The Mediterranean economy
Club Med

Jul 10th 2008
From The Economist print edition
The Mediterranean, north and south, is forming a single economic unit: Europe should make it a powerful one

UNDER imperial Rome, the roads in cold, wet Britannia were no straighter than those in sweltering north Africa. The same sestertius could buy a lampful of oil. Across the southern Mediterranean and northern Europe alike, Latin was the lingua franca—1,500 years before anyone had coined the term. Under the Treaty of Rome, however, the European Union has behaved as if the Med were a frontier, rather than an organising principle. As often as not, it has turned its back on the crescent that stretches from Morocco to Turkey, as a cradle of instability and terrorism. Sometimes the southern Med’s main export has seemed to be boatloads of illegal immigrants.

This weekend at a summit in Paris France’s president, Nicolas Sarkozy, wants to heal the rift. Some 40 heads of state and government from the EU and the southern and eastern Mediterranean will meet to create a new club, called the Union for the Mediterranean. Despite Mr Sarkozy’s bombast, Club Med will have a modest start: the French propose a secretariat, which they will jointly head with Egypt, and money to help finance ventures on solar energy, anti-terrorism and the inevitable cultural exchanges.

Beyond the platitudes and projects lies the germ of a brilliant idea. Something is stirring around the Med as globalisation takes root. Growth and investment have leapt. There is a new openness to trade and foreign money. The members of Club Med no longer need to glower across the table at each other. Instead, there is the prospect of the youth and vigour of the southern Mediterranean combining with a rich, ageing north. Despite the recent surge, the southern Med still takes less than 10% of all the FDI from the EU. This offers a tantalising prospect—though one reason why Club Med matters is that it is fraught with dangers.
Dido’s cement

The EU has looked south before, in an initiative called the Barcelona Process, which dates back 13 years and failed to live up to its promises. Hopes are higher today, however, because the politicians gathering in Paris are following a path that is increasingly well trodden by business (see article). FDI in the countries along the Mediterranean shore, from Morocco to Turkey, has grown six times since the turn of the century, to $59 billion in 2006—ahead of Latin America’s Mercosur ($25 billion) and not far short of China ($69 billion). At the same time, the growth in the region’s GDP is running at 4.4% a year—slow by China’s standards, admittedly, but it has been accelerating as Europe has slowed.

Although Turkey, Israel and Egypt still dominate, most of the region has shared in this prosperity. Oil and gas are partly to thank, but investment is spread among financial services, telecoms, retailing and construction. Look at the car factory Renault and Nissan are planning in Morocco. Or the new container port outside Tangiers that will soon be bigger than Long Beach, on America’s west coast. Much of the money comes from Europe, as did the €8.8 billion ($12.9 billion) France’s Lafarge invested in Egyptian cement. But Americans are making aerospace parts; Arabs are spending petrodollars on property and construction; Brazilians are investing in fertilisers and textiles; Indians in IT and pharmaceuticals.

There is strength in such diversity, and there needs to be. The resurgent Med has a lot still to overcome. With exceptions, notably Israel, the region is plagued by poor infrastructure, an ill-educated workforce and unemployment. Unlike eastern Europe, which built trading links under communism, the Med countries barely trade with each other, so they lose the benefits of specialisation. And then there is the politics. The Europeans are right to look askance at the looming crisis of succession in Egypt, beleaguered Israel, unborn Palestine, divided Lebanon, fundamentalist Islam in Morocco, bombs in Algeria, Muammar Qaddafi’s bizarre Libyan autocracy, the risk that the Turkish courts declare the ruling party unconstitutional. That unfinished list is already depressingly long.

The EU is not free of troubles either. Those who favour Turkey’s membership of the EU fear that Club Med is designed to fob it off with second-class citizenship. At first Mr Sarkozy schemed to include only the EU countries with a Mediterranean coast—a ploy to create a French-dominated counterbalance to the apparently German-dominated east. After a vicious row with Angela Merkel, Germany’s chancellor, Mr Sarkozy agreed to include the entire EU. That was right, if only because Germany pays much of the EU’s bills.

Sunday’s summit matters, because it is a step towards healing such wounds—and because it sets the tone. Will the Mediterranean union seize the moment, or will it be strangled by southern politics and European squabbles?
Mare nostrums

The first test is whether Mr Sarkozy is willing to see Club Med as more than a scheme to burnish French glory. If he wants the new union to thrive, he will have to accept that it is for everyone’s benefit, and let business do its work. This means a free-trade area that opens the EU to goods and services from the south—including the farm produce that France is making a fuss over in the world trade talks.

The second is for the EU to use its patronage to boost spending on infrastructure, promote trade in the region and clean up politics. One lesson from eastern Europe is that, with incentives, countries will start to sort themselves out. For the Mediterranean, those incentives should include access to funds and markets. The logic of enlargement is that it could even include the faint possibility of membership of the EU itself (if the union were to admit non-Europeans). But none of that will count for much unless the southern Med chooses prosperity.

The world sometimes writes off Europe as the old continent, well past the vigour of youth and doomed to gentle decline; at the same time it condemns many of the teeming economies of the southern Med as chaotic backwaters. Old and young can make a powerful combination. The creation of the Union for the Mediterranean is hardly the rebirth of imperial Rome, but it may just be the start of something exciting.

July 29, 2008
Op-Ed Columnist
The Biggest Issue
By DAVID BROOKS

Why did the United States become the leading economic power of the 20th century? The best short answer is that a ferocious belief that people have the power to transform their own lives gave Americans an unparalleled commitment to education, hard work and economic freedom.

Between 1870 and 1950, the average American’s level of education rose by 0.8 years per decade. In 1890, the average adult had completed about 8 years of schooling. By 1900, the average American had 8.8 years. By 1910, it was 9.6 years, and by 1960, it was nearly 14 years.

As Claudia Goldin and Lawrence Katz describe in their book, “The Race Between Education and Technology,” America’s educational progress was amazingly steady over those decades, and the U.S. opened up a gigantic global lead. Educational levels were rising across the industrialized world, but the U.S. had at least a 35-year advantage on most of Europe. In 1950, no European country enrolled 30 percent of its older teens in full-time secondary school. In the U.S., 70 percent of older teens were in school.

America’s edge boosted productivity and growth. But the happy era ended around 1970 when America’s educational progress slowed to a crawl. Between 1975 and 1990, educational attainments stagnated completely. Since then, progress has been modest. America’s lead over its economic rivals has been entirely forfeited, with many nations surging ahead in school attainment.

This threatens the country’s long-term prospects. It also widens the gap between rich and poor. Goldin and Katz describe a race between technology and education. The pace of technological change has been surprisingly steady. In periods when educational progress outpaces this change, inequality narrows. The market is flooded with skilled workers and so their wages rise modestly. In periods, like the current one, when educational progress lags behind technological change, inequality widens. The relatively few skilled workers command higher prices, while the many unskilled ones have little bargaining power.

The meticulous research of Goldin and Katz is complemented by another report from James Heckman of the University of Chicago. Using his own research, Heckman also concludes that high school graduation rates peaked in the U.S. in the late 1960s, at about 80 percent. Since then they have declined.

In “Schools, Skills and Synapses,” Heckman probes the sources of that decline. It’s not falling school quality, he argues. Nor is it primarily a shortage of funding or rising college tuition costs. Instead, Heckman directs attention at family environments, which have deteriorated over the past 40 years.

Heckman points out that big gaps in educational attainment are present at age 5. Some children are bathed in an atmosphere that promotes human capital development and, increasingly, more are not. By 5, it is possible to predict, with depressing accuracy, who will complete high school and college and who won’t.

I.Q. matters, but Heckman points to equally important traits that start and then build from those early years: motivation levels, emotional stability, self-control and sociability. He uses common sense to intuit what these traits are, but on this subject economists have a lot to learn from developmental psychologists.

I point to these two research projects because the skills slowdown is the biggest issue facing the country. Rising gas prices are bound to dominate the election because voters are slapped in the face with them every time they visit the pump. But this slow-moving problem, more than any other, will shape the destiny of the nation.

Second, there is a big debate under way over the sources of middle-class economic anxiety. Some populists emphasize the destructive forces of globalization, outsourcing and predatory capitalism. These people say we need radical labor market reforms to give the working class a chance. But the populists are going to have to grapple with the Goldin, Katz and Heckman research, which powerfully buttresses the arguments of those who emphasize human capital policies. It’s not globalization or immigration or computers per se that widen inequality. It’s the skills gap. Boosting educational attainment at the bottom is more promising than trying to reorganize the global economy.

Third, it’s worth noting that both sides of this debate exist within the Democratic Party. The G.O.P. is largely irrelevant. If you look at Barack Obama’s education proposals — especially his emphasis on early childhood — you see they flow naturally and persuasively from this research. (It probably helps that Obama and Heckman are nearly neighbors in Chicago). McCain’s policies seem largely oblivious to these findings. There’s some vague talk about school choice, but Republicans are inept when talking about human capital policies.

America rose because it got more out of its own people than other nations. That stopped in 1970. Now, other issues grab headlines and campaign attention. But this tectonic plate is still relentlessly and menacingly shifting beneath our feet.

SAUDI ARABIA: SUSPECTED AL QAEDA LEADER CALLS FOR KILLING OF SAUDI KING

Suspected al Qaeda commander Abu Yahia al-Libi, who escaped from prison at U.S. Bagram Air Force Base in Afghanistan, posted on July 28 a 43-minute Internet video in which he called for Muslims to kill Saudi King Abdullah because of his sponsorship of an interfaith conference, The Associated Press reported. The video's authenticity has not been confirmed.

Copyright 2008 Strategic Forecasting, Inc.

May 20, 2008
MEMO FROM TEHRAN
Iranian Clerics Tell the President to Leave the Theology to Them

By NAZILA FATHI
TEHRAN — In his almost three years as president of Iran, Mahmoud Ahmadinejad has been harshly criticized in the West. But he is increasingly drawing fire from Shiite clerics here, who accuse him of using religion to distract attention from his government’s failure to deliver on promises of prosperity and political freedoms.

In a news conference last week, the president lashed out at those who were “insulting and mocking” him about a Shiite belief that he said was based on Islamic teachings.

The tensions surround Imam Mahdi, the 12th imam in a direct bloodline from the Prophet Muhammad, who the Shiite faithful believe will one day emerge from 1,000 years in hiding to save mankind and bring justice to the world. Tens of thousands of pilgrims go each year to the Jamkaran mosque near Qum, about 75 miles south of Tehran, where they believe that the imam will appear.

President Ahmadinejad, who came to office in 2005 declaring his intention to “hasten the emergence” of Imam Mahdi, said in a speech broadcast nationally this month that Imam Mahdi supported the day-to-day workings of his government and was helping him in the face of international pressure.

That was too much for senior clerics, who contend that they alone are qualified to speak on the topic.

“Mr. Ahmadinejad’s remarks are common beliefs in Shiite Islam, but they were never brought up in politics and for political purposes by a noncleric,” said Farid Moddaressi, a religion reporter in Tehran. “Mr. Ahmadinejad’s views come from a religion which is defined by its clerics, but they believe that he is not a religious authority to make such remarks.”

Mr. Ahmadinejad, who has established a well-financed foundation to prepare the nation for the imam’s return, was stung by the criticism.

“To deny the help of the imam is very bad,” he said in his news conference. “It is very bad to say that the imam will not emerge for another few hundred years; who are you to say that?”

In the West, and especially in Israel, Mr. Ahmadinejad’s focus on Imam Mahdi’s return adds to the well-established alarm over his other beliefs and ambitions, the foremost being what experts say is his pursuit of a nuclear weapon. Given his complete opposition to a Jewish state and to the existence of Israel as well as his assertion that the Holocaust has still to be verified, his claim that the imam is directing his policies suggests to many abroad a toxic combination of mysticism, irrationalism and aggression that makes him a source of enormous danger.

Iranians, of course, take a milder view. They see Mr. Ahmadinejad as a deeply religious man, one who has maintained a modest way of life despite rising to the presidency.

“He is an absolute believer in the principles of religion and tries to implement them in his work,” said Mojtaba Samareh Hashemi, a senior adviser to the president. “When he talks about justice, he means a logical, philosophical justice that leads to religion.”

Many here say, however, that Mr. Ahmadinejad may not share all the conservative beliefs of Shiite clerics.

Mr. Ahmadinejad was once shown on television kissing the hand of his childhood teacher, a woman, even though it is deemed inappropriate for Muslims to touch members of the opposite sex to whom they are not married or otherwise related.

He challenged senior clerics in 2006 by defying a ban on women going to stadiums to watch men play soccer, but eventually he had to back down.

“He is religious, but he is not traditional,” said Saeed Leylaz, a political commentator in Tehran. “He kisses the hands of women, believes women should be allowed to go into stadiums, and he truly believes that the ground for the coming of Mahdi should be prepared.”

In his speech, which was made last month but not broadcast immediately, Mr. Ahmadinejad said Imam Mahdi was directing his government’s policies. He said he had the imam’s hidden support when he gave a speech at Columbia University in New York last September and was insulted by the president of the university.

With Imam Mahdi’s support, he said, 500 million people watched him on television. Mr. Ahmadinejad also said the United States had attacked Iraq because it had found out that “the divine hand” — apparently a reference to Imam Mahdi — was going to emerge there.

The escalation of the dispute in recent days seemed to suggest that Mr. Ahmadinejad was challenging Shiite clerics assumed to be the sole interpreters of the faith.

Several of Mr. Ahmadinejad’s critics said that by linking his government to Imam Mahdi, he was trying to deflect criticism of his economic policies, which have led to double-digit inflation.

A senior conservative cleric, Ayatollah Muhammad Reza Mahdavi Kani, warned him weeks ago not to talk about Imam Mahdi and said that even the founder of the 1979 Islamic Revolution, Ayatollah Ruhollah Khomeini, did not claim any links with the imam.

Another cleric, Mehdi Karroubi, who ran for president when Mr. Ahmadinejad was elected in 2005, warned that people could lose their faith in Imam Mahdi.

“People would say that if the current situation is his management before his emergence, what would happen after his emergence?” he said, referring to soaring food prices, the daily newspaper Etemad Melli quoted him as saying.

“We need to talk about realities,” said Mr. Karroubi, who is a former speaker of Parliament. “We should not link everything to religious and hidden issues.

http://www.charlierose.com/shows/2008/07/15/2/a-conversation-with-amory-lovins