Governments are not corporations

The New York Times' Roger Cohen files an optimistic column today, arguing that predictions of American decline are premature.  I tend to agree with Cohen's sentiment but not his logic because, well, it's God-awful.  Here's the key bits:

Perhaps the most successful U.S. chief executive of the past decade is stepping down this month. Samuel Palmisano of I.B.M. has presided over a remarkable transformation of the technology giant, extracting it from the personal computer business and shifting it toward services and software to power a “Smarter Planet.”

In a fascinating interview with my colleague Steve Lohr, Palmisano said the first of the four questions in his guiding business framework was, “Why would someone spend their money with you — so what is unique about you?” At root, business is still about getting money out of your pocket into mine. By being unsentimental in making I.B.M. unique, Palmisano ensured a lot of money flowed the company’s way.

Profits followed. The stock price surged. Warren Buffett, who knows which way the wind blows, recently acquired a stake of more than 5 percent. I.B.M. has been re-imagined, not least in the way it has shifted from being a U.S. multinational to a global corporation powered by rapid expansion in growth markets like India and China.

The question arises: If an American colossus like I.B.M. can be turned around, can America itself?  (emphasis added)

A small aside:  if Cohen's logic is correct, then the 2012 election is over and everyone should vote for Mitt Romney.  This kind of ruthless turnaround is exactly what Romney did while at Bain.  While his track record can be disputed, there's no doubt that he was willing to be ruthless to increase profits.  So, whether he knows it or not, Cohen is making the argument that a turnaround specialist like Romney would be just the ticket for the United States, transforming America's political economy into a leaner, more efficient engine for progress. 

The thing is -- and this is kind of important -- governments are not corporations.  I cannot stress this enough.  There's the obvious point that in democracies, legislatures tend to impose a more powerful constraint than shareholders, making it that much harder for leaders to execute the policies they think will be the most efficient. 

There's also the deeper point that it's a lot harder for governments to be "unsentimental" when it comes to the provision of public services.  It's a lot harder for states to eliminate the functions that are less efficient.  Frequently, demand for government services emerges  because of the perception that the private sector has fallen down on the job in that area.  This means that the government has been tasked with doing the things that are difficult and unprofitable to do.  It is precisely because these government outputs are often so hard to measure that Newt Gingrich's claims about Six Sigma sound pretty laughable.  Even libertarians who want the government to reduce its operations drastically will acknowledge the political risks and costs of trying to execute this plan. 

To be fair, there are some policy dimensions where this analogy holds up better.  Cohen implicitly argues that America's willingness to jettison costly and inefficient foreign ventures -- cough, Iraq, cough -- is an example of this kind of turnaround strategy.  Fair enough.  Even on foreign policy, however, it's hard to execute this kind of ruthless efficiency.  Israel is prosperous enough to not need the $3 billion it gets in U.S. aid.  Good luck to anyone trying to cut that.  Africa is not a vital strategic areas of interest for the United States, but I suspect AFRICOM isn't going anywhere.  I've been a big fan of getting the United States out of Central Asia, but critics make a fair point when they observe that the last time the United States tried this gambit, Al Qaeda took advantage of it. 

There's been a lot of bragging in the 2012 primary about candidates that have "real world" business experience, and how that translates into an effective ability to govern.  That logic is horses**t.  Being president is a fundamentally different job than being a CEO -- because countries are not corporations. 

Daniel W. Drezner

Will sanctioning Iran 'work'?

It's been a busy week for Iran-watchers. The European Union is mulling a phased-in oil embargo, prompting Iranian officials to label the move as "an economic war" against Iran. Now Iran's Asia customers are trying to diversify away from Iranian oil. These expectations of future cutoffs, combined with pre-existing sanctions, are taking their toll on the Iranian economy in the form of dollar-hoarding and a free-falling national currency. Fareed Zakaria sums up the current state of play nicely:

[T]he real story on the ground is that Iran is weak and getting weaker. Sanctions have pushed the economy into a nose-dive. The political system is fractured and fragmenting. Abroad, its closest ally and the regime of which it is almost the sole supporter -- Syria -- is itself crumbling. The Persian Gulf monarchies have banded together against Iran and shored up their relations with Washington. Last week, Saudi Arabia closed its largest-ever purchase of U.S. weaponry.…

The Obama administration has put tremendous pressure on Iran on a variety of fronts -- far more pressure than the Bush administration was ever able to muster. This is, in part, because the pressure has been brought to bear, wherever possible, with other countries. The United States does not buy oil from Iran. But European nations, Japan and South Korea do, and if they go along with a new round of sanctions, Iran faces the real prospect of an economic freefall.

Iran's response to these moves has been a mixture of tough talk, empty gestures, backtracking on threats, and an acknowledgment of economic difficulties. It's therefore no wonder that the Washington Post reports, "U.S. officials are increasingly confident that economic and political pressure alone may succeed in curbing Iran's nuclear ambitions." Walter Russell Mead observes that, "public opinion in Iran does not seem to be rallying behind its unpopular government as the economic storm intensifies."

At the same time, however, Iran is trying to demonstrate that its uranium enrichment will continue unabated. Trita Parsi argues that overconfidence in the sanctions track will cause the Obama administration to rebuff any negotiated breakthrough on the nuclear issue. This leads to the obvious question: What's the endgame in Iran? Will sanctions "work"?

To get Clintonian, this depends on your definition of "work." One could argue that the current and projected actions taken by the EU and Pacific Rim might have been a wake-up call to Tehran that it's more isolated than it had previously thought. Iran is not merely facing the United States; it's facing a multilateral coalition that's growing stronger, not weaker. Unless potential benefactors like China take proactive steps to function as a "black knight," these sanctions really will cripple Iran's economy. The alienation of Iran's bazaari from the leadership in Tehran would ... let's say complicate the domestic situation in Iran.

That said, I'm skeptical that it will push the current regime toward making a substantive accommodation on its nuclear program. Based on how the leadership has treated domestic unrest, it seems clear that the top leadership is perfectly comfortable following The Dictator's Handbook approach to staying in power. More-powerful sanctions will therefore simply lead to more-powerful crackdowns. If Iranian elites view the nuclear program as the key to preventing outside attempts at forcible regime change, there's no way they'll compromise.

So would negotiation work? I'm skeptical here too. In part the problem is determining whether the Iranians are capable of negotiating in good faith. I don't mean that Tehran will act duplicitously; I mean whether the fractious regime can act in a coherent manner. Its behavior over the past week or two suggests otherwise. So does Zakaria:

The Obama administration seems to have concluded that the Iranian regime is not ready or able to make a strategic reconciliation with the West. The regime is too divided and Ayatollah Ali Khamenei, the ultimate authority, the Supreme Leader, is too ideologically rigid. So for now Washington wants to build pressure on Iran in the hopes that this will force the regime into serious negotiations at some point.

I suspect the Obama administration's hopes are more ambitious. They want the sanctions to be so crippling that Khamenei's ultimate authority comes under challenge, to the point where factional divisions open up space for a substantive change in the regime.

This might work, but I'd put the odds of this happening at less than 1 in 3. Still, this is the thing about instances in which economic sanctions are deployed. Even if their prospects don't look great, they're usually employed because the other options have even worse odds. For the next, say, six months, pursuing this course of action makes sense. It weakens Iran at a key moment in the Middle East, and it might lead to some positive developments down the road. That said, even if the sanctions work in crippling Iran's economy, they likely won't work at altering Iran's objectionable nuclear policies -- the expectations of future conflict are too great. At that point, the United States is going to need to consider whether it's prepared to pursue a longer-term containment strategy or alter course.

What do you think?