Reconstructing the administration

Now that Paul Wolfowitz has been tapped for World Bank head, the strategy of the U.S. administration is becoming clear. With Condoleeza Rice at the helm of the State Department, the U.S. administration now has a policy lock on two major organizations which have traditionally engaged in nation-building activities. Since it became evident that the U.S. military is not well-suited to nation-building, they apparently looked for existing organizations which could be folded into a coherent multi-department effort. Such nation-building will also serve U.S. strategic economic interests.

For example, there is an element of competition with two nascent economic engines in Asia. Referring to http://www.globalpolicy.org/socecon/bwi-wto/wbank/2004/1012easttimor.htm:

As Anne Carlin from the Bank Information Center points out in a recent report on IFI activity in Afghanistan, IFIs such as the World Bank have moved into nation building as a ‘new line of business’ to offset the reduced demand of large borrowers such as India and China. Timor’s Bank-managed trust fund system has been replicated in Afghanistan and was recently proposed in Iraq. All of these developments strengthen the claim that the World Bank and other IFIs are the de-facto managers of the ‘developing’ world.
The Bank’s CEP in Timor epitomizes the contradictions of the new trend in nation building on the quick.

The shift was tracked in the piece at http://www.boston.com/news/nation/washington/articles/2005/01/05/study_urges_bigger_role_for_state_dept/:

A senior advisory board to Defense Secretary Donald H. Rumsfeld is recommending a significant expansion of the State Department to cope with the diplomatic challenges of nation-building efforts that cannot be met by the Pentagon.
The new study by the Defense Science Board also takes indirect aim at the Bush administration's preparations for postwar Iraq, saying that achieving political success following military victory requires ''effective planning and preparation in the years before the outbreak of hostilities."

The U.S. efforts to assists tsunami victims was also part of this coherent policy, and has already paid off, at least in the short term, with reduced anti-American sentiment in Indonesia. Cf. http://cippad.usc.edu/ai/tsunami/tsunami_news.cfm:

According to a recent poll carried out by the Indonesian pollster Lembaga Survei Indonesia, Indonesians' backing for Osama bin Laden dropped from 58% in 2003 to 23% today. The poll also found out that 65% of Indonesians view the United States more favorably in the aftermath of the country's military logistic support and millions of dollars in private and government aid for tsunami-hit Indonesia. The poll included 1,200 adults in Indonesia, and it was commissioned by Terror Free Tomorrow, which is a U.S.-based non-profit organization that seeks to defeat global terrorism by undermining the support base that empowers extremists. (Source: Reuters, March 4, 2005).

Now that the fuss has died down

According to a piece originally published on December 28, 2004 in the Arkansas Democrat-Gazette, Democrats lost 97 of the 100 fastest growing counties in the USA. Suburban voting power.

The 100 U.S. counties that grew the fastest from April 2000 to July 2003 cumulatively grew by 16 percent, according to the Los Angeles Times analysis. Their Republicanism also is growing. In last month's election, they provided Bush with a 1.72 million vote advantage over Kerry, almost four times the margin they gave Bob Dole eight years ago, according to the Times.

This apparent New York Times piece from November 10, 2002 predicted this demographic shift.

These exurbs are booming. Before 1980, says Robert Lang, a demographer at Virginia Tech, only a quarter of all office space was in the suburbs. But about 70 percent of the office space created in the 1990's was in suburbia, and now 42 percent of all offices are located there. You have a tribe of people who don't live in cities, or commute to cities, or have any contact with urban life. Mesa, Ariz., another quintessential exurb east of Phoenix, already has more people than St. Louis. Extrapolate out a few years, and some of these sprawling suburbs will have political clout equal to Chicago's.

Forget the reductionist Red-Blue dichotomy. In the case of a nearly evenly divided electorate, every major demographic segment becomes a potential swing vote.

This piece originally in The Financial Times on November 4, 2004 also points to the exurbs as a key future battleground:

... the greatest hope for each party's future lies less in the Old America of the Great Plains and industrial mid west, but in the fast-growing Sunbelt states of the south-east and west. Since the elder Bush was elected president in 1988, 27 electoral college votes have shifted to these states and they now account for 59 per cent of national growth in eligible voters since the last presidential election.
At first blush, Sunbelt state growth appears to be fuelled primarily by younger Republican constituencies: white middle-class families along with affluent retirees. These newcomer suburbanites should welcome the Republicans' conservative economic pitch of tax-cuts, school vouchers and the like. By joining home-grown, conservative constituencies of the religious right, it is not hard to see why most of the south and much of the non-coastal west will continue leaning Republican.

Where is US inflation?

My position is that Wal-Mart holds the clue. From a December 2003 piece in Fast Company:

Wal-Mart wields its power [as buyer] for just one purpose: to bring the lowest possible prices to its customers... Wal-Mart has the power to squeeze profit-killing concessions from vendors. To survive in the face of its pricing demands, makers of everything from bras to bicycles to blue jeans have had to lay off employees and close U.S. plants in favor of outsourcing products from overseas.

Now overseas firms are also facing the brunt of this pricing pressure. Since the USA still functions in many ways as buyer of last resort, this same principle applies to the US economy as a whole. In any area where suppliers cannot find an alternative buying in a timely manner, they will compromise in order to sell to the USA. Though one might expect the decline of the US dollar to have prompted more inflation, the impact of Wal-Mart and cash-strapped US companies has been synergistic in demanding lower pricing as the US dollar has fallen. In an efficient just-in-time supply chain, inventory left to build up is an additional cost. Foreign suppliers with nowhere else to go are faced with the disruptive option of stockpiling and producing less while still having to pay out accounts receivables, or accepting a reduced price and sustaining cash flow. Inflation is thus kept at bay in areas where suppliers cannot find alternative buyers.

The resulting profit squeeze then puts a premium on efficiency and productivity in order to remain profitable. The efficiency of Wal-Mart is even welcomed in China for such a transformational effect, as it puts pressure to reduce waste due to corruption. From a December 20, 2004 article in Newsweek:

Wal-Mart buys so many Chinese-made products that if it were a country, it would be China's sixth largest export market (after Germany) and its eighth largest trade partner. The company's iron-fisted price and performance demands on suppliers are changing the way China does business... China, more than most nations, welcomes the disruptive impact of Wal-Mart's business model... Chinese suppliers say Wal-Mart is already having a transformative effect on everything from supply chains, to distribution networks, to customer service. ...the spread of Wal-Mart stores is raising efficiency standards for a growing number of Chinese suppliers... Government officials see Wal-Mart as a good way to accelerate China's transition from state planning to free markets and to "bring the country's economy into the 21st century," says Li Fei, a retail-marketing professor at Tsinghua University.

Wal-Mart and other US buyers are thus acting in concert to check inflation. Of course, this approach has not limited the price of oil or gold where there are viable alternative buyers; in those particular cases, it has been the euro which has been the price limiter rather than the US dollar.