgence of Iranian regional influence, the Freedom Agenda encountered growing objections from in Washington. As a result, American pressure for reform in Egypt began to taper off in 2006 -- but it was hardly abandoned. American aid to reformist NGOs continued apace, while the U.S. Embassy in Cairo remained active behind the scenes encouraging and defending pro-democracy activists, as revealed in State Department cables released by WikiLeaks.

The Bush administration succeeded in cultivating the perception among educated Arabs that America is sympathetic to -- if not always willing to do much about -- their political grievances. Even the deputy head of the Egyptian Muslim Brotherhood, Muhammad Habib, grudgingly admitted in 2005 that Mubarak's introduction of reforms "could have been the result of pressure from the United States."

President Barack Obama came into office with grand, if unimaginative, ambitions of reviving the Israeli-Palestinian peace process, which placed a high premium on the cooperation of Arab governments. To accomplish this goal, he quickly strove to patch up American relations with Middle Eastern autocrats whose cooperation he needed to impose a top-down solution to the Arab-Israeli conflict -- or at least a Rose Garden signing likely to endure through the 2012 U.S. election cycle. The Freedom Agenda had to go.

In Egypt, the new administration broadcast clear signals that dissidents should not expect American help in resisting a hereditary succession. During her March 2009 trip to Cairo, Secretary of State Hillary Clinton dismissed a reporter's inquiry about the Mubarak regime's poor human rights record by saying "we all have room for improvement" and calling the Egyptian president and his wife "friends of my family." The Washington Post presciently accused her of obliviously offending "millions of Egyptians who loathe Mr. Mubarak's oppressive government and blame the United States for propping it up." When an equally oblivious Obama paused in expectation of applause after proclaiming that democracy should not be "imposed" by outsiders in his landmark June 2009 speech in Cairo, he was greeted with silence.

Meanwhile, the White House cut aid to Egyptian reform NGOs by half and redirected the remainder away from NGOs not approved by the government. In 2009, Mubarak made his first visit to Washington in five years, while his son and heir apparent, Gamal, visited twice. This caused an uproar among democracy activists, and contributed to a decline in the percentage of Egyptians holding favorable views of the United States from 30 percent in 2006 to 17 percent in 2010.

The Obama administration did not go full circle in its toleration of Egyptian tyranny, but only because American democracy promotion efforts had become too institutionalized to completely jettison without drawing negative publicity. But there is no doubt that it gravely underestimated popular anger at the Mubarak regime and scaled back U.S. support for pro-democracy initiatives at precisely the moment when secular liberal opposition forces needed it most.

In the end, Washington's support for Mubarak was sufficient to encourage his pursuit of a hereditary succession, but insufficient to actually enable it. It left secular liberal political forces powerful enough to crack the authoritarian edifice, but woefully unequipped to assert themselves when the levee broke. And what a flood it has been: Islamists won more than 70 percent of the seats in Egypt's November 2011 parliamentary elections, and Muslim Brotherhood candidate Khairat el-Shater is the apparent front-runner in next month's presidential election.

This trend is not confined to Egypt.  In Tunisia and Morocco, Islamists won a plurality of seats in recent elections.  Whether it proves to be a fleeting aberration or blankets the region with a new generation of theocratic tyrannies, however, the Islamist surge  underscores that the Bush administration's reading of the political dynamics at work in Egypt and the broader Arab world was essentially correct, with one minor exception -- the day of reckoning came sooner than anyone expected.

Mario Tama/Getty Images


Carnaval Is Over

The end of the Brazilian miracle.

When she strides into the White House on Monday, Brazilian President Dilma Rousseff will carry with her one thing sure to draw the envy of her American counterpart Barack Obama -- a whopping 77 percent approval rating. Sitting pretty as a BRIC, at the top of the world, the darling of international investors, preparing to host the 2014 World Cup and the 2016 Olympic Games, Brazil is caught up in a national adrenaline rush comparable -- stereotypically, perhaps -- to what Carnaval dancers feel when they march amid the cheers into Rio de Janeiro's Sambadrome.

The euphoria was evident at most recent edition of the World Economic Forum's confab in Davos, where Brazilian taxpayers bankrolled the official Saturday night soirée. Davos often features country-specific sessions, and Brazil got one again this year. The chief conclusion seemed to be that officials should not let the economy overheat. Emerging from the panel, a veteran foreign correspondent remarked, "The Brazilians are so self-congratulatory. It seems as if they have solved everything." There was more than a tinge of irony in his voice, perhaps because he had covered the "Brazilian miracle" of the late 1960s and 1970s. Featuring double-digit average annual growth for one five-year stretch, the "miracle" sparked over-borrowing and devolved into a "lost decade" of hyperinflation and stagnation following the 1982 Latin American debt crisis.

Applying consistently sensible macroeconomic fiscal and social welfare policies since it beat hyperinflation in the mid-1990s, Brazil has grown steadily, if not spectacularly. It has successfully weathered the current global downturn, and finally started to reduce its legendary poverty gap, engendering a relevant middle class for the first time in history: standing at 95 million, the middle class finally represents over half the population. Maybe it really is time to bury the old joke: "Brazil is the country of the future - and always will be." Perhaps it is time for the Austrian writer Stefan Zweig, best known in Brazil as the author of a 1941 book Brazil: A Land of the Future, to finally receive kudos as a prophet.

So Brazilians are pleased with themselves. And they are not alone. Gringos are flocking to Brazil like '49ers to California. The number of foreign residents jumped by more than 50 percent last year, from just under a million to about 1.5 million, according to a report in the Washington Post. "Now people sell Brazil to us," the first president of the Brazilian Securities and Exchange Commission, Roberto Teixeira da Costa, told me during a recent conversation. Now a member of the board of several leading Brazilian corporations, Teixeira da Costa summed it up like this: "Since the rest of the world is so messed up, people think that Brazil is the savior. We used to be the problem. Now we are the solution."

Along with fellow BRICs China and India, Brazil is expected to help keep the global economy afloat until everyone else gets their act together. Banco Santander, the biggest lender among Spanish banks, makes more money today in Brazil than in any of the other three dozen countries in which it operates: one-quarter of its earnings come from the Latin American giant. General Electric recently projected revenue increases of 25 percent all told in Latin America through 2016, expecting the region to outperform Asia; executives predicted that Brazil, Mexico, and Peru would lead the way. Foreign direct investment (FDI) in Brazil set a record for the second straight year, hitting $66.7 billion, up from $48.5 billion the year before.

Yet this gold-rush mentality seems to be blinding policymakers and investors alike. Some astute Brazilians characterize their country's national psyche as bipolar. Everyone knows about the upside of Carnaval, samba, soccer, and the beaches. But few understand the downside. Brazilians claim to have their own special kind of melancholy, defined by a word, "saudades," that they say is untranslatable. Brazil's most venerated composer, the late Bossa Nova icon Tom Jobim, and his partner Vinicius de Moraes once wrote a song entitled Happiness with a refrain that notes, "Sadness never ends/Happiness does." As does Carnaval, quoting the song's lyrics, "it all ends on (Ash) Wednesday." With the Brazilian economy, a Wednesday morning wake up call may have been sounded by the recently announced 2.7 percent growth figure for 2011, sharply down from 7.5 percent in 2010 and lagging well behind most other emerging markets. Indeed, Santander blamed lower than expected profits during the last quarter of 2011 on troubles in Britain and Brazil.

Nouriel Roubini, the economist who famously predicted the collapse of the U.S. housing market and the ensuing 2008 global recession, visited Brazil in February, precisely during the jubilant Carnaval period. He came away anything but euphoric: "A sober reality check suggests that Brazil could disappoint in many ways in the next few years unless significant structural reforms are undertaken." Predicting a muted future, he added that "this low potential growth leaves Brazil vulnerable to a boom and bust cycle as it quickly reaches its speed limit."

While other factors like the growing middle class clearly play a role, Brazil's recent growth has come largely thanks to its ability to pump minerals and agricultural products into China. Between 2000 and 2010, China's take of Brazilian exports jumped from 3 percent to 16 percent. The cash that floods back, along with FDI and portfolio capital, has put pressure on Brazil's currency, the real. Brazilian interest rates, held high to combat inflation in lieu of more politically complicated tax and public administration reforms, attract foreign investors even in the face of capital controls. Near-zero interest rates in the United States and troubles in the eurozone exacerbate this by as cash abandons low-return regions in search of better opportunities.

As a result, the real is overvalued by 35 percent as compared to the U.S. dollar, according to the Economist's Big Mac index. Brazil could already be suffering from the so-called Dutch disease as its overvalued currency makes the country's exports more expensive abroad and imports relatively cheaper for Brazilian consumers. This may be leading to nascent deindustrialization: domestic consumer goods manufacturing fell by almost 2 percent in 2011 even as retail sales boomed because of growing demand.

The Brazilian government blames the overvalued real on what Finance Minister Guido Mantega calls a "currency war" -- an influx of speculative capital searching for returns in Brazil. Officials have applied piecemeal measures to curb the flow, such as tweaking a tax on overseas loans in March -- extending the application of a 6 percent tax to maturities of up to three years instead of the previous two years.

In response to cries from local industry, officials have gradually applied a series of protectionist measures that have ruffled feathers from Japan to Mexico. "Brazil continues to improvise in its industrial and trade policies," complained economic columnist Míriam Letão in the Rio de Janeiro daily newspaper O Globo. "Attempting to find a way out of the slight drop into the red in the trade balance, and for the lean numbers for industrial output in 2011, all the government could do was to repeat a kneejerk reaction: protectionism and favors for lobbies and special interests."

As in Luis Buñuel's film The Exterminating Angel, where dinner guests inexplicably fail to leave as the night wears on despite the lack of physical barriers, the solutions to Brazil's problems seem obvious but remain unimplemented. Most economists blame the country's problems on what they call the "Brazil Cost," a hodgepodge of problems that make it more expensive to do business in Brazil than most anywhere else. Brazil rings in at 126th (of 183) on the World Bank's index on the ease of doing business, coming in right behind Bangladesh, Uganda, Swaziland, and Bosnia and Herzegovina.

Their prescription for change generally calls for the following: simplifying the tax structure, reforming public administration and social security to improve efficiency and reduce outlays, overhauling labor regulations to make it cheaper to employ workers, and investing in infrastructure. In addition, fiscal reform would give policymakers an extra anti-inflation tool, perhaps allowing them to more quickly lower interest rates, stimulating the economy while helping stem the tide of speculative capital.

The agenda for lowering the Brazil Cost is admittedly ambitious, but the country has made little if any progress on any front. Infrastructure would seem vital in preparation for 2014 World Cup and 2016 Olympics, but investments have lagged enough to have engendered a diplomatic snafu. An official from the international soccer federation FIFA recently suggested that organizers needed "a kick up the backside" because they were behind on preparations. The otherwise euphoric Brazilians were not amused.

Perhaps Brazil is living in its own little vacuum. This certainly could be said of its economic policies. Though he was wildly popular, Rousseff's predecessor Luiz Inácio Lula da Silva's greatest contribution to economic policy was to follow the physician's adage to "first do no harm." As O Globo put it in a wrap-up special as he left office, "President Lula ends his eight year mandate with popularity never before obtained by a president of this country despite a contradictory legacy. We did not have advances or improvements in education, health, public security, basic sanitation, infrastructure and reforms." According to Rutgers sociologist Ted Goertzel, author of biographies of both Lula and his predecessor Fernando Henrique Cardoso, "Lula chose to go into retirement with popularity ratings in the 80s rather than use his popularity to pressure for controversial reforms."

Lula's greatest achievement was probably his Reaganesque ability to make Brazilians feel good about themselves and their country and, one-upping Reagan, convincing foreigners as well: hence the World Cup and the Olympics. But that confidence has led to the kind of self-congratulatory smugness that rubbed the greybeard correspondent wrong in Davos, blinding leaders to the need to tackle the Brazil Cost. While campaigning for office in September 2010, Rousseff chided a Reuters reporter when he suggested in an interview that it might not be possible to maintain 7 percent growth without reforms. "Is Brazil growing (that quickly) now?" she asked him sharply. Since it was, the journalist had to agree. "Well, then, it's possible."

Clearly, at 2.7 percent, it's not happening now. And if Rousseff wants to regain the growth of the Lula years, she'll have to grapple with the chosen political allies of her own Workers Party (PT) -- a pork-barrel party called the PMDB with no identifiable political ideology. The PMDB technically gives the president a majority in Congress, but its members tend to drag their feet on legislation unless and until their personal backs are scratched.

That anybody cares what happens to the Brazilian economy shows how far the country has come since it tackled hyperinflation nearly two decades ago. But economic history shows that everything runs in cycles. The question is: Will Brazil's next downturn be deep and prolonged, like the "lost decade" that followed the "miracle" of the 1970s, or short and relatively painless, as in 2009 when it bounced back quickly from the global shock in 2008? Without reforms, the former option looks more likely.

Like Americans, Brazilians possess a New World optimism, remaining upbeat even through periods of mediocre growth. However, muddling through is not enough for a savior or even a new pillar of the global economy. Ash Wednesday could come sooner than expected.