Iraqi council rejects elections law
By QASSIM ABDUL-ZAHRA, Associated Press Writer
1 hour, 31 minutes ago
Iraq's presidential council rejected a measure Wednesday setting up provincial elections, sending it back to parliament in the latest setback to U.S.-backed national reconciliation efforts.

The three-member panel, however, approved the 2008 budget and another law that provides limited amnesty to detainees in Iraqi custody. Those laws will take effect once they are published in the Justice Ministry gazette.

The three laws were approved as a package by the Iraqi parliament on Feb. 13. The step drew praise from the Bush administration, which had sought passage of a provincial powers law as one of 18 benchmarks to promote reconciliation among Iraq's Sunni and Shiite Arab communities and the large Kurdish minority.

"No agreement has been reached in the Presidency Council to approve the provincial elections draft law and it has been sent back to the parliament to reconsider the rejected articles," the council said in a statement.

The panel is composed of President Jalal Talabani, a Kurd, Shiite Vice President Adel Abdul-Mahdi and Sunni Vice President Tariq al-Hashemi.

The White House said it does not believe the setback for the provincial election law has dealt a fatal blow to the measure. White House press secretary Dana Perino said the Bush administration would have liked the law to move forward without complications, but added: "This is democracy at work."

Abdul-Mahdi is a senior official in the Supreme Iraqi Islamic Council, the country's largest Shiite party. He objected to the measure and was supported by the Kurds, according to lawmakers who attended the council meeting where the elections law was discussed. They spoke on condition of anonymity because of the sensitivity of the issue.

The sticking point was control of the provincial governor's offices. A provision in the measure allows the Iraqi prime minister to fire a provincial governor, but Abdul-Mahdi's bloc wants that power to rest with the provincial councils, or legislatures, where his party has a strong base of support around the country, the lawmakers said.

Naseer al-Ani, a spokesman for the presidential council, refused to say who objected to the measure.

"There are some items in this law that contradict the constitution, such as the governor and how to sack him," he said. "There is an objection and it is constitutional. The Presidency Council has the right to object."

The elections measure was only the second of the U.S. benchmarks to make it through parliament.

A bill that allows lower-ranking members of Saddam Hussein's Baath party to reclaim government jobs became law earlier this year, but Sunnis have demanded amendments and the future of the measure is unclear.

Some Iraqi lawmakers vented their displeasure.

"This is a disappointment to us. We expected that all the three laws would be approved together," said Khalid al-Attiya, the Shiite deputy parliament speaker. "It will take us a long time and new agreements now to pass the law."

It took weeks of wrangling for the Iraqi parliament to pass the three laws the presidential council reviewed, finally doing so in a single bundle so that none of the three groups would feel double-crossed. Even then, parliamentary speaker Mahmoud al-Mashhadani had to break an 82-82 tie to get the measure through on the last day of the legislature's session.

The budget and the amnesty measure become law with the presidential council's approval. It does not appear possible for lawmakers to revisit them when they return from a five-week break March 18.

"We are annoyed with the fact that the party affiliations in the Presidency Council have overcome Iraq's national interests," said Saleh al-Aujaili, a lawmaker from radical Shiite cleric Muqtada al-Sadr's faction. "The members of the Presidency Council should study the laws as representatives of the Iraqi people, not their own parties."

He said any measure rejected by the council needs a two-thirds majority approval in parliament to pass the second time through, making it difficult for the nation to hold provincial elections on Oct. 1, as set out in the measure.

Virtualisation

The rise of the hypervisor
Jan 17th 2008 | PALO ALTO
From The Economist print edition

Is this the most disruptive technology in business computing since the internet?
HISTORY may not repeat itself, but it does sometimes rhyme. In 1980 when IBM asked Microsoft, then an unknown software firm, to provide the operating system for its personal computer (PC), it made the mistake of allowing its supplier to license the software, called DOS, to other hardware firms. DOS quickly became the dominant computing platform for the PC and the basis of Microsoft's might.

Two decades later Microsoft may have made a similarly seminal mistake. In 2002 it balked at paying a high asking price for VMware, then also an unknown start-up. VMware was later acquired by EMC, a big data-storage supplier, but the Silicon Valley firm remained largely independent. This allowed it to develop software that may yet emerge as a dominant platform in its own right—not for single computers, but for the vast warehouses full of machines, known as data centres, where much computing will be done in future.

VMware's claim to fame is a technology called virtualisation, originally developed for big computers such as mainframes. It allows computers to split themselves into several “virtual machines”, each of which can run its own operating system and applications, in effect separating software from hardware. To do this, VMware developed a small program called a hypervisor, which controls how access to a computer's processors and memory is shared.

Before VMware came along, virtualisation had lingered in obscurity. Rather than splitting up big machines, firms found it easier to use small ones for each new application. For a while, this was a rational strategy. Servers were cheap. Machines that ran more than one application were more likely to crash. Yet the approach led to “server sprawl”, turning data centres into complex warrens of understretched hardware that required ever more people, space and power to keep them going. So it is hardly surprising that virtualisation, which allows multiple servers to be consolidated into a single machine, is one of the fastest growing areas in the software industry (see chart). As the software industry matures and consolidates—this week Oracle said it would buy BEA Systems, and Sun said it would buy MySQL—the emphasis has shifted away from fancy new technology and towards tools that cut costs and allow firms to do more with less.

Server consolidation is only the most obvious merit of virtualisation, however. Once computers have essentially become bits of software, getting new ones up and running takes minutes, not weeks. Even more important, servers can be moved around, even when in use. This allows for clever tricks such as concentrating virtual machines on as few computers as possible and switching off the rest to save energy. And particular server configurations can be packaged into downloadable and highly reliable “virtual appliances”.

It is not just servers that can be disembodied. Desktop computers are next on the list, because virtualisation allows them to be managed centrally. Operating systems and applications need no longer run on PCs on desks, but can run on virtual machines in the data centre that can be accessed remotely—theoretically from any PC in the world. Storage is also getting more and more virtualised, so that data can be shunted around just as easily.

The ultimate goal of virtualisation is to make a data centre, or even several of them, look like a single pool of computing, storage and networking resources that can be allocated as needed. Thomas Bittman of Gartner, a market-research firm, calls this “real-time infrastructure”. Yet for the vision to become reality, something is still missing: a set of tools to manage all these computing resources—an operating system for the data centre, if you will.

VMware is well on its way to building just that. Founded ten years ago by a bunch of computer scientists and run by Diane Greene, it has become one of the fastest growing software firms, a fact that explains its blockbuster flotation last August (EMC still holds a majority stake). Although VMware is best known for its hypervisor, it now makes more money from a suite of other products, such as software to manage virtual machines. And it has been successful at persuading other computer firms to make their wares work well with its products, thus building an ecosystem around its emerging platform.

How was it possible for a newcomer to leave incumbents such as HP, Microsoft and Sun Microsystems in the dust? One reason was that VMware had the right product at the right time. More important, VMware delivered “a non-disruptive disruptive technology”, as Ms Greene puts it. Customers can install it without having to rejig their existing set-ups. By contrast, other virtualisation efforts were too ambitious and required extensive changes.

Now the industry's heavyweights are fighting back with a vengeance. In recent months they have announced big virtualisation initiatives. HP and Sun want to bring technologies developed for their high-end servers to the rest of the data centre. Microsoft, meanwhile, will integrate its own hypervisor, called Viridian, into the next version of its Windows operating system, essentially giving it away—and raising the spectre of yet another antitrust case. (On January 14th the European Commission opened two new investigations to see whether Microsoft abused its desktop monopolies to restrict competition.)

Yet the most interesting competitor is another newcomer: XenSource. It distributes its hypervisor as free, open-source software but sells related products. Simon Crosby, the firm's technology chief, likens this to giving away an engine in order to sell a car around it. He believes this approach will help to spread virtualisation more quickly and prevent VMware from establishing a Microsoft-like dominance of the market. XenSource now has the necessary backing, having recently been acquired by Citrix, another software firm, for $500m. Some people think that if Microsoft fails to catch up with VMware on its own, it will buy Citrix.

Will VMware be able to withstand the collective onslaught? It is unlikely to crumble like Netscape, the most recent start-up to vie to become a new platform, since hypervisors are much harder to replace than browsers. And VMware has already reacted cleverly by slashing the price for its hypervisor and persuading hardware firms to embed it in their machines, putting it on a more equal footing with Microsoft when it comes to distribution.

Whatever happens to VMware, however, the virtualisation technology it has helped to popularise is here to stay—and will transform the economics of computing in the years to come. In particular, computing will be much easier to outsource. Perhaps the best way to understand virtualisation is to view it as an electronic form of globalisation: when borders disappear, everything is up for grabs.

Widespread Unease about Economy and Globalization - Global Poll

Most See Unfairness in Distribution of Benefits and Burdens of Economic Growth

Full Report (PDF)

In 22 out of 34 countries around the world, the weight of opinion is that "economic globalization, including trade and investment," is growing too quickly, according to a BBC World Service Poll of 34,500 people. On average one out of two (50%) hold this view, while 35 percent say globalization is growing too slowly.

In the G-7 countries - whose finance ministers are meeting this weekend - an average of 57 percent say globalization is growing too quickly.

Related to this unease is an even stronger view that the benefits and burdens of "the economic developments of the last few years" have not been shared fairly. Majorities in 27 out of 34 countries hold this view - on average 64 percent.

In developed countries, those who have this view of unfairness are more likely to say that globalization is growing too quickly - especially in France, Italy, Spain, South Korea, Japan, and Germany (and to a lesser extent Britain and the US).

In contrast, in some developing countries, those who perceive such unfairness are more likely to say globalization is proceeding too slowly. These include Turkey, the Philippines, Indonesia, Brazil, Kenya, Mexico and the countries of Central America.

Only 19 percent overall say globalization is growing much too quickly, while 32 percent say it is growing a bit too quickly. Steven Kull of PIPA comments, "Few want to slam the brakes on globalization, though many want to press the brakes lightly. Also, people in some developing countries still want to accelerate globalization and appear to believe that this will help break down some of the inequities in their country."

The survey was conducted for the BBC World Service by the international polling firm GlobeScan together with the Program on International Policy Attitudes (PIPA) at the University of Maryland. GlobeScan coordinated fieldwork between October 31, 2007 and January 25, 2008.

Though interviews (except in India) were completed before the sharp fall in global stock markets in mid-January, there was already a predominant view that economic conditions were getting worse in their country (on average 52% worse, 41% better) as well as in the global economy (46% worse, 40% better).

GlobeScan President Doug Miller says, "There is real public unease about the direction of the economy, but it's not only about a downturn. It also has to do with how fairly benefits and burdens are shared, and the pace of globalization."

Other Highlights

Perceptions of domestic economic conditions vary widely. In ten countries, a majority perceives improvement (led by China 84%, Canada 72%, Australia 71%, UAE 69%, Russia 63%, and India 56%), while in twenty-one a majority perceives their country worsening (led by Italy 86%, the Philippines 76%, Indonesia 76%, USA 74%, and Portugal 72%).

The perception that the benefits and burdens of economic development have not been fairly distributed in their country is highest in South Korea (86%), Italy (84%), Portugal (84%), Japan (83%), Chile (82%), Lebanon (82%), and Turkey (82%).

In just six countries, majorities perceived their economy as fair - UAE (72%), Australia (58%), Canada (58%), China (58%), Ghana (53%), and Nigeria (53%).

The view that globalization is growing too quickly is especially widespread in Egypt (77%), UAE (77%), Australia (73%), China (72%), Spain (68%), and France (64%).

The only countries with majorities saying that globalization is growing too slowly are the Philippines (71%), Turkey (71%), Indonesia (53%), and Brazil (51%).

The correlation between the perception of economic fairness and attitudes about globalization varies across countries. In twelve countries the most common view is that the economy is unfair and that globalization is going too fast. This is primarily true of highly developed countries (France, Italy, Spain, South Korea, Japan, Germany, and to a lesser extent Britain and the US). However it is also true of Lebanon, Argentina, Israel and Chile.

However, in eight cases the most common view is both that the economy in their country is unfair and that globalization should be sped up. These include Turkey, the Philippines, Portugal, Indonesia, Brazil, Kenya, Mexico and the countries of Central America.

In eight countries the most common view is that their economy is fair but that globalization is nonetheless moving too quickly. These include three developed countries--Australia, Canada and UAE; as well as five developing countries--Egypt, China, India, Ghana, and Nigeria.

Russians, widely agree that the economy has been unfair, but they are divided as to the pace of globalization.

In total 34,528 citizens in Argentina, Australia, Brazil, Canada, Chile, China, Costa Rica, Egypt, El Salvador, France, Ghana, Germany, Great Britain, Guatemala, Honduras, India, Indonesia, Israel, Italy, Japan, Kenya, Lebanon, Mexico, Nicaragua, Nigeria, Panama, the Philippines, Portugal, Russia, South Korea, Spain, Turkey, UAE, and the United States were interviewed face-to-face or by telephone between October 31, 2007 and January 25, 2008. Polling was conducted for the BBC World Service by the international polling firm GlobeScan and its research partners in each country. In 16 of the 34 countries, the sample was limited to major urban areas. The margin of error per country ranges from +/-2.4 to 4.4 percent.

Global inflation

A delicate condition
Jan 17th 2008 | HONG KONG AND WASHINGTON, DC
From The Economist print edition

Global inflation is rising even as the world economy is slowing. How much should policymakers worry?

Illustration by Satoshi Kambayashi

HAVING a little bit of inflation is like being a little bit pregnant. Is that old adage worth bearing in mind as consumer prices across the globe accelerate? Even as America flirts with recession, figures released on January 16th showed that consumer prices were 4.1% higher in December than a year earlier, up from 2.5% in 2006. In the euro area, inflation is running at 3.1%, the fastest pace since the euro notes and coins began circulating. China's inflation rate, at 6.9%, is the highest in 11 years.

According to an index produced by Goldman Sachs, global inflation was 4.8% in the year to November, two percentage points up from the previous year (see chart). Prices accelerated in 80% of the countries that Goldman tracks.

By historical standards, this is all small beer. An inflation rate of 5% hardly marks a return to the double-digit price increases that haunted rich countries in the 1970s and emerging economies for far longer. (For much of the 1990s, the average inflation rate in poor countries was 50%.)

Nonetheless, the upswing is broad enough to pose awkward questions. With ever more signals, from weak retail sales to rising joblessness, pointing to an American recession, is the world headed for a bout of stagflation-lite? And will stubborn price pressures constrain the marked easing of monetary policy that America's central bankers now promise?

The answers depend on what has been driving inflation up and whether those pressures persist even as economies slow. Ultimately, inflation is a monetary phenomenon, so responsibility lies with central bankers. Pessimists point out that monetary conditions have been loose in recent years, with real interest rates low and credit growth rapid, particularly in emerging economies.

Others worry that the task of central bankers has become harder as globalisation has shifted from being a disinflationary phenomenon to an inflationary one. The downward price pressure from cheap Chinese goods may be abating while the developing world's rampant demand for resources may continually drive commodity prices higher.

There is some truth to these arguments, but none offers a complete explanation of recent price trends. In some emerging economies monetary laxness is clearly fuelling inflation—in the Gulf states, for instance, as the direct consequence of their dollar pegs.

But elsewhere the picture is less clear. Take China, where fears of social unrest have made inflation one of the government's top concerns and have led it to impose various price controls over the past week. The accumulation of vast foreign-exchange reserves has fuelled domestic money growth and the inflation rate has tripled in the past year. But that rise is almost entirely due to a jump in food prices, particularly of pork. Core inflation (excluding food, but including oil) is running at only 1.4%. Pig disease deserves more blame for China's recent inflation than loose policy. What's more, China's monetary conditions are tightening fast.

Nor is China's deflationary effect on global tradable-goods prices about to end. To be sure, Chinese wages are accelerating, up by 19% in the year to September, the fastest pace for five years. But those official figures, which include only state-sector workers, almost certainly exaggerate overall wage increases. More important, China's productivity is growing faster, by 20% a year, according to America's Conference Board, a research organisation. That means overall unit costs are still falling.

It is true that the prices of American imports from China are rising after several years of decline. But that has more to do with the weakness of the dollar than with increasing Chinese production costs. And even if the prices of Chinese goods rise, they could still dampen inflation in richer economies, because they are much cheaper than domestically produced equivalents and are gaining market share. As China produces higher value items, it will push down prices of domestically produced goods in ever more industries.

A more direct link between developing countries such as China and inflationary pressure comes through commodity prices. The prices of many raw materials have surged in the past 12 months. The Economist's dollar-based commodity-price index is up by 26% from a year ago. The food index is up by almost 50%. The price of oil has risen almost 80%. These jumps are the main cause of higher inflation across the globe. They are also related, at least in part, to structural changes in the global economy.

The world economy is increasingly powered by countries, such as China and India, whose growth is far more energy- and commodity-intensive than that of rich countries. Since 2001, China has accounted for about half of the increase in the world's demand for metals and almost two-fifths of the increase in oil demand.

This shift means that the usual relationship between America's business cycle and commodity prices may change. Past American recessions have sent the prices of oil and other resources down. That may no longer be so. Economists at HSBC say that the correlations between industrial output and commodity prices began to fall apart a few years ago.

But that does not mean commodity prices will continue to surge. Emerging economies may be more resilient to an American recession than hitherto, but they are unlikely to grow faster. At the margin, therefore, the demand for commodities will slow. And in the longer term, higher commodity prices will eventually lead to greater supply. Much of the surge in raw-material prices in recent years reflects the fact that few foresaw the pace of emerging-market growth. All of which suggests that, even if commodity prices don't fall, their rate of increase will ease, and the biggest driver of recent global price pressure will weaken.

The weight of expectation
So is it time to stop fretting about inflation? Not quite. For a start, a pick-up in underlying inflation suggests that price pressure has seeped beyond commodities. According to Goldman's index, core consumer prices, which exclude the volatile categories of food and fuel, are rising in some 70% of countries. Second, economic weakness does not immediately suppress underlying price pressure. Goldman's economists point out that during the 2000-02 global downturn, core inflation in G7 countries peaked more than a year after growth started to weaken. The rich world could easily face a prolonged period of weaker growth and persistent price pressure.

How much to worry depends on whether this combination affects people's expectations of future inflation. Academic evidence suggests that low, stable inflation expectations are the main difference between today and the 1970s. Because central banks have earned a reputation as inflation fighters and people expect long-term inflation to remain low, price shocks—even on the scale of the recent commodity-price surge—need not translate into persistently higher inflation. Were workers and firms to expect higher inflation, and set wages and prices accordingly, central bankers would face a big problem.

That concern is haunting the European Central Bank (ECB). Judging by its survey of professional forecasters, long-run inflation expectations remain stable: the seers predict 1.9% in five years time. But consumers' expectations of price rises over the next year have risen quite sharply. What is more, unemployment is low and, judging by the unions' opening bids in pay negotiations from Germany to Italy, workers are demanding hefty wage increases. The risk of a wage-price spiral, albeit a modest one, is not negligible. The ECB's hawkishness—including threats that interest rates might have to rise—is designed to stamp it out.

The Fed has more leeway, though inflation has picked up faster in America than in the euro zone. Judging by the spread between American Treasury bonds and Treasury Inflation-Protected Securities, investors' expectations of inflation between five and ten years hence have been falling (see chart).

Given the American backdrop, the Fed's recent decision to step up the pace of interest-rate cuts is understandable. The weak economy poses a bigger danger than inflation. But there are risks. Even if commodity-price inflation wanes, the falling dollar means America faces other inflationary threats. And if overall price pressure remains stubbornly elevated, inflation expectations may yet rise. If that happens, the Fed will face the unenviable task of curtailing its easing or even raising rates while the economy is weak.

Copyright © 2008 The Economist Newspaper and The Economist Group. All rights reserved.

February 26, 2008
OP-ED COLUMNIST
The Real McCain

By DAVID BROOKS
You wouldn’t know it to look at them, but political consultants are as faddish as anyone else. And the current vogueish advice among the backroom set is: Go after your opponent’s strengths. So in the first volley of what feels like the general election campaign, Barack Obama has attacked John McCain for being too close to lobbyists. His assault is part of this week’s Democratic chorus: McCain isn’t really the anti-special interest reformer he pretends to be. He’s more tainted than his reputation suggests.

Well, anything is worth trying, I suppose, but there is the little problem of his record. McCain has fought one battle after another against lobbyists and special interests. And while I don’t have space to describe all his tussles, or even the lesser ones like his fight with the agricultural lobby against sugar subsidies, I thought that, amidst all these charges, it might be worth noting some of the McCain highlights from the past dozen years.

In 1996, McCain was one of five senators, and the only Republican, to vote against the Telecommunications Act. He did it because he believed the act gave away too much to the telecommunications companies, and protected them from true competition. He noted that AT&T alone gave $780,000 to Republicans and $456,000 to Democrats in the year leading up to the vote.

In 1998, McCain championed anti-smoking legislation that faced furious opposition from the tobacco lobby. McCain guided the legislation through the Senate Commerce Committee on a 19-1 vote, but then the tobacco companies struck back. They hired 200 lobbyists and spent $40 million in advertising (three times as much as the Harry and Louise health care reform ads). Many of the ads attacked McCain by name, accusing him of becoming a big government liberal. After weeks of bitter debate, the bill died on the Senate floor.

In 2000, McCain ran for president and reiterated his longstanding opposition to ethanol subsidies. Though it crippled his chances in Iowa, he argued that ethanol was a wasteful giveaway. A recent study in the journal Science has shown that when you take all impacts into consideration, ethanol consumption increases greenhouse gas emissions compared with regular gasoline. Unlike, say, Barack Obama, McCain still opposes ethanol subsidies.

In 2002, McCain capped his long push for campaign finance reform by passing the McCain-Feingold Act. People can argue about the effectiveness of the act, but one thing is beyond dispute. It was a direct assault on lobbyist power, and earned McCain undying enmity among many important parts of the Republican coalition, who felt their soft money influence was being diminished.

In 2003, the Senate nearly passed the McCain-Lieberman Climate Stewardship Act. The act was opposed by the usual mix of energy, auto and mining companies. But moderate environmental groups were thrilled that McCain-Lieberman was able to attract more than 40 votes in the Senate.

In 2004, McCain launched a frontal assault on the leasing contract the Pentagon had signed with Boeing for aerial refueling tankers. McCain’s investigation exposed billions of dollars of waste and layers of contracting irregularity.

In 2005, McCain led the Congressional investigation into the behavior of the lobbyist Jack Abramoff. The investigation was exceedingly unpleasant for Republicans, because it exposed shocking misbehavior by important conservative activists.

Over the past few years, McCain has stepped up his longstanding assault on earmarks. Every year, McCain goes to the Senate floor to ridicule the latest batch of earmarks, and every year his colleagues and the lobbyists fume. For years, McCain has proposed legislative remedies — greater transparency, a 60-vote supermajority requirement — that were brutally unpopular with many colleagues until, suddenly, now.

Over the course of his career, McCain has tried to do the impossible. He has challenged the winds of the money gale. He has sometimes failed and fallen short. And there have always been critics who cherry-pick his compromises, ignore his larger efforts and accuse him of being a hypocrite.

This is, of course, the gospel of the mediocre man: to ridicule somebody who tries something difficult on the grounds that the effort was not a total success. But any decent person who looks at the McCain record sees that while he has certainly faltered at times, he has also battled concentrated power more doggedly than any other legislator. If this is the record of a candidate with lobbyists on his campaign bus, then every candidate should have lobbyists on the bus.

And here’s the larger point: We’re going to have two extraordinary nominees for president this year. This could be one of the great general election campaigns in American history. The only thing that could ruin it is if the candidates become demagogues and hurl accusations at each other that are an insult to reality and common sense.

Maybe Obama can start this campaign over.