Benjamin C. Works, Executive Director

--Celebrating Chaos Theory Since 1990--

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SIT 9-1; Tuesday. September 8, 1998 Noon

Last month, in SIT 8-12 I wrote of a stand-off between Taliban and Iran, over the Afghan Sunni fundamentalists' taking of some 44 Irani hostages during their capture of Mazar-i-Sharif on August 8. The hostages included 10 diplomatists and a journalist and these 11 are now believed to have been killed.

Iran has now mobilized some 70,000 Revolutionary Guards troops on its eastern border in a show of force; these troops include armored forces, paratroops and commandos. But Iran faces the dilemma of an organized country facing one that is not highly organized, the dilemma faced by Britain and Russia: how do you invade a country that is a "bowl of jello?"

Iran could invade and capture the western city of Herat, a city founded by Alexander the Great and one of the original bases for Taleban, in a matter of days as the city is less than 100 miles from the border. Iran could also strike at Kandahar, though that city is 300 miles away, a major distance for logistics troops to span in keeping an armored force supplied with fuel, water, food and munitions (200-250 miles is the practicable depth of an armored penetration against organized resistance). Osama bin Laden's camps are in the mountains south of Kandahar and an Irani drive in that region might help put Osama out of business --but that is highly speculative and hardly worth pursuing further at this time.

Strike and what do you get? Half a non-country and a host of human problems from occupied cities, towns and refugees. You also get a new dispute between the houses of Shia and Sunni.

There are some 1.4 million Afghan Shiite refugees in Iran and organizing their men into a capable fighting force is a likelier course should Iran continue to have problems with Taliban. That is a project that would take months and years. This might also make the heroin-opium smuggling routes out of Pakistan and the Afghan mountains more difficult to travel, a fringe benefit. Still, Afghanistan brings problems to Tehran that Iran simply does not need. Among these, the more muscular Iran tries to be, the more it weakens itself against Saddam, while infuriating Semitic Sunnis against the Aryan Shiite imperialist. So, Saudi Arabia has confirmed it is attempting to mediate between Taliban and Tehran in order to avert a greater crisis.

Such are the problems of politics and diplomacy in the Islamic world. The modern state of Iran sees its hostages taken and likely killed by religious rebels in a neighboring state that is not a modern one, and there is little meaningful that the modern state can do without creating a host of new problems for itself. Once again, the US and Iran share a peculiar policy interest in opposing Taleban; but the US has not properly supported anti-Taleban forces in the past and Saudi Arabia has supported Taleban, which harbors Osama. The upside here is that if Osama and Taleban continue to trouble the world and Iran, the US might suddenly find a cooperative host nation for a more muscular strike against Osama in the future --unlikely, but possible in an extreme.

THEORY A/B: As to Osama himself, The New York Times broke a further story on Sunday Sept. 6th, leaked by the Clinton team, that they had been targeting Osama's camps for a commando raid or air strike from April forward based on information developed from the World Trade Center bombers and others. Given the sealed indictment handed down by a New York Grand Jury and the June fatwa from Osama, I believe we should accept that the August 20^th strike against Osama was a genuine attempt by the Administration to exert power in both a punitive and preventive manner in a timely way --"Theory A."

What I did not measure in last week's Theory A/Theory B analysis is this: whether or not the action taken is effective in the immediate military sense, in the international political-diplomatic sense and in the domestic political sense. Thus, both Theory A (A Real Crisis) and Theory B (Wag the Dog) have positive and negative outcomes across a range of considerations, or, what I refer to as "dimensions" of policy.

AFRICA REACTS: One interesting element in the fallout from the August 20^th strikes in Afghanistan and Sudan is that though the US has given Sunni fundamentalists some lurid propaganda, the Arabs themselves have overplayed their hands and have angered Sub-Saharan Africa. Given the smaller bomb against Planet Hollywood in South Africa, as well as the Nairobi and Dar es Salaam embassy attacks, and given Osama's self-justifying declaration of war on Kenyan and Tanzanian civilians for their countries' purported support of a US-UN oppression of the faithful in Somalia, some Africans realize that the Islamic radicals hold them in extreme contempt as non-believers. The sub-Saharan African states have a large block of votes in the UN, almost balancing the Islamic bloc's 53 votes.

GOOD & BAD OUTCOMES: We then measure whether the strikes are effective or ineffective in a relative range against both Theory A and Theory B, providing four outcome ranges. Since I have chosen to remain a believer that the President was attempting to apply power in a real crisis to send a muscular message, rather than to put an absolute end to terrorism from Osama, I would measure the Afghan strike as a mild success and the Sudan strike as a public relations failure, partially offset by the African reaction. Overall, the strike was psychological and nested within larger international efforts and a very limited success. The ongoing terrorism fight remains one of diplomacy, police work, intelligence operations --where our Human Intelligence is relatively weak-- and immigration security against small groups of semi-professional infiltrators, a difficult problem. Internationally, there are no clear signs yet of material progress against these terrorists as measured in arrests and it is too early to say how the greater campaign is faring. The debates at the UN General Assembly will give us some idea as to how governments stand.

Is that Boris Yeltsin? This weak? It appears so. The net effect of last week's Clinton-Yeltsin summit has conformed to conventional wisdom as a parody of prior meetings. And Yeltsin has found himself in the lame duck's seat. The Clinton visit's primary accomplishment was to keep him away from Ken Starr for a few extra days.

The Communists in the Duma have kept the country in suspense for an extra week by not approving the re-appointment of Viktor Chernomyrdin as Prime Minister and have let the reform package remain in limbo, while the ruble slipped from 6=$1 to just under 21+$1; a 71% slide. What they have done is shut down the government in a way analogous to Newt Gingrich's attempt in 1996, but with greater --even scary-- consequences. But Yeltsin retains the ultimate wild card --a new election, with a popular candidate, such as Aleksandr Lebed. Today, Yeltsin is mulling over a short list of alternative candidates for Prime Minister; it makes interesting theater.

I was just trying to clarify some important structural points about market forces in the current international markets crisis for a newsletter comment just today about an hour before a friendly reporter called from the Investors Business Daily. I reworked this a bit more, because it fits with the Yeltsin situation and attach it to here.

The Cold War ended with the Soviet Union's command economics being crushed by the competitive market economies of the US and Japan --W Edwards Deming's manufacturing revolution in statistical quality assurance and the computer revolution propelled that.

What we are seeing in the Asian Contagion is the victory of free-market free-enterprise over controlled-market oligarchic-conglomeratism (plutocracy), as with Japan, Germany, France, S Korea, Thailand, Malaysia, Indonesia, etc. The crisis is extended because the advice we have been doling out to other states has had more of a political-bureaucratic orientation than a constitutional-free enterprise, economic one.

Thus, the cold war represents the triumph of market economics over command economics and the Asian Contagion represents the struggle between the free market and the controlled market, with free-enterprise the eventual winner over oligarchism.

The free market economies; the US, Chile, Taiwan, Britain; are the model of the future and I meant it in July when I quipped in my July 8^th newsletter that I consider Jose Pinera to be "the most dangerous man alive". Canada is in the middle, free-market but with its expensive and strangling bureaucracy, devoted to self preservation. That is where the Clinton Democrats would head the US, by continuing the buildup of the non-defense bureaucracy and the stranglehold on education, rebuilding unionism, etc. Even the economic victory of free-enterprise over conglomeratism does not automatically lead to a political victory, or even a fight, against bureaucracy

As to conglomeratists, in Russia and emerging markets, the personality of the conglomeratist can attract capital at attractive rates to an agglomeration of otherwise unattractive investments --a "mutual fund" approach. But in a mature economy, such as Japan, the conglomerates run their disparate businesses into the ground slowly as they cannot keep up with all the changing market forces at war in their portfolios of businesses. They tend to subsidize weakening businesses rather than shaping them up, thus wasting capital that an entrepreneur would conserve --Greenspan sort of addressed this by discussing inefficient capital allocation too, last Friday, deep in the back of his speech. In Japan, where the corporations promised a "job for life" but never funded their pension liabilities, they now must run at a near-break even bottom line to meet their obligations and are slowly liquidating their overseas investments to raise cash.

The next and culminating phase of the battle between free-enterprise and these "neo-mercantilist" oligarchies is underway. The additional crisis the conglomeratist-oligarchs of the EU face is that their bureaucratic partners are taxing at too high rates to sustain their increasingly illusory social safety nets. The corporate oligarchs have not added any net new jobs since the early 1960s, all private sector jobs have come from US and Japanese companies.

The IMF works with big banks-central banks and tends to sustain plutocratic conglomeratists and their high-tax bureaucratic partners. As I mentioned, the investment fund managers work the other way and they are the power in the future behind free-market free-enterprise. Their version of overseas investment has only just begun to show its power in this preview round of 1994-98. The IMF refinances inefficiency because the fund managers won't invest and the IMF is disposed to higher taxes to prop up bureaucracies, punishing entrepreneurs and middle classes.

This EU system won't work and while the common currency will forestall a meltdown in the short run, the plunging birth rates in Europe tell how the people view their future and the EU Treasury will make their social democrat economics highly vulnerable to market forces; more so than if the traders attacked the treasuries one by one.

I do believe that Greenspan can stop a further slide virtually on a dime by speeding up this inevitable rate cut, but bought himself a little time with the speech. Today's rally fully discounted that hint. With Clinton rapidly weakening and no resolution in Moscow yet, (Communist obstruction of Chernomyridin is analogous to Gingrich's shutting down our government but with vastly more dangerous consequences in Moscow) things are still sliding in the international system. This can still precipitate a second-round of the selloff from a "fearful concatenation of circumstances" economically even as NKorea shoots off its missiles, Saddam obstructs UNSCOM and other opportunist actors get increasingly out of line. A weak leader begets crises by encouraging his foes.

Ultimately Greenspan can stop another slide through effecting the expected rate cut and he does not really have to wait to the 29th if things start to slip badly.

© Copyright 1998 Benjamin C. Works-SIRIUS