The Ahmadinejad government that came to power in summer 2005, calling itself the “justice-driven administration” under the banner of mehrvarzi (compassion) represents in fact populism of the right rivaling Mussavi’s compassionate socialism of the left. The scheme, dedicated to the cause of the poor and deprived regions of the country, proposed a different direction to accomplish the privatization task. The president himself was widely quoted as having denounced the past actions as corrupt, ineffective, contrary to workers’ interest and tantamount to giving away the ranch. He openly accused the previous two administrations of selling public assets on favorable terms without proper safeguards to friends, relatives and cronies at one-fifth to one-eighth of their true worth-and all on credit. (29) He even vowed to take back properties that were unjustly ceded to a few privileged individuals, calling the transfers null and void. (30) To reverse past injustices, the new president promised to change course and follow the privatization drive through the distribution of what he termed “justice shares” (saham-e edalat).

The scheme, however, was neither original nor highly valued in informed circles. It was rooted in Ayatollah Khomeini’s repeated references to “Islamic justice.” (31) Proposals to transfer shares of SOEs to the people in different forms and under different terms had also been offered by other sources as early as 1996. (32) A published study, entitled Popular Privatization, had already proposed a detailed plan for giving every citizen “stock coupons,” redeemable in cash or exchangeable with shares of SOEs, in order to raise national productivity and spread social justice at the same time. (33) Rafsanjani’s campaign for the presidency in 2005 also promised a nationwide distribution of “stock coupons.” A Tehran Stock Exchange manager had suggested a similar proposal. Based on these varied schemes, the Ahmadinejad plan to distribute ownership was presented to the Majlis in October 2005, with the initial objective of granting stock rights to the lowest-income families. (34) The program encompassed the distribution of shares of all government enterprises and semi-public entities under government jurisdiction. Interestingly, the scheme was presented not as a replacement, but as an adjunct to privatization with a set of other complementary objectives: equitable distribution of wealth combined with steady income for the poor; propagation of the culture of stock ownership; increasing enterprise productivity; changing the public’s negative view of private enterprise; and enhancement of the share of the cooperative sector in the national economy. The Ministry of Welfare and Social Security was given the task of identifying prospective families among the lowest-income recipients in the country. The Ministry of Economy and Finance was to serve as a conduit for the transfer of shares.

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As finally put together, the multi-layered and complex program now involves (1) an initial sale on credit of SOE shares by designated enterprises to the Privatization Organization in 20-year installments; (2) subsequent sales by the PO! to an intermediary agency called the Corporation for Transfer of Justice Shares (CTJS) within the Ministry of Economy and Finance on the same conditions; (3) separate agreements by CTJS with each of the country’s 30 Ostan (region) Justice Shares Cooperative; (4) sale by the Ostan JSC to 337 Shahrestan (province) JSCs; and (5) issuance by the latter of coupons to eligible recipients. (35) In this complicated vertical lineup, individual coupon recipients are shareholders of their Shahrestan cooperative; Shahrestan cooperatives are shareholders of the Ostan holding companies; Ostan holding companies are shareholders of the Transfer Corporation; and the latter holds shares of privatized SOEs on behalf of the government.

Based on various official declarations, the Ahmadinej ad administration intends to transfer to the public 80 percent of the shares of all designated state enterprises, estimated at $115- $120 billion within three years. Previously, an eight-year time horizon had been announced for the entire process. (36) Forty percent of the assets are to be distributed under the justice-shares program, 35 percent offered to public investors through the Tehran Stock Market or sold through auction, and 5 percent earmarked for the workers and managers of the privatizing entities. The state will retain 20 percent of shares. (37) The POI has announced an ambitious program of offering shares of 240 state enterprises up to March 2008. By the end of the period, the public sector’s share of the national economy is to be reduced to 20 percent from the current 65 percent, the private sector’s share will rise from 30 to 55 percent, and the share of the cooperative sector will go up to 25 percent from the present 5 percent. (38)

In the current perspective, share distribution is to reach some 21 million of the poorest 30 percent of the population, who will receive a total of 420 trillion rials (about $46 billion) in public-enterprise shares in three phases. In Phase I, the lowest-income 10 percent-an estimated 5.6 million individuals with an income less than 300, 000 rials a month ($32) and currently supported by various welfare schemes, would receive about 27 trillion rials. (39) In Phase II, another estimated 7.4 million rural residents and migrating tribes will be included, receiving 6.5 trillion rials. In Phase Ill, the program will be extended to an estimated 8 million government employees, workers, retired army and security personnel, and civilian retirees-comprising the six lowest deciles of income receivers-who would receive about 10.5 trillion rials. Each member of a designated family of five (maximum) would initially receive 5 million rials worth of justice shares, and eventually 20 million rials. The beneficiaries are to pay for the coupons in 10 to 20 years out of the annual dividends on their shares. According to a special decree by the supreme leader, the lowest 20 percent of income earners are entitled to a 50 percent discount in the purchase price of their shares. Discounts or other benefits are also provided for workers and managers of privatizing firms. There are detailed provisions regarding further transactions in distributed coupons.

The program has, from the start, faced five major challenges to its basic design. As the judiciary chief in a rare public statement has noted, there have been “strong differences of opinion” among the Islamic Republic’s various power centers regarding policies and actions in the implementation of Article 44 and the basic direction by the supreme leader and the Expediency Council (40)-implying some resistance by the enterprises in voluntarily relinquishing their shares. The second hurdle has been the difficulty of identifying a reasonably accurate number of the “poor” in all three phases. Due to a near total absence of income-distribution data in Iran, figures regarding the size and status of the “poor” are both controversial and unreliable, with estimates ranging from zero to 30 percent of the total population. According to the current minister of welfare, “no one” in Iran was under the absolute poverty line. (41) He later admitted that some 9.2 millions of Iran’s total urban and rural population of 70 million are under the absolute or relative poverty line. (42) A Management and Plan Organization official and a Majlis deputy, however, give estimates of 10-12 percent. Two other members of the Majlis welfare committee put the figure at 13 and 20 percent, respectively, while a radical private economist raises the figure to 30 percent. (43)

The third challenge has been the selection of enterprises whose shares are to be transferred. If these entities were in the red and kept alive on public subsidies, transferring their shares would be tantamount to distributing poverty, not plenty. And if they were profitable businesses, the government could lose even more budgeted revenues from their operation and face larger deficits with more dire consequences. Fourth, obtaining an accurate, cost-based pricing of enterprise shares has been a thorny problem, given the companies’ opaque accounting system, the unpunished amounts of annual state subsidies, loans received from state banks on favorable terms, unpaid taxes and other market data. In view of difficulties encountered in pricing the total worth of even a small public enterprise in the earlier privatization exercises-sometimes stretching to several months-share pricing of the current mammoth government entities is likely to entail interminable disagreements among company accountants and POI appraisers. Fifth, the elaborate, complex and ill-defined administrative and bureaucratic processes involved in carrying out various phases of the scheme constitute a new daunting task for the already overwhelmed bureaucracy. Finally, there have been no specific sources of financing officially designated for the elaborate administrative costs of the various agencies involved.

Matching these multiple challenges faced by the program’s supporters is an apparent lack of enthusiastic demands on the part of the public as well as share recipients. (44) This attitude reflects partly the insignificant immediate impact of the program on their daily lives, and it manifests the national financial culture that exhibits a clear preference for tangible wealth such as land, property, gold, jewelry, antiques and even mobile telephones compared to financial assets. (45) The poorer the income group, the less interest is shown in owning financial papers. Emblematic of this phenomenon is the fact that less than 10 percent of the Iranian population’s total possessions is in financial assets, compared to more than 60 percent in advanced countries.

Published information about the justice-shares program so far is sketchy, contradictory and full of ambiguities. Actual share distribution reportedly began in February 2006 among the poorest group in four relatively “deprived” Ostans each of which received 5 million rials ($540). Within a year, a total of 5.6 million individuals reportedly received a total of about 27 trillion rials worth of shares. (46) In defending his privatization record against widespread criticism, President Ahmadinej ad has boasted that, in the previous 15 years, only 35 trillion rials of government shares had been privatized, while his government had thus far distributed more than 26 trillion, and intends to transfer another 60 trillion in the current and coming years. (47)

Assuming that the program succeeds in reaching its primary objective, there is no evidence, or even a reasonable assurance as yet, that other objectives of the program-increasing income, expediting privatization, downsizing the bureaucracy, promoting stock ownership habits, and enhancing enterprise efficiency-might be tackled or even approached. A palpable redistribution of income, the program’s prime objective, can hardly be accomplished with the promised 11-15 percent annual dividend (48) on the initial $50 or even the ultimate $200 distributed shares to a poor family member, half of which has to be paid back annually. Furthermore, there is no guarantee that privatized SOEs will have a double-digit return year after year and pay regular dividends so that the recipients can pay for their shares. (49) Second, expediting the privatization process as the next major goal of the program is also difficult to imagine. (50) In fact, it has been all too clear from the start that the objective of privatization (downsizing the public sector), and the goal of social justice (wealth redistribution), could not be optimized or even accomplished by one stroke, as the minister of economy and finance claimed. (51) Privatization could not be achieved through a justice-shares program that leaves 20 percent ownership (and thus effective management control) in state hands. The program could at best be called partial denationalization rather than privatization. Third, downsizing the government through reduced ownership is equally dubious, given the nightmarish multi-stage structure of the share-distribution program. The Central Headquarters, led by the president and composed of nine ministers, the mammoth Holding Company possessing large shares of 500 SOEs, the 30 Ostan and 337 Shahrestan cooperatives-each with its board of directors, managers, accountants, auditors, inspectors, etc. -would add to the government’s size instead of reducing it. Fourth, enhancing total-factor productivity as another crucial goal of the scheme is also questionable. (52) There are already grave doubts about the technical, managerial and fiduciary ability of the Privatization Organization, the main Holding Corporation, and that of the regional and provincial cooperative societies to perform their fiduciary duties. (53) The only objective of the program that is perhaps within reach, and has been partly achieved, is expanding the share of the cooperatives sector-so far the orphan segment of the national economy. For this reason, the justice-shares program has been dubbed cooperativization rather than privatization. (54)

Furthermore, despite continued statements and repeated assurances, there is great doubt that the program will be able to distribute even the first 5-million-rial tranche of the 20 million rials promised to its 21 million eligible recipients by February 2008. (55) Fully aware of the difficulties involved in altering the recipients’ preference for tangible assets and alerted by the sad experiences of privatization in the former Soviet Union and Eastern Europe, the framers of the justice-shares program have placed a two-year total ban on sale of distributed coupons. They also strongly advise the recipients to hang onto their papers for steady returns and claim that the shares’ value has already gone up in the Tehran Stock Exchange. Nevertheless, there are scattered reports that, in certain shahrestans, the coupons are already being sold in the “informal” market at half their face value. (56) And, notwithstanding the various legal restrictions imposed on the sale of distributed coupons, private analysts believe that a majority of the recipients are likely to bypass those restrictions and create a black market in shares in Iran’s underground economy. Or they may take advantage of several loopholes in the program by selling their shares back to their local cooperatives, making the latter a new, semi-public, large institutional shareholder. In either case, the effect would not only negate the program’s original intent but may entail new hazards for the economy. Many private economists warn about further fueling the already alarming double-digit inflation. (57) Others argue that even those who may hang on to their coupons are likely to increase their consumption, stimulated by the wealth effect. The Iranians’ legendary low propensity to save and the bitter memories of the Tehran Stock Exchange crash in 2004 underscore these pessimistic forecasts.

Altogether a cursory examination of the justice-shares program so far is sufficient to indicate that the scheme is an ad hoc populist program-poorly conceived, inadequately prepared and highly complex-with insufficient prior cost-benefit analyses or calculations of its socioeconomic consequences. (58) For these reasons, even during the first phase of implementation, it has undergone repeated changes in its major provisions and continues to do so. (59) A great deal more data is needed to predict the ultimate success of the scheme.

IRAN’S PRIVATIZATION PARADOX

By a consensus of both domestic and foreign observers, the Islamic Republic’s 18-year privatization attempt has not been a success. The new scheme under the Guidelines also faces a multitude of challenges. As already mentioned, during the nearly two decades of privatization efforts, the public sector, if anything, has continued to expand several times faster than the privatized segment. The share of the national budget in GDP has nearly doubled; private savings and investments in relation to GDP have remained the same; and national-factor productivity has actually declined. (60) The number of major SOEs listed in the comprehensive annual budgets (excluding their subsidiaries) has reached more than 500 from less than 270 in 1989, and their share of total public expenditure has risen to 73 percent from about 53 percent. (61) More significantly still, after nearly two years since the Guidelines proclamation, which the supreme leader termed “an economic revolution,” (62) not much interest has been shown by the private sector in the newly opened fields. While the constitutional “interpretation” of Article 44 was at the time hailed as the key to large-scale privatization, subsequent developments significantly tempered the initial euphoria. In the nearly two years since the first proclamation, no more than 10 percent of projected privatization revenues in the 2005 and 2006 national budgets actually materialized. This setback was so keenly felt that the supreme leader, in an unusual gesture, publicly chastised the government for the slow pace of privatization. (63) As it turned out, however, the process had encountered another major obstacle. An ad-hoc Majlis committee, established to watch and expedite the privatization process, ultimately came to the conclusion that the main reason for the shortfall was the fact that the implementation of the Guidelines still required special enabling legislation from the Majlis. Without a specific parliamentary authorization, the privatizing agencies could not be found negligent in their transfer delays, and courts were not able to sanction the legality of transferred assets. (64) According to a Privatization Organization official, despite repeated advertisements in newspapers, no offer has been received from the private sector for some of the public enterprises put up for sale. (65)

Although the Islamic Republic’s current domestic and international political climate, the real or imaginary winds of war with the United States or Israel, a shortage of domestic private capital and the paucity of foreign direct investments are often cited as the main causes of the economic malaise, the underlying cause may, in fact, lie in a more fundamental paradox. To be sure, under the Ahmadinejad government, which is accused of having “a clear anti-bourgeoisie policy aimed at paralyzing big investments by the private sector” (66) and giving conflicting signals regarding government policy, (67) the climate for liberalization, marketization and privatization has palpably deteriorated. Ahmadinejad’s own quasi-dictatorial interventions in various domestic economic arenas-goods, capital, labor and trade-have also actually intensified. Such various factors as his objection to streamlining energy prices, mandatory increases in workers’ paychecks, the mandated lowering of interest rates, compulsory earmarking of bank credits for the government’s favored but questionable projects, (68) forced changes in private banks’ management, the arbitrary raising and lowering of tariffs on scores of items, threatening to take back the questionably transferred enterprises, the granting of lucrative contracts to certain special entities on a no-bid basis, (69) the haphazard allocation of oil money to hundreds of small and questionable projects demanded by welcoming crowds during the president’s travels around the country, and allegations of government interference in the election of the Iran Chamber of Commerce president. (70) have all been pointed out as inimical to long-term domestic private investment. (71) A longer and more specific list of challenges to the implementation of the Guidelines is presented by private-sector leaders and high government officials. (72)

A belligerent stance by the president on the nuclear-proliferation issue and a clumsy and needlessly hostile position towards Washington and Tel Aviv have also resulted in a reluctance by foreign oil companies to invest in Iran; and de facto sanctions by European and other foreign financial and credit institutions under pressure from Washington have virtually shut off badly needed foreign direct investment. (73) After President Ahmadinejad’s repeated statements that the UN and American sanctions have had no adverse effects on the economy or his nuclear policies and that Iran was unfazed by the prospect of further sanctions, the oil minister recently admitted that sanctions are hurting the oil industry. (74) The Tehran Stock Exchange’s lackluster performance during the current administration and its recent erratic receptions to the initial public offering of four giant state steel, aluminum and copper enterprises, coupled with widespread reports about Iranian capital flight to Dubai, seem to confirm the political uncertainty hanging over the economy. (75) To help the private sector finance its purchases of privatized shares, the government has decided to turn one of its state banks into a cooperatives bank with an additional 3.500 billion rials in capital, and has ordered other state banks to set aside 15 trillion rials in credit for large buyers of state enterprises in return for a 30 percent down payment in cash. (76) It remains to be seen how these marginal measures may deal with the problem.

Even in the absence of the current obstacles, however, an effective and measurable privatization drive remains an elusive goal due to the influence of a seemingly insoluble systemic paradox. On the one hand, there is no doubt that Iran’s current economic woes-high unemployment, virulent inflation, low factor productivity, slow growth, low levels of domestic savings and foreign direct investment, and relatively high but unprofitable public outlays-cannot be remedied without the creation and promotion of a strong private sector. (77) Privatization is not an option but a necessity. On the other hand, there are certain indisputable indications that neither the institutional nor the ideological underpinning of the Islamic regime would allow such a transformation. (78)

Institutionally, privatization is a daunting, if not impossible, task in an oil exporting country like Iran, where (a) the mainstay of the economy-oil reserves and revenues-is a government monopoly; (b) petroleum-export incomes are too large and far beyond government needs to finance and maintain the basic infrastructure and provide public goods; (c) oil revenues are not directly distributed among citizens as in Alaska; and (d) oil windfalls are not placed in a “lock box,” to be invested abroad and drawn upon only during oil shortfalls and other emergencies as in Kuwait or Norway. (79) In the absence of these four conditions, extra oil income received by the government would invariably be invested in new public enterprises and would always exceed the simultaneous privatization of existing ones. In Iran’s case, additional factors are also at play. Even in the most successful implementation of the current privatization program, 20 percent of the ownership of privatized enterprises is to be retained by the government, another 40-45 percent of shares will also remain in state hands because the managers of privatized enterprises and the leadership of cooperatives will still be appointed by the ministries of finance, industry, commerce, cooperatives, and others. As a result, meaningful privatization would probably never be achieved since the Islamic Republic’s sub-par performance lies not in public ownership but in poor management. (80)

Ideologically, too, privatization is anathema to the Islamic Republic’s political fabric and essence. True privatization requires, first, a clear legal recognition of private ownership rights with solemn guarantees regarding the impossibility of expropriation without due compensation. Second, it calls for the sanctity and security of contracts, business transparency, a modernized and private banking system, removal of inhibiting regulations, wage/ price decontrol, trade liberalization and a market-friendly labor code. Third, it requires a modern business and commercial law with proper safeguards against monopoly, unfair trade practices, and deceitful advertising strengthened by special provisions against stock fraud, price manipulation and insider information deals. Finally, the need is for an independent, honest, accessible non-political and business-savvy judiciary.

None of these conditions exists in the highly regulated, rent-oriented, corruption-gripped, and non-transparent Islamic Republic. In fact, a recent report details the prevalence of preferential import licenses, access to interest free or cheap credit for well-connected groups, guaranteed market shares for favored religious centers, and other such discriminatory practices. (81) Furthermore, there is no doubt that such a firmly institutionalized and powerful private sector would inevitably cause the growth of competing political-power centers: private manufacturing associations, business roundtables, labor unions, an independent press, civic groups and political parties. All such developments would be an existential threat to the supremacy of the velayat-e-faqih, the Supreme Leadership. The resolve to get the government out of economic ownership and management is thus as fragile as the regime’s confidence in its own survival.

For these reasons, privatization has remained a process based on mutual reluctance. That is, in addition to the economic, political, financial and managerial opposition on the part of government agencies to offer their enterprises for sale, there has been a significant lack of interest by the public. The lack of enthusiasm on the demand side may be traced to the yet unchanged structure of the Iranian economy-the prevailing anti-business environment, continued price controls, trade restrictions and protection, unfair and misplaced public subsidies, a crippling labor law, absence of incentives for foreign investments, inadequate money and capital markets, a significant lowering of Iran’s ranking by Transparency International, and the earlier botched privatization efforts. (82) In the candid opinion of a government official, other factors such as dependence of state entities on subsidies (particularly on energy), lack of transparency in investment opportunities, voluminous and ever-changing government regulations, and other inhospitable conditions constitute further barriers to private-sector demand. (83) As a prospective private investor told a recent industrial conference in Tehran, private businesses will obviously be reluctant to invest in the country or even to bid for government shares under present conditions, where they still have to observe government price ceilings while their wage bill and other costs are increasing, the commerce ministry raises and lowers tariffs at will and permits or restricts exports without notice, and the central bank keeps the exchange rate unchanged despite continued high inflation. (84)

END OF AN ERA?

Privatization is now the ruling elite’s declared priority. From the supreme leader to government ministers, agency heads, religious luminaries and security officials, all sing the praises of a large private-sector role. The Privatization Organization persistently announces imminent offers of new enterprises going on the block, covering oil and gas, petrochemicals, telecommunication, steel, aluminum, copper, cement, electrical power, state banks, insurance companies and other state entities. (85) Yet, there are legions of skeptics in and out of the country who still believe that the whole proram is nothing but a clever ploy by the government to raise revenue to cover part of annual budget deficits. In any case, achieving the goal of social justice through a genuine privatization program, including social-justice shares, requires substantial prior changes in the Islamic Republic’s institutional and ideological underpinnings. It is becoming increasingly clear that, if the current schemes are to succeed, economic liberalization, de-monopolization and political democratization must precede them. However, in the frank opinion of the minister of finance, Iran is not yet ready for liberalization, and this ideal would take several more years to materialize. (86) A comprehensive piece of legislation currently submitted for debate to the outgoing Seventh Majlis-designed to allow the legal divestiture of Article 44 enterprises by the government and to provide a more hospitable and secure climate for private-sector expansion-may turn out to be of some help. (87) But the essential privatization paradox still remains to be dealt with.

Notes:

(29) www.radiofarda.com March 7, 2007; and donya-e-eqtesad, March 7, 2007.

(30) For a typical criticism, see his speeches in Arak and Saveh reported in www.emrooz.info, May 18, 2006.

(31) See “Imam’s economic viewpoints,” in www.hamshahri.net, June 2, 2005

(32) For references, see “A Critique of Justice Shares,” http://emruz.info, February 4, 2007.

(33) See “Details of Shares Participation Through Coupons” in donya-e eqtead.com, October 16, 2005.

(34) For details of the initial proposal, see donya e-eqtesad.com, October 28, 2005.

(35) www.hamshahri.net, October 22, 2006.

(36) Statement by the head of the POI in www.hamshahri.net/news, November 26, 2006.

(37) Statement by the finance minister reported in http://jomhourieslami.com, May 1, 2007.

(38) Statement by deputy finance minister in www.donya-e-eqtesad.com, January 8, 2007.

(39) www.donya-e-eqtesad.com, July 3, 2006; and www.hamshahri.net, May 8, 2007.

(40) See www.donya-e-eqtesad.com, April 18, 2007.

(41) See “The Minister’s Claim,” http://emruz.info, March 13, 2007.

(42) See www.iran-emrooz.net, August 12, 2007.

(43) For sources of respective figures, see www.iranmania.com/news, May 15, 2007; http://emruz.info April,29.2007; http://jomhourieslami.com, May 2, 2007; and Guardian, April 30, 2007; Kayhan(London) June 27, 2007.

(44) See the dialogue between the minister of finance and the members of the Tehran Chamber of Commerce, reported in www.donya-e-eqtesad, July 22, 2007.

(45) This attitude resembles the situation during the shah’s time, when peasants showed significant resistance to cede the titles to their newly acquired small pieces of land under the land reform program to an agricultural cooperative in exchange for the cooperatives’ shares.

(46) www.donya-e-eqtesad.com April 22, 2007.

(47) www.donya-e-eqtesad.com, May 19, 2007.

(48) See statement by the head of POI in www.hamshahri.net/news, May 12, 2007.

(49) No dividend has so far been declared or distributed to coupon recipients, and no payment made for their receipts.

(50) For a fuller discussion of the subject, see Islamic Republic of Iran: Managing the Transition to a Market Economy (Washington, D.C: International Monetary Fund, 2007).

(51) www.donya-e-eqtesad.com, March 13, 2006.

(52) For doubts in this regard expressed by the government’s Management and Plan Organization publication, see www.donya-e-eqtesad.com, January 23, 2007.

(53) For an official airing of these ambiguities and doubts, see “Three Unknowns about Justice Shares,” in www.donya-e-eqtesad, January 23, 2007; and a statement by an influential Majlis deputy reported in http:// jomhourieslami.com, June 20, 2007.

(54) http://emruz.info, February 4, 2007.

(55) Statement by deputy minister of finance reported in www.hamshahri.net/news, May 8, 2007.

(56) www.donya-e-eqtesad,com, April 17, 2007.

(57) The World Bank and the Economist Intelligence Unit in their latest reports both predict higher inflation and slower GDP growth of the Iranian economy in the next three years. See www.radiofarda.com, June 2, 2007.

(58) See statement by a member of the Tehran Chamber of Commerce in www.donya-e-eqtesad, July 24, 2007.

(59) For a detailed critique of the program, see http://emruz.info, February 4, 2007, and May 21, 2007.

(60) For details, see Iran Economics, June 2007.

(61) For an evaluation of the privatization program, see Iran Economics, June 2007

(62) www hamshahri.net, January 22, 2007

(63) See www.radiofarda.com, February 19, 2007.

(64) See statement by Elias Naderan, www.donya-e-eqtesad, April 6, 2007.

(65) http://jomhourieslami.com, June 20, 2007

(66) See statement by a former president of the Tehran Chamber of Commerce, Financial Times, May 28, 2007.

(67) http://jomhourieslami.com, June 22, 2007.

(68) For the misuse of bank loans in the “quick return” projects see www.donya-e-eqtesad, June 18, 2007.

(69) For details see the Wall Street Journal, October 14-15, 2006; and Financial Times, March 16, 2007.

(70) www.radiofarda.com, June 13, 2007

(71) See BBC Persian.com, June 12, 2007; www.radiofarda.com, June 13, 2007; and specifically the letter written to President Ahmadinejad by 57 economics professors of various Iranian universities reported in www.iran-emrooz.net, June 11, 2007.

(72) See http://jomhourieslami.com, July 8, 2007; and www.donya-e-eqtesad, July 1, 2007.

(73) www.payvand.com/news, May 12, 2007; and Associated Press, May 24, 2007.

(74) Agence France-Presse, July 4, 2007.

(75) For the warm reception of four attractively-priced and dividend-paying state metal companies see www. donya-e-eqtesad, August 11, 2007. For promises of starting the second and third phases of justice share distribution soon, and the first dividends to be paid on already distributed shares see http://jomhourieslami.com, August 14, 2007.

(76) www.hamshahri.net, June 8, 2007; and www.donya-e-eqtesad, June 8, 2007.

(77) In the candid opinion of the current minister of commerce, “without creating a genuinely competitive climate in the country, privatization would be meaningless.” www.donya-e-eqtesad.com, June 18, 2007.

(78) For more detailed references to some of these factors see “The Third Letter of Economists to Ahmadinejad,” in www iran-emrooz.net, July 15, 2007.

(79) See Jahangir Amuzegar, “Iran’s Oil Stabilization Fund: A Misnomer,” Middle East Economic Survey, November 25, 2005.

(80) For the significance of this factor see “Should state-owned financial institutions be privatized or reformed?” in IMF Survey, May 31, 2004.

(81) See “New Era for Iran’s Private Sector,” in ISN Security Watch, www.isn.ethz.ch/news, June 26, 2007.

(82) See statement by a Management and Plan Organization official in www.donya-e-eqtesad.com, December 9, 2006.

(83) Statement by the head of the POI reported in www.hamshashri.net/news, May 1, 2007

(84) www.donya-e-eqtesad.com, June 22, 2007.

(85) For various lists of state enterprises put up for sale this year see http://jomhourieslami.com, June 23 and 27, 2007, and July, 22, 29, and 31, 2007; and www.hamshahri.net, July 16, 2007.

(86) www.hamshahri.net, July 22, 2007.

(87) For details see www.donya-e-eqtesad.com, August 11, 2007.

By Jahangir Amuzegar

Dr. Amuzegar was finance minister and economic ambassador in Iran’s pre-1979 government.

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Hanna explained that the prices charged are different, depending on the route: “We’re basically being extorted. Where you don’t pay, you’re going to get attacked. We just have our field guys go down there, and they pay off who they need to.” Sometimes, he says, the extortion fee is high, and sometimes it is low. “Moving ten trucks, it is probably $800 per truck to move through an area. It’s based on the number of trucks and what you’re carrying. If you have fuel trucks, they are going to charge you more. If you have dry trucks, they’re not going to charge you as much. If you are carrying MRAPs or Humvees, they are going to charge you more.”

Hanna says it is just a necessary evil. “If you tell me not to pay these insurgents in this area, the chances of my trucks getting attacked increase exponentially.”

Whereas in Iraq the private security industry has been dominated by US and global firms like Blackwater, operating as de facto arms of the US government, in Afghanistan there are lots of local players as well. As a result, the industry in Kabul is far more dog-eat-dog. “Every warlord has his security company,” is the way one executive explained it to me.

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• Afghanistan: The Mirage of Peace: Ideology and difference
• Afghanistan: The Mirage of Peace: Foreword

In theory, private security companies in Kabul are heavily regulated, although the reality is different. Thirty-nine companies had licenses until September, when another dozen were granted licenses. Many licensed companies are politically connected: just as NCL is owned by the son of the defense minister and Watan Risk Management is run by President Karzai’s cousins, the Asia Security Group is controlled by Hashmat Karzai, another relative of the president. The company has blocked off an entire street in the expensive Sherpur District. Another security firm is controlled by the parliamentary speaker’s son, sources say. And so on.

In the same way, the Afghan trucking industry, key to logistics operations, is often tied to important figures and tribal leaders. One major hauler in Afghanistan, Afghan International Trucking (AIT), paid $20,000 a month in kickbacks to a US Army contracting official, according to the official’s plea agreement in US court in August. AIT is a very well-connected firm: it is run by the 25-year-old nephew of Gen. Baba Jan, a former Northern Alliance commander and later a Kabul police chief. In an interview, Baba Jan, a cheerful and charismatic leader, insisted he had nothing to do with his nephew’s corporate enterprise.

But the heart of the matter is that insurgents are getting paid for safe passage because there are few other ways to bring goods to the combat outposts and forward operating bases where soldiers need them. By definition, many outposts are situated in hostile terrain, in the southern parts of Afghanistan. The security firms don’t really protect convoys of American military goods here, because they simply can’t; they need the Taliban’s cooperation.

One of the big problems for the companies that ship American military supplies across the country is that they are banned from arming themselves with any weapon heavier than a rifle. That makes them ineffective for battling Taliban attacks on a convoy. “They are shooting the drivers from 3,000 feet away with PKMs,” a trucking company executive in Kabul told me. “They are using RPGs [rocket-propelled grenades] that will blow up an up-armed vehicle. So the security companies are tied up. Because of the rules, security companies can only carry AK-47s, and that’s just a joke. I carry an AK-and that’s just to shoot myself if I have to!”

The rules are there for a good reason: to guard against devastating collateral damage by private security forces. Still, as Hanna of Afghan American Army Services points out, “An AK-47 versus a rocket-propelled grenade-you are going to lose!” That said, at least one of the Host Nation Trucking companies has tried to do battle instead of paying off insurgents and warlords. It is a US-owned firm called Four Horsemen International. Instead of providing payments, it has tried to fight off attackers. And it has paid the price in lives, with horrendous casualties. FHI, like many other firms, refused to talk publicly; but I’ve been told by insiders in the security industry that FHI’s convoys are attacked on virtually every mission.

For the most part, the security firms do as they must to survive. A veteran American manager in Afghanistan who has worked there as both a soldier and a private security contractor in the field told me, “What we are doing is paying warlords associated with the Taliban, because none of our security elements is able to deal with the threat.” He’s an Army veteran with years of Special Forces experience, and he’s not happy about what’s being done. He says that at a minimum American military forces should try to learn more about who is getting paid off.

“Most escorting is done by the Taliban,” an Afghan private security official told me. He’s a Pashto and former mujahedeen commander who has his finger on the pulse of the military situation and the security industry. And he works with one of the trucking companies carrying US supplies. “Now the government is so weak,” he added, “everyone is paying the Taliban.”

To Afghan trucking officials, this is barely even something to worry about. One woman I met was an extraordinary entrepreneur who had built up a trucking business in this male-dominated field. She told me the security company she had hired dealt directly with Taliban leaders in the south. Paying the Taliban leaders meant they would send along an escort to ensure that no other insurgents would attack. In fact, she said, they just needed two armed Taliban vehicles. “Two Taliban is enough,” she told me. “One in the front and one in the back.” She shrugged. “You cannot work otherwise. Otherwise it is not possible.”

Which leads us back to the case of Watan Risk, the firm run by Ahmad Rateb Popal and Rashid Popal, the Karzai family relatives and former drug dealers. Watan is known to control one key stretch of road that all the truckers use: the strategic route to Kandahar called Highway 1. Think of it as the road to the war-to the south and to the west. If the Army wants to get supplies down to Helmand, for example, the trucks must make their way through Kandahar.

Watan Risk, according to seven different security and trucking company officials, is the sole provider of security along this route. The reason is simple: Watan is allied with the local warlord who controls the road. Watan’s company website is quite impressive, and claims its personnel “are diligently screened to weed out all ex-militia members, supporters of the Taliban, or individuals with loyalty to warlords, drug barons, or any other group opposed to international support of the democratic process.” Whatever screening methods it uses, Watan’s secret weapon to protect American supplies heading through Kandahar is a man named Commander Ruhullah. Said to be a handsome man in his 40s, Ruhullah has an oddly high-pitched voice. He wears traditional salwar kameez and a Rolex watch. He rarely, if ever, associates with Westerners. He commands a large group of irregular fighters with no known government affiliation, and his name, security officials tell me, inspires obedience or fear in villages along the road.

It is a dangerous business, of course: until last spring Ruhullah had competition-a one-legged warlord named Commander Abdul Khaliq. He was killed in an ambush.

So Ruhullah is the surviving road warrior for that stretch of highway. According to witnesses, he works like this: he waits until there are hundreds of trucks ready to convoy south down the highway. Then he gets his men together, setting them up in 4×4s and pickups. Witnesses say he does not limit his arsenal to AK-47s but uses any weapons he can get. His chief weapon is his reputation. And for that, Watan is paid royally, collecting a fee for each truck that passes through his corridor. The American trucking official told me that Ruhullah “charges $1,500 per truck to go to Kandahar. Just 300 kilometers.”

It’s hard to pinpoint what this is, exactly-security, extortion or a form of “insurance.” Then there is the question, Does Ruhullah have ties to the Taliban? That’s impossible to know. As an American private security veteran familiar with the route said, “He works both sides… whatever is most profitable. He’s the main commander. He’s got to be involved with the Taliban. How much, no one knows.”

Even NCL, the company owned by Hamed Wardak, pays. Two sources with direct knowledge tell me that NCL sends its portion of US logistics goods in Watan’s and Ruhullah’s convoys. Sources say NCL is billed $500,000 per month for Watan’s services. To underline the point: NCL, operating on a $360 million contract from the US military, and owned by the Afghan defense minister’s son, is paying millions per year from those funds to a company owned by President Karzai’s cousins, for protection.

Hamed Wardak wouldn’t return my phone calls. Milt Bearden, the former CIA officer affiliated with the company, wouldn’t speak with me either. There’s nothing wrong with Bearden engaging in business in Afghanistan, but disclosure of his business interests might have been expected when testifying on US policy in Afghanistan and Pakistan. After all, NCL stands to make or lose hundreds of millions based on the whims of US policy-makers.

It is certainly worth asking why NCL, a company with no known trucking experience, and little security experience to speak of, would win a contract worth $360 million. Plenty of Afghan insiders are asking questions. “Why would the US government give him a contract if he is the son of the minister of defense?” That’s what Mahmoud Karzai asked me. He is the brother of President Karzai, and he himself has been treated in the press as a poster boy for access to government officials. The New York Times even profiled him in a highly critical piece. In his defense, Karzai emphasized that he, at least, has refrained from US government or Afghan government contracting. He pointed out, as others have, that Hamed Wardak had little security or trucking background before his company received security and trucking contracts from the Defense Department. “That’s a questionable business practice,” he said. “They shouldn’t give it to him. How come that’s not questioned?”

I did get the opportunity to ask General Wardak, Hamed’s father, about it. He is quite dapper, although he is no longer the debonair “Gucci commander” Bearden once described. I asked Wardak about his son and NCL. “I’ve tried to be straightforward and correct and fight corruption all my life,” the defense minister said. “This has been something people have tried to use against me, so it has been painful.”

Wardak would speak only briefly about NCL. The issue seems to have produced a rift with his son. “I was against it from the beginning, and that’s why we have not talked for a long time. I have never tried to support him or to use my power or influence that he should benefit.”

When I told Wardak that his son’s company had a US contract worth as much as $360 million, he did a double take. “This is impossible,” he said. “I do not believe this.”

I believed the general when he said he really didn’t know what his son was up to. But cleaning up what look like insider deals may be easier than the next step: shutting down the money pipeline going from DoD contracts to potential insurgents.

Two years ago, a top Afghan security official told me, Afghanistan’s intelligence service, the National Directorate of Security, had alerted the American military to the problem. The NDS delivered what I’m told are “very detailed” reports to the Americans explaining how the Taliban are profiting from protecting convoys of US supplies.

The Afghan intelligence service even offered a solution: what if the United States were to take the tens of millions paid to security contractors and instead set up a dedicated and professional convoy support unit to guard its logistics lines? The suggestion went nowhere.

The bizarre fact is that the practice of buying the Taliban’s protection is not a secret. I asked Col. David Haight, who commands the Third Brigade of the Tenth Mountain Division, about it. After all, part of Highway 1 runs through his area of operations. What did he think about security companies paying off insurgents? “The American soldier in me is repulsed by it,” he said in an interview in his office at FOB Shank in Logar Province. “But I know that it is what it is: essentially paying the enemy, saying, ’Hey, don’t hassle me.’ I don’t like it, but it is what it is.”

As a military official in Kabul explained contracting in Afghanistan overall, “We understand that across the board 10 percent to 20 percent goes to the insurgents. My intel guy would say it is closer to 10 percent. Generally it is happening in logistics.”

In a statement to The Nation about Host Nation Trucking, Col. Wayne Shanks, the chief public affairs officer for the international forces in Afghanistan, said that military officials are “aware of allegations that procurement funds may find their way into the hands of insurgent groups, but we do not directly support or condone this activity, if it is occurring.” He added that, despite oversight, “the relationships between contractors and their subcontractors, as well as between subcontractors and others in their operational communities, are not entirely transparent.”

In any case, the main issue is not that the US military is turning a blind eye to the problem. Many officials acknowledge what is going on while also expressing a deep disquiet about the situation. The trouble is that-as with so much in Afghanistan-the United States doesn’t seem to know how to fix it.

By Aram Roston
The Nation, 11/11/09

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But Popal was more than just a former mujahedeen. In 1988, a year before the Soviets fled Afghanistan, Popal had been charged in the United States with conspiring to import more than a kilo of heroin. Court records show he was released from prison in 1997.

Flash forward to 2009, and Afghanistan is ruled by Popal’s cousin President Hamid Karzai. Popal has cut his huge beard down to a neatly trimmed one and has become an immensely wealthy businessman, along with his brother Rashid Popal, who in a separate case pleaded guilty to a heroin charge in 1996 in Brooklyn. The Popal brothers control the huge Watan Group in Afghanistan, a consortium engaged in telecommunications, logistics and, most important, security. Watan Risk Management, the Popals’ private military arm, is one of the few dozen private security companies in Afghanistan. One of Watan’s enterprises, key to the war effort, is protecting convoys of Afghan trucks heading from Kabul to Kandahar, carrying American supplies.

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• Afghanistan: The Mirage of Peace: Foreword

Welcome to the wartime contracting bazaar in Afghanistan. It is a virtual carnival of improbable characters and shady connections, with former CIA officials and ex-military officers joining hands with former Taliban and mujahedeen to collect US government funds in the name of the war effort.

In this grotesque carnival, the US military’s contractors are forced to pay suspected insurgents to protect American supply routes. It is an accepted fact of the military logistics operation in Afghanistan that the US government funds the very forces American troops are fighting. And it is a deadly irony, because these funds add up to a huge amount of money for the Taliban. “It’s a big part of their income,” one of the top Afghan government security officials told The Nation in an interview. In fact, US military officials in Kabul estimate that a minimum of 10 percent of the Pentagon’s logistics contracts-hundreds of millions of dollars-consists of payments to insurgents.

Understanding how this situation came to pass requires untangling two threads. The first is the insider dealing that determines who wins and who loses in Afghan business, and the second is the troubling mechanism by which “private security” ensures that the US supply convoys traveling these ancient trade routes aren’t ambushed by insurgents.

A good place to pick up the first thread is with a small firm awarded a US military logistics contract worth hundreds of millions of dollars: NCL Holdings. Like the Popals’ Watan Risk, NCL is a licensed security company in Afghanistan.

What NCL Holdings is most notorious for in Kabul contracting circles, though, is the identity of its chief principal, Hamed Wardak. He is the young American son of Afghanistan’s current defense minister, Gen. Abdul Rahim Wardak, who was a leader of the mujahedeen against the Soviets. Hamed Wardak has plunged into business as well as policy. He was raised and schooled in the United States, graduating as valedictorian from Georgetown University in 1997. He earned a Rhodes scholarship and interned at the neoconservative think tank the American Enterprise Institute. That internship was to play an important role in his life, for it was at AEI that he forged alliances with some of the premier figures in American conservative foreign policy circles, such as the late Ambassador Jeane Kirkpatrick.

Wardak incorporated NCL in the United States early in 2007, although the firm may have operated in Afghanistan before then. It made sense to set up shop in Washington, because of Wardak’s connections there. On NCL’s advisory board, for example, is Milton Bearden, a well-known former CIA officer. Bearden is an important voice on Afghanistan issues; in October he was a witness before the Senate Foreign Relations Committee, where Senator John Kerry, the chair, introduced him as “a legendary former CIA case officer and a clearheaded thinker and writer.” It is not every defense contracting company that has such an influential adviser.

But the biggest deal that NCL got-the contract that brought it into Afghanistan’s major leagues-was Host Nation Trucking. Earlier this year the firm, with no apparent trucking experience, was named one of the six companies that would handle the bulk of US trucking in Afghanistan, bringing supplies to the web of bases and remote outposts scattered across the country.

At first the contract was large but not gargantuan. And then that suddenly changed, like an immense garden coming into bloom. Over the summer, citing the coming “surge” and a new doctrine, “Money as a Weapons System,” the US military expanded the contract 600 percent for NCL and the five other companies. The contract documentation warns of dire consequences if more is not spent: “service members will not get food, water, equipment, and ammunition they require.” Each of the military’s six trucking contracts was bumped up to $360 million, or a total of nearly $2.2 billion. Put it in this perspective: this single two-year effort to hire Afghan trucks and truckers was worth 10 percent of the annual Afghan gross domestic product. NCL, the firm run by the defense minister’s well-connected son, had struck pure contracting gold.

Host Nation Trucking does indeed keep the US military efforts alive in Afghanistan. “We supply everything the army needs to survive here,” one American trucking executive told me. “We bring them their toilet paper, their water, their fuel, their guns, their vehicles.” The epicenter is Bagram Air Base, just an hour north of Kabul, from which virtually everything in Afghanistan is trucked to the outer reaches of what the Army calls “the Battlespace”-that is, the entire country. Parked near Entry Control Point 3, the trucks line up, shifting gears and sending up clouds of dust as they prepare for their various missions across the country.

The real secret to trucking in Afghanistan is ensuring security on the perilous roads, controlled by warlords, tribal militias, insurgents and Taliban commanders. The American executive I talked to was fairly specific about it: “The Army is basically paying the Taliban not to shoot at them. It is Department of Defense money.” That is something everyone seems to agree on.

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In the tumultuous days leading up to the Pakistan Army’s ground offensive in the tribal area of South Waziristan, which began on October 17th, the Pakistani Taliban attacked what should have been some of the country’s best-guarded targets. In the most brazen strike, ten gunmen penetrated the Army’s main headquarters, in Rawalpindi, instigating a twenty-two-hour standoff that left twenty-three dead and the military thoroughly embarrassed. The terrorists had been dressed in Army uniforms. There were also attacks on police installations in Peshawar and Lahore, and, once the offensive began, an Army general was shot dead by gunmen on motorcycles on the streets of Islamabad, the capital. The assassins clearly had advance knowledge of the general’s route, indicating that they had contacts and allies inside the security forces.

Pakistan has been a nuclear power for two decades, and has an estimated eighty to a hundred warheads, scattered in facilities around the country. The success of the latest attacks raised an obvious question: Are the bombs safe? Asked this question the day after the Rawalpindi raid, Secretary of State Hillary Clinton said, “We have confidence in the Pakistani government and the military’s control over nuclear weapons.” Clinton-whose own visit to Pakistan, two weeks later, would be disrupted by more terrorist bombs-added that, despite the attacks by the Taliban, “we see no evidence that they are going to take over the state.”

Clinton’s words sounded reassuring, and several current and former officials also said in interviews that the Pakistan Army was in full control of the nuclear arsenal. But the Taliban overrunning Islamabad is not the only, or even the greatest, concern. The principal fear is mutiny-that extremists inside the Pakistani military might stage a coup, take control of some nuclear assets, or even divert a warhead.

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On April 29th, President Obama was asked at a news conference whether he could reassure the American people that Pakistan’s nuclear arsenal could be kept away from terrorists. Obama’s answer remains the clearest delineation of the Administration’s public posture. He was, he said, “gravely concerned” about the fragility of the civilian government of President Asif Ali Zardari. “Their biggest threat right now comes internally,” Obama said. “We have huge . . . national-security interests in making sure that Pakistan is stable and that you don’t end up having a nuclear-armed militant state.” The United States, he said, could “make sure that Pakistan’s nuclear arsenal is secure-primarily, initially, because the Pakistan Army, I think, recognizes the hazards of those weapons’ falling into the wrong hands.”

The questioner, Chuck Todd, of NBC, began asking whether the American military could, if necessary, move in and secure Pakistan’s bombs. Obama did not let Todd finish. “I’m not going to engage in hypotheticals of that sort,” he said. “I feel confident that the nuclear arsenal will remain out of militant hands. O.K.?”

Obama did not say so, but current and former officials said in interviews in Washington and Pakistan that his Administration has been negotiating highly sensitive understandings with the Pakistani military. These would allow specially trained American units to provide added security for the Pakistani arsenal in case of a crisis. At the same time, the Pakistani military would be given money to equip and train Pakistani soldiers and to improve their housing and facilities-goals that General Ashfaq Parvez Kayani, the chief of the Pakistan Army, has long desired. In June, Congress approved a four-hundred-million-dollar request for what the Administration called the Pakistan Counterinsurgency Capability Fund, providing immediate assistance to the Pakistan Army for equipment, training, and “renovation and construction.”

The secrecy surrounding the understandings was important because there is growing antipathy toward America in Pakistan, as well as a history of distrust. Many Pakistanis believe that America’s true goal is not to keep their weapons safe but to diminish or destroy the Pakistani nuclear complex. The arsenal is a source of great pride among Pakistanis, who view the weapons as symbols of their nation’s status and as an essential deterrent against an attack by India. (India’s first nuclear test took place in 1974, Pakistan’s in 1998.)

A senior Pakistani official who has close ties to Zardari exploded with anger during an interview when the subject turned to the American demands for more information about the arsenal. After the September 11th attacks, he said, there had been an understanding between the Bush Administration and then President Pervez Musharraf “over what Pakistan had and did not have.” Today, he said, “you’d like control of our day-to-day deployment. But why should we give it to you? Even if there was a military coup d’état in Pakistan, no one is going to give up total control of our nuclear weapons. Never. Why are you not afraid of India’s nuclear weapons?” the official asked. “Because India is your friend, and the longtime policies of America and India converge. Between you and the Indians, you will fuck us in every way. The truth is that our weapons are less of a problem for the Obama Administration than finding a respectable way out of Afghanistan.”

The ongoing consultation on nuclear security between Washington and Islamabad intensified after the announcement in March of President Obama’s so-called Af-Pak policy, which called upon the Pakistan Army to take more aggressive action against Taliban enclaves inside Pakistan. I was told that the understandings on nuclear coöperation benefitted from the increasingly close relationship between Admiral Michael Mullen, the chairman of the Joint Chiefs of Staff, and General Kayani, his counterpart, although the C.I.A. and the Departments of Defense, State, and Energy have also been involved. (All three departments declined to comment for this article. The national-security council and the C.I.A. denied that there were any agreements in place.)

In response to a series of questions, Admiral Mullen acknowledged that he and Kayani were, in his spokesman’s words, “very close.” The spokesman said that Mullen is deeply involved in day-to-day Pakistani developments and “is almost an action officer for all things Pakistan.” But he denied that he and Kayani, or their staffs, had reached an understanding about the availability of American forces in case of mutiny or a terrorist threat to a nuclear facility. “To my knowledge, we have no military units, special forces or otherwise, involved in such an assignment,” Mullen said through his spokesman. The spokesman added that Mullen had not seen any evidence of growing fundamentalism inside the Pakistani military. In a news conference on May 4th, however, Mullen responded to a query about growing radicalism in Pakistan by saying that “what has clearly happened over the [past] twelve months is the continual decline, gradual decline, in security.” The Admiral also spoke openly about the increased coöperation on nuclear security between the United States and Pakistan: “I know what we’ve done over the last three years, specifically to both invest, assist, and I’ve watched them improve their security fairly dramatically. . . . I’ve looked at this, you know, as hard as I can, over a period of time.” Seventeen days later, he told the Senate Foreign Relations Committee, “We have invested a significant amount of resources through the Department of Energy in the last several years” to help Pakistan improve the controls on its arsenal. “They still have to improve them,” he said.

In interviews in Pakistan, I obtained confirmation that there were continuing conversations with the United States on nuclear-security plans-as well as evidence that the Pakistani leadership put much less weight on them than the Americans did. In some cases, Pakistani officials spoke of the talks principally as a means of placating anxious American politicians. “You needed it,” a senior Pakistani official, who said that he had been briefed on the nuclear issue, told me. His tone was caustic. “We have twenty thousand people working in the nuclear-weapons industry in Pakistan, and here is this American view that Pakistan is bound to fail.” The official added, “The Americans are saying, ‘We want to help protect your weapons.’ We say, ‘Fine. Tell us what you can do for us.’ It’s part of a quid pro quo. You say, also, ‘Come clean on the nuclear program and we’ll insure that India doesn’t put pressure on it.’ So we say, ‘O.K.’ ”

But, the Pakistani official said, “both sides are lying to each other.” The information that the Pakistanis handed over was not as complete as the Americans believed. “We haven’t told you anything that you don’t know,” he said. The Americans didn’t realize that Pakistan would never cede control of its arsenal: “If you try to take the weapons away, you will fail.”

High-level coöperation between Islamabad and Washington on the Pakistani nuclear arsenal began at least eight years ago. Former President Musharraf, when I interviewed him in London recently, acknowledged that his government had held extensive discussions with the Bush Administration after the September 11th attacks, and had given State Department nonproliferation experts insight into the command and control of the Pakistani arsenal and its on-site safety and security procedures. Musharraf also confirmed that Pakistan had constructed a huge tunnel system for the transport and storage of nuclear weaponry. “The tunnels are so deep that a nuclear attack will not touch them,” Musharraf told me, with obvious pride. The tunnels would make it impossible for the American intelligence community-”Big Uncle,” as a Pakistani nuclear-weapons expert called it-to monitor the movements of nuclear components by satellite.

Safeguards have been built into the system. Pakistani nuclear doctrine calls for the warheads (containing an enriched radioactive core) and their triggers (sophisticated devices containing highly explosive lenses, detonators, and krytrons) to be stored separately from each other and from their delivery devices (missiles or aircraft). The goal is to insure that no one can launch a warhead-in the heat of a showdown with India, for example-without pausing to put it together. Final authority to order a nuclear strike requires consensus within Pakistan’s ten-member National Command Authority, with the chairman-by statute, President Zardari-casting the deciding vote.

But the safeguards meant to keep a confrontation with India from escalating too quickly could make the arsenal more vulnerable to terrorists. Nuclear-security experts have war-gamed the process and concluded that the triggers and other elements are most exposed when they are being moved and reassembled-at those moments there would be fewer barriers between an outside group and the bomb. A consultant to the intelligence community said that in one war-gamed scenario disaffected members of the Pakistani military could instigate a terrorist attack inside India, and that the ensuing crisis would give them “a chance to pick up bombs and triggers-in the name of protecting the assets from extremists.”

The triggers are a key element in American contingency plans. An American former senior intelligence official said that a team that has trained for years to remove or dismantle parts of the Pakistani arsenal has now been augmented by a unit of the Joint Special Operations Command (JSOC), the élite counterterrorism group. He added that the unit, which had earlier focussed on the warheads’ cores, has begun to concentrate on evacuating the triggers, which have no radioactive material and are thus much easier to handle.

“The Pakistanis gave us a virtual look at the number of warheads, some of their locations, and their command-and-control system,” the former senior intelligence official told me. “We saw their target list and their mobilization plans. We got their security plans, so we could augment them in case of a breach of security,” he said. “We’re there to help the Pakistanis, but we’re also there to extend our own axis of security to their nuclear stockpile.” The detailed American planning even includes an estimate of how many nuclear triggers could be placed inside a C-17 cargo plane, the former official said, and where the triggers could be sequestered. Admiral Mullen, asked about increased American insight into the arsenal, said, through his spokesman, “I am not aware of our receipt of any such information.” (A senior military officer added that the information, if it had been conveyed, would most likely “have gone to another government agency.”)

A spokesman for the Pakistani military said, in an official denial, “Pakistan neither needs any American unit for enhancing the security for its arsenal nor would accept it.” The spokesman added that the Pakistani military “has been providing protection to U.S. troops in a situation of crisis”-a reference to Pakistan’s role in the war on terror-”and hence is quite capable to deal with any untoward situation.”

Early this summer, a consultant to the Department of Defense said, a highly classified military and civil-emergency response team was put on alert after receiving an urgent report from American intelligence officials indicating that a Pakistani nuclear component had gone astray. The team, which operates clandestinely and includes terrorism and nonproliferation experts from the intelligence community, the Pentagon, the F.B.I., and the D.O.E., is under standing orders to deploy from Andrews Air Force Base, in Maryland, within four hours of an alert. When the report turned out to be a false alarm, the mission was aborted, the consultant said. By the time the team got the message, it was already in Dubai.

In an actual crisis, would the Pakistanis give an American team direct access to their arsenal? An adviser to the Pentagon on counterinsurgency said that some analysts suspected that the Pakistani military had taken steps to move elements of the nuclear arsenal “out of the count”-to shift them to a storage facility known only to a very few-as a hedge against mutiny or an American or Indian effort to seize them. “If you thought your American ally was telling your enemy where the weapons were, you’d do the same thing,” the adviser said.

“Let me say this about our nuclear deterrent,” President Zardari told me, when asked about any recent understandings between Pakistan and the United States. “We give comfort to each other, and the comfort level is good, because everybody respects everybody’s integrity. We’re all big boys.”

Zardari and I met twice, first in his office, in the grand but isolated Presidential compound in Islamabad, and then, a few days later, alone over dinner in his personal quarters. Zardari, who became President after the assassination, in December, 2007, of his charismatic wife, former Prime Minister Benazir Bhutto, spent nearly eleven years in jail on corruption charges. He is widely known in Pakistan as Mr. Ten Per Cent, a reference to the commissions he allegedly took on government contracts when Bhutto was in power, and is seen by many Pakistanis as little more than a crook who has grown too close to America; his approval ratings are in the teens. He is chatty but guarded, proud but defensive, and, like many Pakistanis, convinced that the United States will always favor India. Over dinner, he spoke of his suspicions regarding his wife’s death. He said that, despite rumors to the contrary, he would complete his five-year term.

Zardari spoke with derision about what he depicted as America’s obsession with the vulnerability of his nation’s nuclear arsenal. “In your country, you feel that you have to hold the fort for us,” he said. “The American people want a lot of answers for the errors of the past, and it’s very easy to spread fear. Our Army officers are not crazy, like the Taliban. They’re British-trained. Why would they slip up on nuclear security? A mutiny would never happen in Pakistan. It’s a fear being spread by the few who seek to scare the many.”

Zardari offered some advice to Barack Obama: instead of fretting about nuclear security in Pakistan, his Administration should deal with the military disparity between Pakistan and India, which has a much larger army. “You should help us get conventional weapons,” he said. “It’s a balance-of-power issue.”

In May, Zardari, at the urging of the United States, approved a major offensive against the Taliban, sending thirty thousand troops into the Swat Valley, which lies a hundred miles northwest of Islamabad. “The enemy that we were fighting in Swat was made up of twenty per cent thieves and thugs and eighty per cent with the same mind-set as the Taliban,” Zardari said. He depicted the operation as a complete success, but added that his government was not “ready” to kill all the Taliban. His long-term solution, Zardari said, was to provide new business opportunities in Swat and turn the Taliban into entrepreneurs. “Money is the best incentive,” he said. “They can be rented.”

Zardari’s view of the Swat offensive was striking, given that many Pakistanis had been angered by the excessive use of force and the ensuing refugee crisis. The lives of about two million people were torn apart, and, during a summer in which temperatures soared to a hundred and twenty degrees, hundreds of thousands of civilians were crowded into government-run tent cities. Idris Khattak, a former student radical who now works with Amnesty International, said in Peshawar that residents had described nights of heavy, indiscriminate bombing and shelling, followed in the morning by Army sweeps. The villagers, and not the Taliban, had been hit the hardest. “People told us that the bombing the night before was a signal for the Taliban to get out,” he said.

Zardari did not dispute that there were difficulties in the refugee camps-the heat, the lack of facilities. But he insisted that the fault lay with the civilians, who, he said, had been far too tolerant of the Taliban. The suffering could serve a useful purpose: after a summer in the tents, the citizens of Swat might have learned a lesson and would not “let the Taliban back into their cities.”

Rahimullah Yusufzai, an eminent Pakistani journalist, who has twice interviewed Osama bin Laden, had a different explanation for the conditions that led to the offensive. “The Taliban were initially trying to win public support in Swat by delivering justice and peace,” Yusufzai said. “But when they got into power they went crazy and became brutal. Many are from the lowest ranks of society, and they began killing and terrorizing their opponents. The people were afraid.”

The turmoil did not end with the Army’s invasion. “Most of the people who were in the refugee camps told us that the Army was equally bad. There was so much killing,” Yusufzai said. The government had placed limits on reporters who tried to enter the Swat Valley during the attack, but afterward Yusufzai and his colleagues were able to interview officers. “They told us they hated what they were doing-‘We were trained to fight Indians.’ ” But that changed when they sustained heavy losses, especially of junior officers. “They were killing everybody after their colleagues were killed-just like the Americans with their Predator missiles,” Yusufzai said. “What the Army did not understand, and what the Americans don’t understand, is that by demolishing the house of a suspected Taliban or their supporters you are making an enemy of the whole family.” What looked like a tactical victory could turn out to be a strategic failure.

The Obama Administration has had difficulty coming to terms with how unhappy many Pakistanis are with the United States. Secretary of State Clinton, during her three-day “good-will visit” to Pakistan, late last month, seemed taken aback by the angry and, at times, provocative criticism of American policies that dominated many of her public appearances, and responded defensively.

Last year, the Washington Times ran an article about the Pressler Amendment, a 1985 law cutting off most military aid to Pakistan as long as it continued its nuclear program. The measure didn’t stop Pakistan from getting the bomb, or from buying certain weapons, but it did reduce the number of Pakistani officers who were permitted to train with American units. The article quoted Major General John Custer as saying, “The older military leaders love us. They understand American culture and they know we are not the enemy.” The General’s assessment provoked a barrage of e-mail among American officers with experience in Pakistan, and a former member of a Special Forces unit provided me with copies. “The fact that a two-star would make a statement [like] that . . . is at best naïve and actually pure bullshit,” a senior Special Forces officer on duty in Pakistan wrote. He went on:

I have met and interacted with the entire military staff from General Kayani on down and all the general officers on their joint staff and in all the services, and I haven’t spoken to one that “loves us”-whatever that means. In fact, I have read most of the TS [top secret] assessments of all their General Officers and I haven’t read one that comes close to their “loving” us. They play us for everything they can get, and we trip over ourselves trying to give them everything they ask for, and cannot pay for.

Some military men who know Pakistan well believe that, whatever the officer corps’s personal views, the Pakistan Army remains reliable. “They cannot be described as pro-American, but this doesn’t mean they don’t know which side their bread is buttered on,” Brian Cloughley, who served six years as Australia’s defense attaché to Pakistan and is now a contributor to Jane’s Sentinel, told me. “The chance of mutiny is slim. Were this to happen, there would be the most severe reaction” by special security units in the Pakistani military, Cloughley said. “But worry feeds irrationality, and the international consequences could be dire.”

The recollections of Bush Administration officials who dealt with Pakistan in the first round of nuclear consultations after September 11th do not inspire confidence. The Americans’ main contact was Lieutenant General Khalid Kidwai, the head of Pakistan’s Strategic Plans Division, the agency that is responsible for nuclear strategy and operations and for the physical security of the weapons complex. At first, a former high-level Bush Administration official told me, Kidwai was reassuring; his professionalism increased their faith in the soundness of Pakistan’s nuclear doctrine and its fail-safe procedures. The Army was controlled by Punjabis who, the Americans thought, “did not put up with Pashtuns,” as the former Bush Administration official put it. (The Taliban are mostly Pashtun.) But by the time the official left, at the beginning of George W. Bush’s second term, he had a much darker assessment: “They don’t trust us and they will not tell you the truth.”

No American, for example, was permitted access to A. Q. Khan, the metallurgist and so-called father of the Pakistani atomic bomb, who traded crucial nuclear-weapons components on the international black market. Musharraf placed him under house arrest in early 2004, claiming to have been shocked to learn of Khan’s dealings. At the time, it was widely understood that those activities had been sanctioned by Pakistan’s Inter-Services Intelligence (I.S.I.). Khan was freed in February, although there are restrictions on his travel. (In an interview last year, Kidwai told David Sanger, for his book “The Inheritance,” that “our security systems are foolproof,” thanks to technical controls; Sanger noted that Bush Administration officials were “not as confident in private as they sound in public.”)

A former State Department official who worked on nuclear issues with Pakistan after September 11th said that he’d come to understand that the Pakistanis “believe that any information we get from them would be shared with others-perhaps even the Indians. To know the command-and-control processes of their nuclear weapons is one thing. To know where the weapons actually are is another thing.”

The former State Department official cited the large Pakistan Air Force base outside Sargodha, west of Lahore, where many of Pakistan’s nuclear-capable F-16s are thought to be stationed. “Is there a nuke ready to go at Sargodha?” the former official asked. “If there is, and Sargodha is the size of Andrews Air Force Base, would we know where to go? Are the warheads stored in Bunker X?” Ignorance could be dangerous. “If our people don’t know where to go and we suddenly show up at a base, there will be a lot of people shooting at them,” he said. “And even if the Pakistanis may have told us that the triggers will be at Bunker X, is it true?”

In the July/August issue of Arms Control Today, Rolf Mowatt-Larssen, who recently retired after three years as the Department of Energy’s director of intelligence and counter-intelligence, preceded by two decades at the C.I.A., wrote vividly about the “lethal proximity between terrorists, extremists, and nuclear weapons insiders” in Pakistan. “Insiders have facilitated terrorist attacks. Suicide bombings have occurred at air force bases that reportedly serve as nuclear weapons storage sites. It is difficult to ignore such trends,” Mowatt-Larssen wrote. “Purely in actuarial terms, there is a strong possibility that bad apples in the nuclear establishment are willing to cooperate with outsiders for personal gain or out of sympathy for their cause. Nowhere in the world is this threat greater than in Pakistan. . . . Anything that helps upgrade Pakistan’s nuclear security is an investment” in America’s security.

Leslie H. Gelb, a president emeritus of the Council on Foreign Relations, said, “I don’t think there’s any kind of an agreement we can count on. The Pakistanis have learned how to deal with us, and they understand that if they don’t tell us what we want to hear we’ll cut off their goodies.” Gelb added, “In all these years, the C.I.A. never built up assets, but it talks as if there were ‘access.’ I don’t know if Obama understands that the Agency doesn’t know what it’s talking about.”

The former high-level Bush Administration official was just as blunt. “If a Pakistani general is talking to you about nuclear issues, and his lips are moving, he’s lying,” he said. “The Pakistanis wouldn’t share their secrets with anybody, and certainly not with a country that, from their point of view, used them like a Dixie cup and then threw them away.”

Sultan Amir Tarar, known to many as Colonel Imam, is the archetype of the disillusioned Pakistani officer. Tarar spent eighteen years with the I.S.I. in Afghanistan, most of them as an undercover operative. In the mujahideen war against the Soviet Union, in the eighties, he worked closely with C.I.A. agents, and liked the experience. “They were honest and thoughtful and provided the finest equipment,” Tarar said during an interview in Rawalpindi. He spoke with pride of shaking hands with Robert Gates in Afghanistan in 1985. Gates, now the Secretary of Defense, was then a senior C.I.A. official. “I’ve heard all about you,” Gates said, according to Tarar. “Good or bad?” “Oh, my. All good,” Gates replied. Tarar’s view changed after the Russians withdrew and, in his opinion, “the Americans abandoned us.” When I asked if he’d seen “Charlie Wilson’s War,” the movie depicting that abandonment and a Texas congressman’s futile efforts to change the policy, Tarar laughed and said, “I’ve seen Charlie Wilson. I didn’t need to see the movie.”

Tarar, who retired in 1995 and has a son in the Army, believed-as did many Pakistani military men-that the American campaign to draw Pakistan deeper into the war against the Taliban would backfire. “The Americans are trying to rent out their war to us,” he said. If the Obama Administration persists, “there will be an uprising here, and this corrupt government will collapse. Every Pakistani will then be his own nuclear bomb-a suicide bomber,” Tarar said. “The longer the war goes on, the longer it will spill over in the tribal territories, and it will lead to a revolutionary stage. People there will flee to the big cities like Lahore and Islamabad.”

Tarar believed that the Obama Administration had to negotiate with the Afghan Taliban, even if that meant direct talks with Mullah Omar, the Taliban leader. Tarar knew Mullah Omar well. “Omar trained as a young man in my camp in 1985,” he told me. “He was physically fit and mission-oriented-a very honest man who was a practicing Muslim. Nothing beyond that. He was a Talib-a student, and not a mullah. But people respected him. Today, among all the Afghan leaders, Omar has the biggest audience, and this is the right time for you to talk to him.”

Speaking to Tarar and other officers gave a glimpse of the acrimony at the top of the Pakistani government, which has complicated the nuclear equation. Tarar spoke bitterly about the position that General Kayani found himself in, carrying out the “corrupt” policies of the Americans and of Zardari, while Pakistan’s soldiers “were fighting gallantly in Swat against their own people.”

A $7.5-billion American aid package, approved by Congress in September, was, to the surprise of many in Washington, controversial in Pakistan, because it contained provisions seen as strengthening Zardari at the expense of the military. Shaheen Sehbai, a senior editor of the newspaper International, said that Zardari’s “problem is that he’s besieged domestically on all sides, and he thinks only the Americans can save him,” and, as a result, “he’ll open his pants for them.” Sehbai noted that Kayani’s term as Army chief ends in the fall of 2010. If Zardari tried to replace him before then, Kayani’s colleagues would not accept his choice, and there could be “a generals’ coup,” Sehbai said. “America should worry more about the structure and organization of the Army-and keep it intact.”

Lieutenant General Hamid Gul was the director general of the I.S.I. in the late eighties and worked with the C.I.A. in Afghanistan. Gul, who is retired, is a devout Muslim and had been accused by the Bush Administration of having ties to the Taliban and Al Qaeda-allegations he has denied. “What would happen if, in a crisis, you tried to get-or did not get-our nuclear triggers? What happens then?” Gul asked when we met. “You will have us as an enemy, with the Chinese and Russians behind us.”

If Pakistani officers had given any assurances about the nuclear arsenal, Gul said, “they are cheating you and they would be right to do so. We should not be aiding and abetting Americans.”

Persuading the Pakistan Army to concentrate on fighting the Taliban, and not India, is crucial to the Obama Administration’s plans for the region. There has been enmity between India and Pakistan since 1947, when Britain’s withdrawal led to the partition of the subcontinent. The state of Kashmir, which was three-quarters Muslim but acceded to Hindu-majority India, has been in dispute ever since, and India and Pakistan have twice gone to war over the territory. Through the years, the Pakistan Army and the I.S.I. have relied on Pakistan-based jihadist groups, most notably Lashkar-e-Taiba and Jaish-e-Mohammed, to carry out a guerrilla war against the Indians in Kashmir. Many in the Pakistani military consider the groups to be an important strategic reserve.

A retired senior Pakistani intelligence officer, who worked with his C.I.A. counterparts to track down Khalid Sheikh Mohammed, said that he was deeply troubled by the prospect of Pakistan ceding any control over its nuclear deterrent. “Suppose the jihadis strike at India again-another attack on the parliament. India will tell the United States to stay out of it, and ‘We’ll sort it out on our own,’ ” he said. “Then there would be a ground attack into Pakistan. As we begin to react, the Americans will be interested in protecting our nuclear assets, and urge us not to go nuclear-‘Let the Indians attack and do not respond!’ They would urge us instead to find those responsible for the attack on India. Our nuclear arsenal was supposed to be our savior, but we would end up protecting it. It doesn’t protect us,” he said.

“My belief today is that it’s better to have the Americans as an enemy rather than as a friend, because you cannot be trusted,” the former officer concluded. “The only good thing the United States did for us was to look the other way about an atomic bomb when it suited the United States to do so.”

Pakistan’s fears about the United States coöperating with India are not irrational. Last year, Congress approved a controversial agreement that enabled India to purchase nuclear fuel and technology from the United States without joining the Non-Proliferation Treaty, making India the only non-signatory to the N.P.T. permitted to do so. Concern about the Pakistani arsenal has since led to greater coöperation between the United States and India in missile defense; the training of the Indian Air Force to use bunker-busting bombs; and “the collection of intelligence on the Pakistani nuclear arsenal,” according to the consultant to the intelligence community. (The Pentagon declined to comment.)

I flew to New Delhi after my stay in Pakistan and met with two senior officials from the Research and Analysis Wing, India’s national intelligence agency. (Of course, as in Pakistan, no allegation about the other side should be taken at face value.) “Our worries are about the nuclear weapons in Pakistan,” one of the officials said. “Not because we are worried about the mullahs taking over the country; we’re worried about those senior officers in the Pakistan Army who are Caliphates”-believers in a fundamentalist pan-Islamic state. “We know some of them and we have names,” he said. “We’ve been watching colonels who are now brigadiers. These are the guys who could blackmail the whole world”-that is, by seizing a nuclear weapon.

The Indian intelligence official went on, “Do we know if the Americans have that intelligence? This is not in the scheme of the way you Americans look at things-‘Kayani is a great guy! Let’s have a drink and smoke a cigar with him and his buddies.’ Some of the men we are watching have notions of leading an Islamic army.”

In an interview the next afternoon, an Indian official who has dealt diplomatically with Pakistan for years said, “Pakistan is in trouble, and it’s worrisome to us because an unstable Pakistan is the worst thing we can have.” But he wasn’t sure what America could do. “They like us better in Pakistan than you Americans,” he said. “I can tell you that in a public-opinion poll we, India, will beat you.”

India and Pakistan, he added, have had back-channel talks for years in an effort to resolve the dispute over Kashmir, but “Pakistan wants talks for the sake of talks, and it does not carry out the agreements already reached.” (In late October, Manmohan Singh, the Indian Prime Minister, publicly renewed an offer of talks, but tied it to a request that Pakistan crack down on terrorism; Pakistan’s official response was to welcome the overture.)

The Indian official, like his counterparts in Pakistan, believed that Americans did not appreciate what his government had done for them. “Why did the Pakistanis remove two divisions from the border with us?” He was referring to the shifting of Pakistani forces, at the request of the United States, to better engage the Taliban. “It means they have confidence that we will not take advantage of the situation. We deserve a pat on the back for this.” Instead, the official said, with a shrug, “you are too concerned with your relationship with Pakistan.”

Pervez Musharraf lives in unpretentious exile with his wife in an apartment in London, near Hyde Park. Officials who had dealt with him cautioned that, along with his many faults, he had a disarmingly open manner. At the beginning of our talk, I asked him why, on a visit to Washington in late January, he had not met with any senior Obama Administration officials. “I did not ask for a meeting because I was afraid of being told no,” he said. At another point, Musharraf, dressed casually in slacks and a sports shirt, said that he had been troubled by the American-controlled Predator drone attacks on targets inside Pakistan, which began in 2005. “I said to the Americans, ‘Give us the Predators.’ It was refused. I told the Americans, ‘Then just say publicly that you’re giving them to us. You keep on firing them but put Pakistan Air Force markings on them.’ That, too, was denied.”

Musharraf, who was forced out of office in August, 2008, under threat of impeachment, did not spare his successor. “Asif Zardari is a criminal and a fraud,” Musharraf told me. “He’ll do anything to save himself. He’s not a patriot and he’s got no love for Pakistan. He’s a third-rater.”

Musharraf said that he and General Kayani, who had been his nominee for Chief of Army Staff, were still in telephone contact. Musharraf came to power in a military coup in 1999, and remained in uniform until near the end of his Presidency. He said that he didn’t think the Army was capable of mutiny-not the Army he knew. “There are people with fundamentalist ideas in the Army, but I don’t think there is any possibility of these people getting organized and doing an uprising. These ‘fundos’ were disliked and not popular.”

He added, “Muslims think highly of Obama, and he should use his acceptability-even with the Taliban-and try to deal with them politically.”

Musharraf spoke of two prior attempts to create a fundamentalist uprising in the Army. In both cases, he said, the officers involved were arrested and prosecuted. “I created the strategic force that controls all the strategic assets-eighteen to twenty thousand strong. They are monitored for character and for potential fundamentalism,” he said. He acknowledged, however, that things had changed since he’d left office. “People have become alarmed because of the Taliban and what they have done,” he said. “Everyone is now alarmed.”

The rise in militancy is a sensitive subject, and many inside Pakistan insist that American fears, and the implied threat to the nuclear arsenal, are overwrought. Amélie Blom, a political sociologist at Lahore University of Management Sciences, noted that the Army continues to support an unpopular President. “The survival of the coalition government shows that the present Army leadership has an interest in making it work,” she said in an e-mail.

Others are less sure. “Nuclear weapons are only as safe as the people who handle them,” Pervez Hoodbhoy, an eminent nuclear physicist in Pakistan, said in a talk last summer at a Nation and Lawyers Committee on Nuclear Policy forum in New York. For more than two decades, Hoodbhoy said, “the Pakistan Army has been recruiting on the basis of faithfulness to Islam. As a consequence, there is now a different character present among Army officers and ordinary soldiers. There are half a dozen scenarios that one can imagine.” There was no proof either that the most dire scenarios would be realized or that the arsenal was safe, he said.

The current offensive in South Waziristan marked a significant success for the Obama Administration, which had urged Zardari to take greater control of the tribal areas. There was a risk, too-that the fighting would further radicalize Pakistan. Last week, another Pakistan Army general was the victim of a drive-by assassination attempt, as he was leaving his home in Islamabad. Since the Waziristan operation was announced, more than three hundred people have been killed in a dozen terrorist attacks. “If we push too hard there, we could trigger a social revolution,” the Special Forces adviser said. “We are playing into Al Qaeda’s deep game here. If we blow it, Al Qaeda could come in and scoop up a nuke or two.” He added, “The Pakistani military knows that if there’s any kind of instability there will be a traffic jam to seize their nukes.” More escalation in Pakistan, he said, “will take us to the brink.”

During my stay in Pakistan-my first in five years-there were undeniable signs that militancy and the influence of fundamentalist Islam had grown. In the past, military officers, politicians, and journalists routinely served Johnnie Walker Black during our talks, and drank it themselves. This time, even the most senior retired Army generals offered only juice or tea, even in their own homes. Officials and journalists said that soldiers and middle-level officers were increasingly attracted to the preaching of Zaid Hamid, who joined the mujahideen and fought for nine years in Afghanistan. On CDs and on television, Hamid exhorts soldiers to think of themselves as Muslims first and Pakistanis second. He claims that terrorist attacks in Mumbai last year were staged by India and Western Zionists, aided by the Mossad. Another proselytizer, Dr. Israr Ahmed, writes a column in the Urdu press in which he depicts the Holocaust as “divine punishment,” and advocates the extermination of the Jews. He, too, is said to be popular with the officer corps.

A senior Obama Administration official brought up Hizb ut-Tahrir, a Sunni organization whose goal is to establish the Caliphate. “They’ve penetrated the Pakistani military and now have cells in the Army,” he said. (The Pakistan Army denies this.) In one case, according to the official, Hizb ut-Tahrir had recruited members of a junior officer group, from the most élite Pakistani military academy, who had been sent to England for additional training.

“Where do these guys get socialized and exposed to Islamic evangelism and the fundamentalism narrative?” the Obama Administration official asked. “In services every Friday for Army officers, and at corps and unit meetings where they are addressed by senior commanders and clerics.”

By Seymour M. Hersh
New Yorker, 16/11/09

Find massive articles about Pakistan with Google: Pakistan, and Nuclear Pakistan.

Remarked by Asia Opinion

A number of factors are frequently cited for the slow pace and insignificant scale of privatization. Some of these factors were similar to the experiences of other countries; others are more country specific. In general, privatization in any state-dominated economy is an issue with a diffuse, unorganized and silent constituency, i.e., consumers who may eventually enjoy better products at lower prices. These beneficiaries, however, while in the numerical majority, are normally outflanked by a minority of vested interests that will go to any lengths to preserve its prerogatives in public ownership. For example, government agencies in charge of state enterprises resist privatization because they lose part of their political power by giving up their economic clout. Politically appointed boards of public corporations, along with incompetent or corrupt managers and tenured employees who might lose their jobs and perks are other privatization opponents. Privileged suppliers and customers of public enterprises who would be deprived of their usual sweetheart deals would similarly engage in a tooth-and-nail fight to keep those businesses in public hands.

In the case of the Islamic Republic, several other factors acted as additional handicaps. First, there was an absence of national consensus about the very benefits of privatization. There were lingering suspicions, if not actual hostility, among the left-leaning bureaucrats held over from the Mussavi government toward capital, capitalists, private investments and the profit motive. Privatization also faced a skeptical public that saw the process as a squandering of national wealth and an enrichment of government cronies. (15) Second, since each state enterprise often embodied the economic power of a political or clerical faction in the country, a source of employment and income to faction supporters, and a vehicle for transferring rent to its satellite private businesses, there was a great deal of reluctance by managers, who feared losing these prerogatives. Third, there was a lack of enthusiasm on the part of potential investors because enterprises that were destined for privatization were not, as a rule, highly profitable. They had two to three times as many workers as normally needed; they were operating mostly under old technologies; they were in some cases heavily in debt to state banks; and many owed unpaid taxes. (16) Fourth, even a few profitable entities offered for sale had annual returns of between 10 and 15 percent at best. High as these rates may seem in a global context, they were actually rather meager in a country with an average annual inflation rate of the same magnitude. (17) Furthermore, the 10-15 percent taxable rates of return did not compete favorably with the 17 percent riskless and tax bee annual “profit” (interest) rates paid on government “participation papers” (bonds), or higher long-term deposit rates in state banks-not to speak of the 30-45 percent returns in the “informal” economy of the bazaar. Fifth, extensive deficiencies in the operation of the Tehran Stock Exchange, where privatized shares were to be traded (including the absence of market-makers and lack of both liquidity and transparency) played against their attraction. Sixth, with the country’s formal capital market nearly monopolized by inefficient and struggling state banks and insurance companies, the public’s access to funds for financing purchases of privatized shares was highly limited. Seventh, there was strong opposition by the politically active labor lobby. Although Western-type labor unions do not exist in Iran, an Islamic House of Labor, with a Majlis deputy as its secretary general, is there to champion the cause of workers. The House of Labor has opposed privatization from its early inception, calling it an exercise in dismissing workers, downsizing the labor force, lowering wages and creating more poverty. It has further argued that privatization in a majority of developing countries has caused nothing but chaos, ruin and the shredding of the social fabric. (18) Eighth, there were significant ambiguities in the Third Plan law regarding priorities in the sale of public
enterprises (e.g., banks vs. industrial units). Ninth, Iran’s small and orphaned private sector had neither the technical nor managerial capabilities for absorbing the bulk of privatized businesses. Finally, but by no means least significant, the pervasive and exclusive definition of the “public sector” in Article 44 of the Constitution kept many risk-averse private investors from purchasing shares of key industries that were still clearly categorized as belonging to the state.

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TRANSITION TO A MARKET ECONOMY

The Islamic Republic’s experience with privatization under the first two economic development plans, 1990-2000, was, as already discussed, by no means a success. The budgeted revenues from sales of SOEs perennially fell short of targets, in some years by as much as 65 percent. (19) With no proper safeguard in a number of well-publicized cases, the new owners decided to shut down the plant, fire workers, sell the company’s most valuable asset-the land-to private builders, and liquidate the enterprise. (20) Due to pressure from the dismissed workers, the government was forced to take back privatized firms in a few cases. (21)

As early as the middle of the Second Plan, it was thus becoming increasingly clear that the costs of keeping the overstaffed, mismanaged and money-losing state enterprises on life support through budget subsidies could neither be justified nor continued for long. A detectable national consensus seemed to indicate that the constitutional language and implications of Chapter IV, and specifically Article 44, was the main stumbling block to wholesale privatization. Amending the Constitution, however, was neither easy nor politically prudent. The procedures for amendment were time-consuming and highly complicated. But, more significant, any attempt at amending Chapter IV could have opened a Pandora’s box. There were no guarantees that other parts of the Constitution, particularly the crucial principle of velayat-e-faqih, would not be raised for “discussion.”

Two convenient escape routes thus suggested themselves: simply ignoring the mandate of Article 44 and proceeding with the transfer of public-sector assets, or searching for an enabling “interpretation.” Unthinkable as the violation option might appear in a Western legal context, the decision was not precedent setting in the Islamic Republic. In previous years, various administrations had routinely sidestepped, bypassed, ignored or even boldly violated various principles of the country’s 1979 Constitution and its 1989 amendment. Constitutional guarantees had frequently been ignored by overzealous security agents, corrupt prosecutors or politicized judges. Glaring violations occurred in many areas: the rights of ethnic and religious minorities (Articles 12 and 19); the sanctity of one’s life, home and property (Article 22); freedom of thought and expression (Article 23); an uncensored press (Article 24); political-party formation and activities (Article 26); peaceful demonstrations (Article 27); habeas corpus rights (Article 32); the prohibition against torture and forced testimony (Article 38); Majlis oversight authority in all national affairs (Article 76); the immunity of Majlis deputies in the discharge of their duties (Article 86); and jury trials for political and press offenses (Article 168). In foreign affairs, Article 11, calling for unity and solidarity with the Muslim world, and Article 152, regarding non-alignment with any superior power and defending the rights of Muslims everywhere under the slogan of “neither East nor West,” had also been virtually ignored and forgotten. Close and extensive political and economic ties with Russia and China, both major powers mistreating their Muslim citizens, had dominated the Islamic Republic’s foreign policy. A watchdog commission set up during the Khatami administration to record and report constitutional infringements by government employees and agencies was later terminated when its workload became unbearable.

Yet, in no case up to 1992, had any of the original mandates regarding the structure and direction of the economy and the Islamic Republic’s basic economic ideology been formally countermanded. Furthermore, the option of ignoring the Constitution could not be easily extended to Article 44 without palpable costs. Other provisions of the Constitution had been disregarded only at the (unquantifiable) expense of the regime’s legal and political “reputation.” Ignoring Article 44 would have affected the pocketbook, driving away both domestic and foreign investors.

A plausible alternative thus favored the “interpretation” route. Interpreting the Constitution, however, was the prerogative and responsibility of the Guardians Council (Article 98). But this organ could neither be expected to come up with a favorable verdict, nor was it technically equipped to offer detailed operational provisions. As in other difficult cases, the Expediency Council, as the final arbiter of all legislation in Iran, came to the rescue. Invoking its duty under Article 110 of the Constitution -”advising the Supreme Leader in the establishment of the regime’s principal national policies”-the Council began a long and arduous process of finding a solution. And, after five years, in late 1997, it reached a consensus that the ambiguities embodied in Article 44 were indeed partly responsible for the slow progress of privatization. Citing the last sentence of the article, it concluded that continued extensive public ownership during peacetime was indeed against the national interest and, therefore, should be relaxed. In March 1998, the supreme leader agreed with the Council’s findings and ordered it to proceed with necessary clarifications. Protracted studies and deliberations within the Council and further instructions from the supreme leader took another six years. The final document was resubmitted to him in late 2004 in five parts. (22) Four parts of the new “Guidelines” were approved immediately and ordered implemented in May 2005; the more crucial one, dealing with Article 44, was finalized in July 2006, (23) authorizing a major divestiture by the state of some of its major possessions.

Parts A and C of the Guidelines set up the essential course for government actions. Part A deals with basic policies aimed at expanding the role of the non-public sectors (private and cooperative) and preventing further expansion of the bureaucracy. First, it essentially puts an end to government monopoly in the commanding heights of the economy. It gives the green light, with clearly defined exceptions, for the private and cooperative sectors to invest, own and manage most areas and activities already in the domain of Article 44: basic industries and mining, foreign trade, banking, insurance, electric-power generation, dams and irrigation, post and telecommunications, railways, airlines, shipping, and downstream oil and gas. Of equal significance, it also enjoins the government from entering into any new economic activities outside the parameters of the existing Article 44. (24) Furthermore, it calls on the government to transfer to the non-public sector any involvement in the domain outside Article 44 by 20 percent a year. In the so-called “liberated” areas, the non-public sector can enter and compete with the public sector.

Part C, which the supreme leader took much longer to approve, complements Part A by calling for the overhaul of the state-dominated economy through divestiture of existing activities and assets in a wholesale manner. Accordingly, the government role is to change from direct ownership and management of the economy to that of policy making, guidance and supervision. The private sector is to be strengthened and assisted in its international competitiveness. To these ends, 80 percent of the government’s shares in the areas falling under Article 44 (with some major exceptions, notably up-stream oil and gas industries) are earmarked to be transferred to the private and cooperative sectors. (25) Part C also provides other enabling requirements for wholesale divestiture in terms of share pricing, sales conditions, publicity and other related matters. (26) It is expected that, with full implementation of the program, the government would eventually own no more than 20 percent of the economy, consisting only of “mother” or strategic industries.

The new mandates reflect a near-total change from both the letter and the spirit of the original Constitution: they involve an overhaul of Iran’s economic structure and a historic revision of private-public relationships, defining the proper roles of the state and the market. Most astonishingly, they reflect a dramatic ideological shift in the supreme leader’s own creeds. An avowedly austere cleric who had persistently enjoined the devout from seeking worldly goods seems to have lately changed his mind and gone on record stating that “the accumulation of national wealth and the establishment of social justice” are indeed “the two main pillars of Islamic economics.” (27) The official in charge of privatization has recently gone even further by claiming that the supreme leader, anxious to ensure national economic security, believes that “the creation of wealth is not only a necessity, but actually precedes its distribution.” (28)

Notes:

(15) According to a poll taken by the Ministry of Culture and Islamic Guidance, from 66 to 82 percent of the ordinary citizens opposed the privatization of banks, insurance companies, universities, hospitals, public utilities, air transportation, telecommunications and, most strongly, oil and gas. See www.hamshahri.net, August 18, 2004.

(16) For example, of the 64 operating airports destined for privatization, only one, according to the head of National Aviation Organization, was profitable, www.hamshahri.net August 30, 2005.

(17) See “Money and Inflation in the Islamic Republic of Iran.” IMF Working Paper WP/07/119, May 2007.

(18) See statement by Ali Reza Mahjoob, reported in http://jomhourieslami.net, November 17, 2004.

(19) For a sample of numerous shortfall reports, see www.radiofarda.com, April 29, 2002, and www. hamshahri.net, November 2, 2002.

(20) www.radioazadi.org/Iran, November 8, 2002.

(21) Five such cases were returned to their original state agencies. See www.hamshahri.net, June 27, 2002.

(22) See “Private ownership in large economic spheres is legalized,” www.hamshahri.net, October 2, 2004.

(23) For the background and details of the process, see Iran Economics, November 2006.

(24) According to a knowledgeable Majlis deputy, the government owned more than 2,000 enterprises of which 1,500 were outside the mandate of Article 44. See www.hamshahri.net, August 17, 2004

(25) Up to that date, only 49 percent of SOEs could be transferred.

(26) For a comprehensive description of the five parts and a full discussion of related matters, see “Methods and Requirements of Article 44 Implementation,” Iran Economics, November 2006.

(27) Statement reported in www.radiofarda.com/Article, February 19, 2007.

(28) Statement by the head of the POI, reported in http://jomhourieslami.com, June 5, 2007.

By Jahangir Amuzegar

Dr. Amuzegar was finance minister and economic ambassador in Iran’s pre-1979 government.

Source: Amuzegar, Jahangir. “Islamic social justice, Iranian style.(Essay).” Middle East Policy 14.3 (2007)

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Iran’s policy in the region is largely guided by geo-political state interests and less by ideological goals, such as promotion of Islam. With the collapse of the Soviet Union, Iran grasped that a potentially conflict-laden zone had replaced its once stable northern border and that influences from the new states could permeate the internal Iranian arena. From the inception of their independence, Tehran took a very sober attitude toward the establishment of the new Muslim republics, seeing in this development the dangers that emanate from the internal ethnic factor in addition to the opportunities for expanded influence:

The first ground for concern from the point of view in Tehran is the lack of political stability in the newly independent republics. The unstable conditions in those republics could be serious causes of insecurity along the lengthy borders (over 2000 kilometers) Iran shares with those countries. Already foreign hands can be felt at work in those republics, especially in Azerbaijan and Turkmenistan republics, with the ultimate objective of brewing discord among the Iranian Azeris and Turkmen by instigating ethnic and nationalistic sentiments.

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Iran is a multi-ethnic society in which approximately fifty percent of its citizens are of non-Persian origin. The largest minority group is the Azerbaijanis, which comprise close to a third of the population of Iran. Other major groups include the Kurds, Arabs, Baluch and Turkmen. Many of these groups are concentrated in Iran’s frontier areas, and most have ties to co-ethnics in adjoining states, such as Azerbaijan, Turkmenistan, Pakistan, Iraq and Turkey. Thus, Iran’s ethnic groups are especially subject to influence by events taking place in these bordering states, and the ethnic question is not merely a domestic matter. One of Tehran’s chief goals in the region has been to prevent destabilization in Iranian Azerbaijan and a rise in ethnic-based activity among the Azerbaijanis in Iran.

Iran’s cautious attitude toward the Caucasus is quite justified. Following the independence of the Republic of Azerbaijan, a flurry of activity associated with the probing of ethnic and national identity occurred among Azerbaijanis in Iran. The establishment of the Republic of Azerbaijan challenged the national identity of co-ethnics beyond the borders of the new state and served as a stimulant for many Azerbaijanis in Iran to identify with the Azerbaijani ethnic group though not necessarily with the new state itself. In the early 1990s, a significant rise in expressions of Azerbaijani ethnic identity in Iran has been observed, as well as important political manifestations of that identity. This rising Azerbaijani identity has generated few calls for the Azerbaijani provinces to secede from Iran and join the new republic, but rather for increased cultural rights within Iran.

Its close relations with Armenia illustrate the non-ideological nature of Iran’s policy toward the region. Despite its rhetoric of neutrality in the Karabagh conflict, in and of itself inconsistent with the official ideology of a state that portrays itself as the protector and champion of the Shi’i in the world, throughout most of the post-independence period, Iran cooperated with Armenia despite its struggle with Shi’i Azerbaijan for control of Karabagh, evidently preferring overall that the Republic of Azerbaijan remain involved in a conflict, making it less attractive to Iran’s Azerbaijanis and unable to allocate resources to stir-up ‘South Azerbaijan.’ Tehran adopted anti-Armenian rhetoric only at times when the results of the conflict directly threatened Iranian state interests. Yet, the non-ideological nature of Iran’s policy toward the Karabagh conflict, for instance, has not strengthened the stability in the region. Rather, Iran’s cooperation with Armenia and its tacit support in the conflict with Azerbaijan over Karabagh strengthened Yerevan’s actual and perceived power and consequently may have lessened its sense of urgency to resolve the conflict. Moreover, Iran’s perception of fear of the Republic of Azerbaijan serving as a model for rising ethnic-based identity of its own Azerbaijani community has led it to have an interest in prolonging the Karabagh conflict, albeit on a low level of intensity. Iran has come to share an interest with Russia in protracting the strife; thus this factor has contributed to the cementing of Russian-Iranian cooperation in the Caucasus, additionally complicating conflict resolution here. Russia is interested in sustaining the conflict since it provides a means of influence and manipulation to promote Moscow’s strategic, economic and political interests in the Caucasus, an area which it still considers a zone of highest importance, especially in the military and economic spheres. Moreover, the perpetuation of the conflict provides a means to preserve Yerevan’s dependence on Moscow and thus its acquiescence to the stationing of Russian troops in its territory. External involvement and manipulation has been a major factor that has aggravated the Karabagh conflict and contributed to its protraction and escalation.

Moreover, the dispute over the rights of the Azerbaijani minority in Iran and Baku’s often irredentist activities serve as a major factor of tension in the relations between the Republic of Azerbaijan and Iran which have led to an increase in Baku’s sense of isolation and vulnerability. This tension has impeded cooperation between Iran and Azerbaijan and aversely affected wider regional cooperation, while contributing to Baku’s drive to seek association with western security systems, advancing the projection of Iranian-American rivalry into the already troubled Caucasus region. Advancing of Western presence in the Caspian region has reinforced Iran’s threat perception from these developments in an area that borders its territory, adding an element, which contributes to instability in the region.

Tehran’s policy toward the Karabagh conflict is a good example of the diversity of opinions, which contrasts with its monolithic image, evident in the foreign policy-making process in Iran. The prevailing official Iranian foreign-policy establishment promoted tacit support for Armenia in the conflict and expanding cooperation with Yerevan, evidently as a counter to potential Azerbaijani irredentism. This policy was reflected in journals such as Tehran Times. This policy, set by overriding state interests, encountered open opposition from ideological steadfasts, who advocated adopting Islamic solidarity toward the Azerbaijanis in articles in Jomhuri-ye Islami. Even with the Iranian Foreign Ministry, there seemed to be diverging opinions over the fitting policy toward the conflict. Some actors, such as Deputy Foreign Minister, Va’ezi, seemed to have an institutional interest in Iran serving as a successful sponsor of the negotiation process between the conflicting sides and thus he seemed to play a candid role in conducting them in the early 1990s. Va’ezi’s criticism of Russia as a spoiling factor in the negotiations at this time contrary to the evolving trend of Tehran-Moscow rapprochement is an indication of his apparent veracity in the negotiation process on his part that may not have reflected the prevailing Iranian policy. Moreover, members of Iran’s minorities- both Azerbaijanis and Armenians- lobbied and pressed for Iran’s promotion of policies that favored their respective co-ethnics beyond Iran’s borders and directly organized aid to their corresponding groups. This urging itself reflects that significant numbers of Azerbaijanis and Armenians in Iran identify with co-ethnics in the newly established republics, many evidently, parallel, to identifying as Iranians. The different viewpoints of various policy-making factors in Iran toward the conflict and relations with Azerbaijan and Armenia can partially explain some policy inconsistency and shifts in relating to Karabagh.

Iran’s reactions to both the first and second Chechen conflicts in the 1990s illustrate the non-ideological nature of its policy toward the Caucasus. Iran attaches high importance to its relations with Russia, who has become a major political ally and an important partner for both economic and military cooperation, thus was careful not to harm its relations with Moscow. Overall, the official Iranian statements and media was quite mild in its criticism of Russia in these wars, despite the Muslim background of the Chechen rebels, and Iranian officials frequently commented that the conflict was an internal Russian matter. Official Iranian condemnation was only aired at times that other issues in the state-to-state relations between Iran and Russia were in conflict over other issues. Moreover, Iran’s complaisance on the Chechen issue was often rewarded by Moscow by a reaffirmation of its commitment to supply Tehran with its strongly sought after nuclear reactors.

Conclusions

The conflicts in the Caucasus have created interesting bedfellows, beyond the cooperation between Iran, Armenia and Russia, diverging from nominal lines of religious or “civilizational” affinity. For instance, Chechen activists assisted Moscow in aiding the Abkhaz in its struggle with Georgia. Furthermore, initially after the Soviet break-up, transports of food supplies to Armenia went through Turkish territory, often to the chagrin of Baku.

The use of religious labels to categorize the various sides to the hostilities in the Caucasus contributes little to understanding the roots of these conflicts and subsequently, finding appropriate solutions. Western relative lack of a business-like approach to the grievances of the Muslim peoples of the Caucasus and their assumptions concerning their motivations in the struggles can act like a self-fulfilling prophesy and push many of the Muslim peoples of the Caucasus into radical Muslim arms.

By Brenda Shaffer
Caucasian Regional Studies, Volume 5, Issue 1 & 2, 2000

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THE ECONOMY’S NEW CORNERSTONES

To Ayatollah Khomeini, the ascetic spiritual founder of the Islamic Republic, economics was a dismal and distasteful subject. He is frequently quoted as having referred to economics in highly derogatory terms. In the preamble of the 1979 Constitution, adopted under the ayatollah’s direction, economics is described as a means and not an end. The economy’s main task is defined as the satisfaction of man’s basic “material needs” in the course of his “journey toward God.” This unique and somewhat bizarre concept (which was hardly understood and seldom practiced by the majority who voted for the Basic Law) was presented as a distinct feature of Islamic government “in contrast” to non-Islamic economic systems, in which the goal is “the concentration and accumulation of wealth. (1)” Taking his cue from the founding father, current Supreme Leader Seyyed Ali Khamenei, for the first 15 years into the revolution, also praised “spiritual virtues” (taqva) as life’s main goals and asked the faithful to shun material possessions (zakharef). On other occasions, he openly cursed “those who made Iran dependent on oil” and wished the country could afford to shut down all its oil wells. (2)

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The body of the Basic Law that was drafted by the first Assembly of Experts functioning as a constitutional convention, however, makes no further reference to this puritanical Islamic concept and, in fact, requires the government to provide for the people’s basic needs in the fullest possible manner from cradle to grave. The assembly, composed of delegates from various ideologically diverse factions that had joined Khomeini’s “rainbow coalition” against the monarchy, initially had a hard time agreeing on an “Islamic” economic regime. In the final give-and-take among the factions, the Tudeh (communist) and other leftist members of the assembly were given the task of drafting the economic segment of the document as long as Khomeini diehards were equally allowed to provide the political segment. In the ultimate compromise that was finally reached, the “Islamic Marxists” accepted the principle of the velayet-efaqih (rule by an Islamic jurist) as the new regime’s political foundation in exchange for inserting their own favored economic version. The new constitution’s Chapter IV on the economy (Articles 43 to 55) thus became a communist-style economic manifesto in which the “commanding heights” of the economy were to be in the government’s hands. The rest was to be divided between the “cooperative” and the “private” sector with the priority belonging to the former. Thus, ironically, an essential segment of an “Islamic” constitution that was supposed to help people “move towards God” was drafted by a cabal of godless ideologues who subscribed to a totally different agenda. According to Article 44, the public sector includes “all large-scale and key industries; foreign trade; maj or mineral resources; banking, insurance; energy; dams and larger-scale irrigation networks; radio and television; post, telegraph and telephone; aviation; shipping; roads, railroads and the like.” To placate other Islamic clerics in the assembly who defended Islam’s respect for private property, Article 44 also adds: “Public ownership described in this article is sanctioned as long as it does not work against the interests of society.”

By virtue of this provision, hundreds of prosperous and well-managed private enterprises in industry, agriculture and trade that had already been confiscated by the revolutionary government and nationalized without due compensation became the legal wards of the state. They were placed at the disposal of several bonyads (charitable foundations) and two government agencies: the National Iranian Industries Organization and the Industrial Development and Renovation Organization. Following the beginning of war with Iraq in 1980, the scope of government operations and involvement quickly expanded. As a result, by the end of the war in 1988, state enterprises and bonyads became the dominant players in the economy. Large-scale economic activities in the energy, industry and other strategic sectors remained in state hands. The private sector was limited to small-scale agriculture, domestic trade and services, and minor mining and manufacturing.

Meanwhile, dire wartime economic conditions were further aggravated by the misguided policies of Mir Hossein Mussavi, a leftist prime minister, and carried out by a Soviet-type bureaucracy run largely by dogmatic, incompetent or corrupt managers. Bent on financing the ruinous war with meager domestic resources, the Mussavi administration played havoc with the economy. Inflation was artificially kept low through strict rationing, comprehensive wage and price controls and massive subsidies. The exchange rate between the Iranian rial and the U.S. dollar was allowed to become increasingly overvalued by means of strict annual foreign-currency appropriations, exchange rationing and a multiple-exchange-rates regime. The result was a steady decline in gross national product and growing overall poverty. According to the Central Bank’s latest revised calculation, Iran’s national income by the end of the war in 1988 fell to 64 percent of its 1978 level in real terms. And, due to the government’s disastrous pro-natal policy, designed to produce more soldiers for Islam, per capita income plummeted to 37 percent of its pre-revolution high. Growing cost/price distortions, accompanied by an increasingly over-valued rial, produced shortages of basic goods and services, widespread public dissatisfaction and a near revolt by consumers. The result was the election of a new centrist and pro-business government under President Ali Akbar Hashemi Rafsanjani that promised to make up for wartime hardships by reversing course.

INITIAL ATTEMPTS AT PRIVATIZATION

The early effort toward reducing state economic dominance was made in the context of the first Five-Year Economic Development Plan (1989-94) under Rafsanjani’s so-called “structural adjustment” (taadeel) program. (3) The declared goals, under the banner of privatization (khosousi sazi), were (a) to cut back the number of state-owned enterprises (SOEs) that had mushroomed since the 1979 revolution to over a thousand; (b) to get the government out of its “non-essential” functions; and (c) to increase total national-factor productivity. An enabling decree by the Council of Ministers in spring 1991 ordered the privatization of public enterprises through three methods: the Tehran Stock Exchange, open auctions and negotiations with potential buyers.

The first period of privatization, 1990-94, was carried out by virtue of the First Development Plan’s authorization, albeit in an unplanned, haphazard and chaotic manner, with total sales of public assets worth 1.7 trillion rials. The procedure that was followed in the first 20 months, however, had to be stopped in the winter of 1992 due to widespread

reports of flagrant corruption, cronyism and no-bid sales of moneymaking enterprises to selected groups at below-market prices. A new ministerial decree with added safeguards against abuses proved to be equally flawed. The Majlis in mid-summer 1994 put a temporary end to all privatization efforts until previous infractions were rectified. The second phase, 1995-97, was carried out under the Second Plan’s mandate according to a special Majlis law limiting the transfer of public assets-totaling 1.8 trillion rials-only to workers and war veterans on specially favored terms. In the third period, 1998-99, some 3.1 trillion rials changed hands under annual budget laws as well as the Second Plan’s statutory authorization.

As total sales figures annually fell considerably below budgeted sums in the first ten years of privatization, and the whole program failed to achieve the objectives of downsizing the bureaucracy, the Third Plan (2000-05) devoted a special section to the process. Accordingly, three new organs-the Privatization Organization of Iran (POI), the High Council on Shares Distribution and a series of Conglomerates called “mother” corporations-were established. The POI was given the exclusive mandate to dispose of enterprises belonging to all government ministries and agencies. The High Council, composed of cabinet ministers, was to decide which industries or enterprises were to be privatized. Conglomerates or holding companies were to take over individual enterprises in a specific field and put them together in a basket destined for privatization. The fourth period, 2000-05, thus followed the Third Plan’s authorization and managed total sales of 2.9 trillion rials in the first two years, following a tighter and more focused program.

Reliable data regarding total privatized assets during the 1990-2006 period are not available. As in most official statistics in the Islamic Republic, published figures are replete with contradictions, ambiguities and misinformation. A report based on the POI data and covering the first 12-year period of operation values total privatized assets at 10.1 trillion rials (about $1.6 billion). (4) According to another report, by the Majlis’ Research Center for the 16-year period, the POI has transferred total shares worth 23 trillion rials (about $2.4 billion). (5) The head of the Privatization Organization, and the minister of economy and finance both put the total at $3 billion. (6) President Ahmadinejad has on different occasions talked about $3.2 billion (7) and $3.5 billion. (8)

The percentage of total privatized assets as a portion of the total government holdings is hard to assess. Data regarding the number of enterprises belonging to the government and other public and semipublic organizations, their balance sheets and net worth are scarce, unreliable or unavailable. By one official’s estimate, the number of public corporations and their second-third-fourth-and fifth-generation subsidiaries has reached 2,500. (9) A government report to the Majlis in early 2003 showed the total capital of the 460 largest entities, one-fourth of which were listed as money losing, to be $62.5 billion. (10) Another report by the National Accounting Organization refers to 1,038 entities with total assets of about $92 billion and liabilities of $55 billion. (11) A knowledgeable Majlis deputy values all SOEs at $150 billion. (12)

Regardless of the exact worth of privatized assets and the total worth of government holdings, however, the maximum transferred shares has been a minute portion of total public wealth. Two other related factors must also be kept in mind in assessing the magnitude of privatization. First, some major buyers of “privatized” shares were financial subsidiaries of state banks, state insurance companies, and other semi-public enterprises that were not part of the private sector. A major portion of total “privatized” assets also consisted of transfers to the Social Security Fund and the Government Employees’ Pension Fund as part of the treasury’s past-due contributions; they were not truly “private sector” participants. Second, and more startling, is the fact that during the privatization exercise the government, instead of shrinking as mandated by law, had actually become ever bigger. According to a high government official, while a maximum of $3 billion of SOE shares were reportedly transferred during 1990-2006, state banks and other SOEs had an annual return on their capital of about $12 billion, of which 45 percent, or about $5 billion, was left at their disposal for reinvestment. By this calculation, the public sector grew by nearly $5 billion each year (13) through these reinvestments alone. Altogether during the period, an estimated $132 billion in totally new public investments-or 40 times total privatized assets-were made in the oil, gas, petrochemical, steel, aluminum, copper and other ongoing or new public projects (14)

Notes:

(1) For all quotations see The Constitution of the Islamic Republic of Iran (Berkeley: Mizan Press, 1980).

(2) See, for example, Kayhan Havaii (Tehran) 20, mordad 12 Aban, and 4 Esfand 1372 (June to February 1993)

(3) For a brief description of early attempts, see Jahangir Amuzegar, “Iran’s Privatization Saga,” Middle East Economic Survey, June 17, 2002.

(4) For a breakdown of sales figures by various government agencies as well as methods of sales (negotiation, auction, and the use of the stock market) during the first 12-year period, see “Trends of Privatization in Iran,” in www.Hamshahri.net, November 10 and 13, 2002, and January 16, 2003. See also statement by the privatization director in www.radioazadi.org, May 9, 2002.

(5) http://jomhourieslami, October 10, 2006.

(6) www.donya-e-eqtesad.com, July 4, 2006

(7) www.donya-e-eqtesad.com, October 28, 2006.

(8) www.donya-e-eqtesad, March 7, 2007.

(9) www.hamshahri.net/news, June 15, 2007.

(10) www.hamshahri.net February 1, 2003.

(11) www.hamshahri.net, May 20, 2003.

(12) Iran Economics, November 2006.

(13) www.donya-e-eqtesad.com, June 20, 2006, and http://.jomhourieslami.net December 30, 2005.

(14) Statement by the head of the Privatization Organization, reported in www.donya-e-eqtesad.com July 4, 2006.

By Jahangir Amuzegar

Dr. Amuzegar was finance minister and economic ambassador in Iran’s pre-1979 government.

Source: Amuzegar, Jahangir. “Islamic social justice, Iranian style.(Essay).” Middle East Policy 14.3 (2007)

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The use of religious labels regarding the various sides to the hostilities in the Caucasus contributes little to understanding the roots of these conflicts and subsequently, finding appropriate solutions. Islam is not the primary collective identity of most of the Muslims of the Caucasus, and plays only a minor role in the conflicts afflicting the region. Not all violence perpetrated by Muslims is Islamic terror, and not all political movements involving Muslims are Islamic movements. Most of the observant Muslims in the region are not connected to Wahabbism and this label is often inappropriate. The major coalitions of states involved in the conflicts are not based on religious affinity. In terms of external actors involved in Islamic radicalism in the region, most of them originate from countries with are considered pro-Western: Saudi Arabia, Pakistan and Turkey (primarily non-official groups). The activity of “Afghani Arabs” in the region is a source of instability and concern. Iran’s policy in the region is based primarily on geopolitical concerns, and the propagation of Islamic fundamentalism is only a minor facet of their activity in the region.

Introduction

Many of the reports and analysis on the Caucasus often describe the conflicts as emanating from ancient hatreds, religious differences and as long-rooted. When describing the motivations and behavior of Muslims involved in the conflicts, such as Chechens and Azerbaijanis, the descriptions overwhelmingly assume that Islam is their primary collective identity, that their struggles are based on Islam, and that their religious beliefs make them prone to hate non-Muslims and to act in a violent way. For instance, Chechens are usually described as “Islamic insurgents”, while the forces from Moscow are “Russian soldiers”, described by their ethnic and state affiliation, but not by their religion. The conflict in Karabagh is frequently described as a dispute between Christian Armenia and Shi’i Muslim Azerbaijan, while religion plays little role in the conflict. Samuel Huntington explains the conflicts in the Caucasus as emanating from the location at a “fault line” between Orthodox Christianity and Islam, assuming that the coalitions in the area largely break down on a Christian/Muslim basis. Accepting these explanations of the origins of the conflicts assumes that the behavior of local elites and of external powers did not cause the conflicts, but that the religious differences and the history of interaction of the peoples of the Caucasus made these conflicts almost inevitable. Logical extension of this analysis of the inevitability of these conflicts is that little can be done to rectify the situation by way of changing the behavior of the external powers in the Caucasus region.

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In contrast, evidence suggests that history of hatred and reasons for enmity exist almost everywhere, yet conflicts do not erupt in every region. Moreover, even in places where there is a history of positive interaction, mutual tolerance, and religious affinity, conflicts often breakout. It seems that these conflicts are not pre-determined by ancient hatred and religious differences, but shaped by current behavior and polices of local elites and regional powers. Moreover, in the case of the Caucasus, especially in the interaction between Armenians and Azerbaijanis, there is as much historical evidence of positive interaction as there is attesting to negative interplay, thus the chronicle of the relations of the two peoples has little to do with the conflict that emerged between them. Furthermore, different religious affiliations play only a small role in the conflicts currently waging in the Caucasus and specifically Islam plays no role in the Karabagh conflict with Armenia and only a minor role in the Chechnya war in Russia. In terms of the role of Islam in the conflicts in the Caucasus, a variety of assertions will be made:

• Islam is not the primary collective identity of the majority of the Muslims of the Caucasus. Especially in the case of Azerbaijan, ethno-national identity is clearly stronger than Islamic identity.
• The major coalitions of states involved in the conflicts are not based on religious affinity. For instance, the Islamic Republic of Iran has joined in cooperation with Armenia and Russia to the disadvantage of Shi’i Azerbaijan.
• Iran’s policy toward the conflicts in the Caucasus is driven by its state geo-political interests, and little by Islamic ideology. Moreover, Iran engages in Islamic propagation in the Caucasus almost exclusively when it cannot damage its strategic interests in the area, and often uses Islam manipulatively in order to advance those interests, primary vis-a-vis Russia.

Collective identity exists on a variety of levels in the Caucasus: family or clan, regional grouping, ethnic group, religion, republic and, for some, a certain “Soviet” identity. Religious affiliation is only one of the multi-layers of identity of the residents of the region, and not necessarily the primary. Various collectives perform a role in the politics of the region. For instance, traditional groupings, such as extended family networks in Azerbaijan, have filled some of the functions no longer executed by the state and thus softened the blows of the shift to market economy and the collapse of the social net previously provided by the state. Furthermore, the relative lack of violence inside states like Azerbaijan, even during heightened political upheaval, can partially be explained by the functioning of the extended family representatives as a facilitator between parts of the government and the demands of the wider public. Moreover, family ties are held with highest regard among most of the peoples of the Caucasus and greater Caspian region, and frequently there are family links between members of rival political camps, such as Heydar Aliyev and Abulfez Elchibey in Azerbaijan. Thus, often periods of instability and political upheaval in the region, such as those in Azerbaijan, are not marked with high degrees of violence. Family ties play a role in the political processes in the region, adding a dimension to ethnic ties. For instance, they play an important part in preserving the attachment between Azerbaijanis in the republic and beyond its border in Iran, as well as between Armenians in the state and in Karabagh and Georgia. The common primary allegiance to extended family members weakens the potential allure of other collective ideologies, such as Islam, although, of course, it is also present in the region. At the same time, these strong family allegiances also serve as an impediment to state-building and fostering national solidarity, which can be sources of stability.

In neighboring Central Asia, one of the important factors contributing to the relative internal stability in the new Muslim states since the Soviet breakup is the strength of the local, traditional power structures that have survived as a bulwark against major turmoil in the region, allowing continuity in leadership and reduced influence of external, radical forces. These local power structures, such as family and regional groupings endured in the Soviet period and the Soviet-era political elites in the region were most often grounded in these traditional structures. Their survival under the Soviet Union and their duration after its demise, explain why no “vacuum” was created that could have been utilized by foreign or other radical factors.

Islam in the Caucasus

For most of the Muslims of the Caucasus, Islam serves as a component of their ethnic and regional identity, but is not their primary collective identity. Solidarity on an Islamic basis with Muslims beyond the Caucasus is minimal, although beginning to emerge among small groups in the North Caucasus. Most members of the region hold in high regard their local cultures, and they are not particularly susceptible to chief identification with the broader Muslim world. Furthermore, Islam rarely serves as a unifying ideology of primary identity uniting the Muslim residents in the region, and many conflicts prevail among members of the same religion.

Outside forces have too easily labeled mass forms of dissent in the region as “Islamic.” For example, when Azerbaijanis removed border posts in December 1989 in attempt to make contacts with their co-ethnics beyond the border in Iran, Western sources tended to interpret this as their desire for ties to “Khomeinism” in Iran. More recently, activity of Chechens involved in what they view as a national struggle for independence is predominately termed in the West as “Islamic” violence and activity, despite the fact that Islam plays a quite secondary role in the conflict. Islam in and of itself is not destabilizing and not all ethnic or regional conflicts in which Muslims are involved are inherently religious. Not all acts of violence and terror perpetrated by Muslims should be seen as Islamic terror. The Islamic label and the Muslim origin of many of the peoples of the Caucasus is often manipulated for promotion of their own agendas by a variety of forces, both within and from outside the region. With Western audiences and at home, Moscow forthwith throws the Islamic label on movements of Muslims within its border demanding political independence or autonomy in order to cast aspersion on them and to attain American sympathy and acceptance of its policies against the insurgents. In the Soviet period, pious Muslims were generally referred to by the misnomer “Wahabbists”, which had a more frightening association then simply observant. Russia has continued with this labeling of Muslim activists, despite the fact that few of the Muslims in the Caucasus are actually connected to Wahabbist movements. Muslim radicals in the Middle East also like to attach the Islamic stamp to uprisings in the Caucasus and Central Asia and often grant support to political movements in this area, even if the basic goal of the movement is not Islamic in nature, although in the long run, they can gain influence in this manner. Many of the fighters in the Caucasus, such as Shamil Bashayev, like to attach the Islamic label to their struggle in order to add an air of legitimacy and respectability to their often power-based struggles and violent behavior, when in their personal habits they show little signs of religious piety.

The overwhelming majority of the Muslims of the North Caucasus are Sunni, whereas the Azerbaijanis are predominantly Shi’i. However, the Shi’i factor has no influence on the Azerbaijanis’ political orientation or activity, and actually Azerbaijan has tense relations with its Shi’i neighbor, Iran. In the region, Islam is predominately a cultural force, and scarcely a political force, especially in Azerbaijan. Islam forms the framework for major rites of passage, such as marking birth, death and marriages, but appears in few political contexts. In the northern Caucasus, Sufi Islam is very prominent and popular and does not traditionally aim for the formation of political or highly institutionalized frameworks, and as such can potentially contribute to fostering political moderation. Sufi Islam is as a whole highly condemned by Wahabbist ideology, and does not seem to be good breeding ground this movement, further weakening Moscow’ s claims of the Wahabbist basis of the Chechen movement.

Azerbaijan declared in its Constitution clear separation between religion and state and did not grant any special status to Islam. Moreover, religious parties are illegal and clerics may not run for office in Azerbaijan. As part of their drive for clear separation between religion and state, courts in Azerbaijan have demanded that women remove head coverings for photos for their official documents. Azerbaijan has a long tradition of secularism. With their inclusion in the Russia Empire, the Azerbaijanis were among the first Muslim groups to fall under European colonial rule. In keeping with Russian colonial policy, most of the powers of the Muslim clerical establishment were usurped. Freed from the constraints of the ulema, the Azerbaijanis and other Muslims in Russia became a bridgehead of secularism and proponents of modern education in the Muslim world.

In the north Caucasus, in contrast, some of the local regional governments have granted special status to Islam. However, local identity is very strong and it does not seem likely that the universalistic Islamic identity will surpass it as the primary collective identity of the different groups in the North Caucasus.

In Azerbaijan and in the north Caucasus, official clerical hierarchies, mosques and institutions of religious learning are functioning, predominantly in the attempt to control Islam and mobilize segments of its proponents in service of the regime. The official Islamic institutions have achieved varying degrees of success. In terms of the conflicts afflicting the region, the official clerical establishment in the Caucasus tends to promote stability and is adverse to any form of Islamic radicalism and most kinds of Islamic-based political activity. Moreover, these elements are viewed by the official clerics as their rivals for power and status. In many instances, such as in Chechnya and in connection to the Karabagh conflict, the establishment Muslim clerics have promoted moderation and attempted to advance conflict resolution. Nonetheless, it must be noted that due to their collaboration with the ruling state elites in the region, most of the establishment clerics are delegitimized in the eyes of the more radical and devout Muslims in the region and subsequently they have little influence over extremist Muslims in the area, and many influential independent clerics are operating in the region.

Not having undergone Western colonialism, many residents of the area do not harbor an anti-Western orientation, and many maintain an ambivalent relationship toward Moscow. Even enthusiastic supporters of independence of the region, often are willing to recognize the contributions of the interaction with Russia played in their national development. At the same time, some residents of the region are angered by the incursion on traditional local values and culture by the onslaught Western culture in the post-Soviet period, but it seems that Moscow is as blamed for that cultural assault as much, if not more so, than the West.

Political activity involving Muslims and the patterns of their struggles do not necessarily conform to the image of Muslim behavior associated with radical Arab movements in the Middle East. The absence of use by the Azerbaijanis of terror against civilian Armenian targets in the Karabagh conflict illustrates this point.

Religious based radical behavior seems most prevalent in the region in places where many people live outside their traditional places of residence. Affected by the alienation of new surroundings, often in large cities, without the welfare safety nets provided by their homes as well as the social constraints on their behavior, individuals are more susceptible to radical influences and prone to behavior of this type in their non-traditional settings.

In attempt to assess the extent of the hold of Islam on the population in the Caucasus region, it is important to separate between indicators of social conservatism and Islamic piety. In many parts of the region, social norms are in place, many pre-dating Islam’s arrival to the region, that mandate strict behavioral codes in fields such as sexual activity and dress. Many factors such as social segregation and occupational differentialization between the sexes, modest dress and the covering of the hair among the women have been interpreted by many researchers as external signs of Islamic religiosity and identity. Many Azerbaijanis, for instance, are secular in their outlook and do not observe many explicit Islamic laws (such as the prohibitions on alcoholic drinks and eating pork), even though they observe many conservative social customs. It seems that much of this traditional behavior is rooted in practices, which the practitioners did not necessarily associate with the Islamic religion when observing them.

Close-by examples of the results of wide political violence and Islamic radicalism, such as neighboring Afghanistan and Tajikistan, and the results of the Chechen conflict, serve as constant reminders to the residents of the Caucasus of the dangers of extremism of this type and even many religious people in the region have stated that radical Islamic-based political action must be avoided so that their country doesn’t become “another Afghanistan.”

In terms of export of Islamic radicalism to Caucasus, the most active external forces are from countries with a Western security orientation, such as Pakistan, Saudi Arabia and Turkey, although most of the Islamic groups are not associated with the ruling governments there and many are in opposition to the regimes, especially in Turkey. Ankara is also active in fostering its official version of Islam in the region through the institutions and employees of its Ministry of Religious Affairs, although many of these may not be actually promoting the agenda that their sponsor would like. Moreover, residents of the region have remarked that even Turkey’s version of non-political Islam, is more religious that that which is prevalent in the region, and thus Ankara may inadvertently be promoting Islam through these programs. Moscow’s recent actions in the name of combating potential Islamic terror against “Caucasians” residing in the capital and other major cities in Russia, booting them home to the Caucasus and depriving many of their livelihood, may bolster the potential supporters for Islamic and other radical politics and add to the instability of the region.

A source of potential instability in the region emanates from the “Afghani Arabs.” This terms is used to refer to the Arab and other Muslim volunteers that came from outside Afghanistan and joined in the struggle in the 1980s against the Soviet Union. Service together in Afghanistan created an international network of Islamic radicals, sharing knowledge and experience in low-intensity warfare and terror. This network often offers assistance to different movements in the region and attempts to encourage them to undertake radical activity, and some of the local movements have accepted this aid. All in all, though, external elements have not been able to turn Islamic-based political activity to a major force at this juncture in the Caucasus.

By Brenda Shaffer
Caucasian Regional Studies, Volume 5, Issue 1 & 2, 2000

Remarked by Asia Opinion

Find massive articles about Iran with Google: Iran

Since the disillusionment with Party orthodoxy and the resultant ’crisis of faith’ in the late seventies, Chinese society seems to have been trying to reinvent itself in ways different than those that existed earlier. The most striking feature of this complex social change was the sprouting of new sets of practices that brought back symbols that belonged to an older culture. It appeared that China had fallen back on the traditions and rituals of its distant past.

Myths and legends, hitherto considered as lores of superstition, entered everyday lives. Confucianism again became a popular faith. This return of traditional culture, however, coincided with the market-facilitated celebration of Western modernity. These trends, which began in the wake of economic reforms, later found their way into official discourse as wlll. The ancient splendour of China was celebrated with official sanction and sponsorship against a vastly transformed urban landscape. The leaders of the Party and the government, in televised public rituals, paid homage at the Confucius Temple. It appeared that at both levels, that of popular imaginery and idioms of the state, China was trying to redefine its identity outside the canons of socialism.

This article reviews and analyses the recent debates that have occurred, both within China and amongst Western scholars, on China’s changing perspective on ’nationalism’. The West, including its political elite, academics and news editors, have responded to these developments in a manner that shared many politico-cultural assumptions of what is being called the ’clash of civilisations’. The most influential explanation being advanced in this context is that of the emergence of a characteristically new type of Chinese nationalism in post-socialist China.¹ These writings of course provide insightful analysis of present Chinese society, but make formulations that have serious implications. For many Western authors Chinese foreign policy is actually a potent vehicle of aggressive nationalism. Pejorative adjectives that often bring in imageries from the classical period of European nationalism and war are frequently used to qualify the Chinese case. This paper thus is a survey of the growing literature on this question, and critically examines this idea of resurgent Chinese nationalism in Western writings. In order to understand China in the present context, emphasis has been given to the conceptual history of the ’nation’ in contemporaryi China.

THE FADING GLORY OF NATION-STATES

The view that contemporary China is a resurgent nationalist state came, strangely, at a time when the glory of the nation-state was on the decline. The nation-state was of course the most celebrated political formation in modern times. But at the close of the twentieth century it appears that the idea had become less inspiring for its early protagonists in the heartland Europe. The latecomers (from the Third World), who instantly jjmped on the bandwagon of nationalism, soon realised that their project was fraught with serious internal tensions. In our time nation-states have been formed (and forged), lacerated and destroyed in a manner and with a speed that could never be imagined. Apart from internal discontent, a host of factors from without have endangered the efficacy of the nation-state. As observed by David Beetham, a combination of historical forces-the economic, the military, and the politico-cultural-raise an increasingly serious question mark over the ability of sovereign nation-states to protect the economic welfare, physical security and cultural identity of its inhabitants.²

In the era of late capitalism the primacy of the nation-state in the international system has been challenged more directly by the promiscuous flights of finance capital from Europe, North America and Japan. In parallel with this development, the electronic media has emerged as a powerful and global force that promotes a universal paradigm, obliterating the specificity of local national cultures. In the Third World each state has conveniently accommodated itself into the very logic and structure of international political economy by trying to articulate and sell the interests of transnational corporations to their respective local subjects. At the same time these peripheries have emerged as the most potent repositories of state nationalism, creating a rhetorical site that seeks to legitimise the cohesiveness and forward march of the idea of the nation-state.

The historical conjecture in which India and China become republics in the late forties had all the ingredients that promised a long and fraternal coexistence. At the outset it looked like a perfect script that history had enacted on the Asian continent. The people in the Indian subcontinent and on mainland China had been shouldering similar historical burdens. Paramount among them were colonial subjugation, feudal despotism and economic backwardnsss. National salvation meant for both these predominantly agrarian societies the immediate improvement of such conditions. The freedom movement forced the British Raj to leave the subcontinent in 1947. Just two years later in China a coalition of an essentially subaltern social classes, led by the communist peasant army, successfully completed a prolonged revolutionary war that finally liberated China from its semi-colonial dependency and feudal despotism.

Two distinct state formations notwithstanding, India and China began their existence as post-colonial states that promised their people, among other things, livelihood, social justice and development. The two nations encountered an inherently unjust international order, and found the domination of global capitalism a stumbling block to their political independence. The euphoria that was kindled at the Bandung Conference (1955), which resulted in an eloquent declaration of Sino-Indian solidarity was short-lived. India and China, owing to a host of reasons, soon allowed the Bandung fraternity to collapse. Perhaps this stalemate created the conditions for the contemporary questioning of an older understanding of nationalism.

IMAGINING THE CHINESE NATION

For more than a quarter of a century Western writings on Chinese nationalism have been greatly influenced by the culturalism-to-nationalism thesis, well formulated by Joseph Levenson in his Confucian China and Its Modern Fate.³ According to Levenson, Imperial China was essentially a cultural entity defined in terms of Confucian and traditional culture. The emperor’s mandate to rule under heaven presumed sway over the whole world. So the boundaries of the Chinese state were not taken permanently demarcated. For the empire, a vague notion of universalistic culturalism was its defining world-view. The concept of nation and culture remained closely tied at the conceptual level until the nineteenth century. It was only in the wake of China’s troubled encounter with European powers that a theoretical separation between the two was realised.

Torbjorn Loden argued that in China nationalism emerges as part of a new state formation.⁴ Varieties of this nationalism, for which national identity is a means and a strong state is the end, has dominated political discourse in China in this century. In twentieth-century China it was a different process, one in which the state tried to invent a nation rather than a nation seeking to establish a state. Loden cites a revealing instance of the ambivalence inherent in imagining ’nation’ in China. Liang Qichao (1873-1929), a great intellectual figure in modern China, had deplored the fact that the Chinese had not managed to invent a proper national name for China. For him national identity was primarily the consciousness of the Chinese citizen. In a polemic against Zhang Taiyan (1869-1936), Liang criticised the idea of an ethnically or racially defined national identity. What he put forward was a concept of a ’great nationalism’, which would encompass the several ethnic groups in China. Loden observed that this notion of ’Chinese nation’ was later made use of by the Communist Movement.

While drawing a historical parellel between processes of nation and state formations in Europe and China, Loden made an interesting observation. For the European nationalists the rights of the individual was the point of departure. Scientific discoveries, economic development and popular interventions gave a distinct character to European nationalism. Deeply influenced by the Industrial Revolution and the Reniissance, Europe finally gave birth to a society whose organising principle was property rights. And its dominant ideology rests on the rights of the individual citizen. In contrast, Chinese nationalism has been in direct conflict with individualism.⁵ For both, the republican nationalists and communists, the ideals of liberation that define the philosophical core of the European enlightenment were not the starting point of their concept of national salvation. According to Loden, Chinese nationalism represents a historical process that conceptually separated China and traditional Chinese high culture. Those aspects of culture that originated in the Imperial period were rejected outright as China marched towards modernity and entered the international system of nation-states. Moreover the conceptual separation of China from the cultural traditions of the empire was in fact greatly informed by Western intellectual currents of the period.

Sun Yat-Sen in his Three Principles of the People articulates an idea of a Chinese nation in which ethnic identity was the defining element. For him, race and state had a corresponding relationship in ancient China. Since the Qin and Han dynasties China has been developing a single state out of a single race, while foreign countries have developed many states from race and have included many nationalities within one state.⁶

The history of modern China can be divided into periods of successive state formations-the Imperial, the early Republican (1912-27) and Communist. All of them aspired to save the nation from its enemies. Each movements of the past century advocated distinctive definition of the national self. As John Fitzgerald observed, for the Confucian literati China represented a distinctive civilisation, liberal Republicans conceived of the nation as a community of citizens. Nttionllist (Guomindang) revolutionaries invoked the idea of a Chinese race. China’s Marxist-Leninists have defined people by reference to social classes.⁷ ’Class’ entered nationalist discourse as a critical category and an alternative to citizen and race.

The Chinese communists employed the idea of class as much as liberals used the ideals of citizen or nationalists used race to assert the essential unity of the Chinese people.⁸ It must also be emphasised that China’s Marxist-Leninists did not abandon the idea of a distinctively Chinese nation when they set out to create a new state based on the solidarity of various revolutionary social classes. They attacked the earlier ’bourgeois’, ’feudal’ and ’bureaucratic capitalist’ state formations on the ground that they failed to represent the nation adequately.

The nationalist ideology constructed by the CPC during the war of liberation and afterwards was intended to serve the project of socialism. Externally, it was pitted against imperialism, and internally it aimed at the overthrow of bureaucratic capitalism and feudalism. The Chinese collective imagination was largely shaped by this ideology. After the revolution in 1949 the CPC’s foreign policy statements articulated a desire for national sovereignty vis-a-vis its powerful former foes. In its anti-impeiialist battle cries the CPC espoused a kind of internationalism that was essentially hierarchical in nature, in the sense that the supposedly fraternal world of the Bandung Conference was placed against North Amrrican and European domination. This internationalism served the goals of state nationalism of the People’s Republic of China (PRC).

State nationalism portrays the state as the embodiment of the nation’s will and tries to create a sense of nationhood among all its citizens. To distinguish the state from ethnic nationalism in a country like China is difficult inasmuch as political and cultural communities are largely congruent and reinforce each other. The PRC is a multinational state even though the Han Chinese constitute approximately 93 per cent of the population. According to official statistics, the other 7 per cent non-Han communities are divided among fifty-five minority nationllities. State nationalism claims that the Chinese nation includes all PRC citizens irrespective of their nationality. In conformity with the conventional international norms stcite nationalism of the PRC vigorously the indivisibility of territorial integrity.

Popular movements within China that reflected the ideology of state nationalism have a prominent place in its history. In a broader sense, state nationalism and its nation building project imbued every state policy with nationalism. Accordingly, development programmes become a nationalist movement, a collective effort to transform China into powerful and modernised nation, as well as a new national community integrating all states, territories and people. Scholars on nationalism have pointed out the significant role that social communications play in the growth of nationalism. From this perspective it can be argued that the real nationalist revolution in China came after 1949. It is these post-1949 developments in the field of transportation, postal and electronic communications, media industries, education and the popularisation of the national language that have contributed to the growth of national consciousness.

An important factor that provoked nationalist sentiments in China was the PRC’s international conflicts. As James Townsend has commented, each conflict was backed by popular mobilisation, as in the Resist America-Aid Korea campaign, when the state mobilised popular solidarity for the war effort.⁹ In terms of military action and popular emotion, this 1950-51 episode has no parallel in subsequent conflicts. The Korean model was followed in later instances, albeit with receding intensity. Military action coupled with nationllistic rhetoric and supporting popular demonstrations can be seen in the Taiwan straits crisis of the mid-fifties, the Sino-Indian border war of 1962, the Sino-Soviet border clash of the sixties and the Chinese invasion of Vietnam in 1979. The PRC’s efforts to regain Taiwan is also accompanied by a steady outpouring of nationalist appeals in the official media.

An overview of Chinese foreign policy since 1947 would reveal that it remains one of the most fluctuating foreign policies of our time. The policy of leaning towards the Soviet Union and the socialist bloc in the fifties was succeeded by developing solidarity with national liberation movements all over the world in the sixties. In the context of the Sino-Soviet schism, the latter was accused of being revisionist for advocating peaceful coexistence. When the differences with the Soviet Union developed into a full-scale conflict, China beat a strategic retreat and opened channels for rapproachment with the United States. The Soviet Union then was condemned as social imperialist and the main source of international conflicts. Abandoning its solidarity with oppressed nations, China developed full diplomatic political relations with most authoritarian regimes in the Third World.

It has been primarily the state’s perception of national security that is the core element in the above-mentioned conflicts. They largely influenced popular imagination and found entry to popular culture, forming the subject for film, drama, poetry and song. This is an intricate process in which goals of state nationalism and popular imagination reinforced each other. In China the state’s mobilisation of popular support against foreign threats often appeals to Han history and symblls, thus constructing a nation as defined as Han. This contrasdicts the ideological pretensions of the Chinese state that portrays the PRC as a multinational community.

A close look at the rhetorical discourse of Chinese nationalism since the eighties to the present would suggest that state nationalism of the PRC has bidden farewell to its 1950-51 archetype. The aggressive tone of foreign policy pronouncements, official propaganda and state-promoted demostrations has markedly waned down in the last two decades. Between 1949 and 1969 the state’s nationalism was most intense. Its call for national defence during the Korean War, tension in the Taiwan straits and the conflict with the Soviet Union had struck a responsive chord in the minds of the people. But later the PRC sought to accommodate itself to the realities of the new world order and it has redeemed itself from the politics of mass mobilisation.

STATE NATIONALISM AFTER THE FALL OF THE SOCIALIST PROJECT

In this context, it would be relevant to examine the changes that swept over the ideology of the CPC since the inauguration of economic reforms. The breaking down of the Maoist grand theory, both as the official orthodoxy and as the dominant ideology in society, by the late seventies only deepened the crisis of the people’s faith in the Chinese party-state. Against this backdrop, the post-Mao CPC leadership under Deng Xiaoping initiated a set of new social and economic policies by which China deviated decisively from the original vision of the Chinese revolution. These policies have brought about far-reaching changes in the structural relations of economy, culture and politics. The CPC has redefined its own historical project. The most important element in this programmttical and rhetorical shift was the abandonment of the original vision of the Chinese revolution. What the CPC and official media celebrated was an idea of modernity without making any reference to the position of social classes. As China slowly integrated itself into the global economy, it brought into the open widening social disparities. A new social strata comprised of senior Party bureaucrats and private entrepreneurs emerged as a power elite having enormous political and social capital. But on the other hand the liberalisation process has made the Chinese working class politically powrrless and materially impoverished. The state did not acknowledge these irreconcilable social cleavages. The official rhetoric moved increasingly towards the celebration of what is called ’modernisation’.

As a response to the open door policy the global corporate attention turned swiftly towards China. Factors such as an immensely huge market, cheap labour and political stability have made China an irresistible destination for the transnational corporation. Along with massive foreign capital inflow came the Western ideas of liberal democracy, human rights and citizenship. And, on a wider canvas, the most compllling influence on Chinese society was the fascinating cultural rhetoric of the West. Nike and blue jeans, discos and electric guitars, Coke and McDonalds, all made a tremendous impact on the psyche of the post-cultural-revolution youth in China. For them it was much more than an attempt to be trendy. It offered, above all, prospects for a ’great escape’ from the social suffocation under a repressive system. China’s tryst with late-twentieth-century Western culture and capital turned socialism upside down. Maoist China stood on its head.

This process of Westernisation got under way swiftly, before Party hardliners could wake up to reality. As Orville Schell noted, it represented a powerful symbolic rejection of everything for which China’s communist revolution had strived since the twenties as well as a refutation of everything in traditional Chinese culture.¹⁰ At a time when the CPC was relying increasingly on the ideology of nationalism and was frequently invoking the ’glorious past’ of the nation in an effort to fill in the intellectual vacuum created by the loss of faith in the official orthodoxy, the Westernisation of Chinese popular culture seemed to be an anathema to the party-state.

However, all these social processes produced evocative counter-currents from not only the CPC establishment, but China’s cultural producers and academic intellectuals as well. This provided a perfect historical conjecture, which paved the way for a different kind of national imagination within Chinese society. A host of popular cultural products, which appeared in the eighties, echoed this trend. In these works China was represented as a nation ruthlessly humiliated by Western imperialism after the Opium War. It was the military and spiritual weakness of Chinese society that had made it easy prey to aggressive foreign powers. The new generation of intellectuals through their works showed a strong urge for national independence and strength. The mass sentiments longed for powerful national icons. To an extent the early nineties nostalgia for Mao Zedong was a reflection of those sentiments.

THE SPECTRE OF PEACEFUL EVOLUTION

During the early years of the nineties, China was negotiating with a difficult historical phase, one that brought the People’s Republic face to face with an uncertain future. The popular overthrow of the Soviet Communist Party and the consequent crumbling down of the Soviet empire loomed, at least symbolically, over Zhongnanhai. Within the country reforms have not yet facilitated desired economic growth. Dissent was clearly articulating more wider dis-senchantment with the Party establishment. Against this background the CPC leadership took recourse to alternative rhetorical constructs to regain control over popular consciousness.

This crisis in fact emanated from the way in which political power has been organised under the Communist Party in China. What has been questioned from within was the very legitimacy of the monopoly of power by a highly centralised Party apparatus. What has been broken was the promise held out by an official utopia for half a century. It was a crisis for which the Communist Party owns the largest share. However, without seeking answers to these questions, the Party elite took recourse to a dramatic and effective discursive strategy that had an appeal in Chinese society. The principal thematic component of this strategy was an invented theory of ’peaceful evolution’.¹¹ And its objective appears to be that of creating a sense of collective danger faced by the entire Chinese nation.

’Peaceful evolution’ points at a grand conspiracy hatched by the international bourgeoisie to subvert socialist systems through political, economic and cultural infiltration, and influence. This plan, said to have been conceived originally by the United States in the fifties, in a way acknowledges the difficulty in overthrowing socialist systems by force. As the military defeat of socialism proved impossible, the US-led Western imperialism used a different ploy of encouraging political changes in socialist countries. They used aid, tourism, and their cultural products and values to influence populations of other Third World countries. In the face of this perceived danger, the Propaganda Department in the early nineties issued an appropriate warning to the nation that the US had turned its political and military strategy away from Russia to China, the last surviving major socialist system in the world. And after it succeeded in bringing down Soviet socialism, the US would now attempt to subvert the Chinese system. Baogang He and Yingjie Guo observed that this conspiracy theory may well be a propaganda ploy, but it serves the purpose of galvanising the Party and society into believing that it endangers not only the Party but the whole nation.¹²

The popular upheavals and the subsequent collapse of socialist regimes in Eastern Europe has been presented as a case of ’peaceful evolution’ by the official Chinese media. The Tiananmen democracy movement in 1989 was also port-rayed as a similar attempt on the part of capitalist countries and the danger faced by Chinese socialism was made out to be more real than ever. Solidarity and support to students in Beijing from Western countries has been interpreted as a case of incitement by the international bourgeoisie to subvert socialism. Condemnation across the world of the military crackdown of students on 4 June and sanctions that followed against China by many Western countries were perceived as a concerted international offensive against China.

The trouble with the theory of ’peaceful evolution’ is that it neither explains the collapse of the erstwhile Soviet and East European regimes nor describes Chinese popular protests accurately. The main flaw of this notion is not its substance but the time and circumstances of its deployment. During the momen-tous advancement of communist movements across the world, the United States aggressively pursued a policy of containment against it. In many Third World countries budding left-wing movements and popular regimes had been subverted with the active involvement of US undercover agencies. In the sixties and seventies US-dominated international credit agencies sanctioned loans with strings attached to them, which finally pushed those recipient countries in to a serious dept trap. For a half a century of world politics, dominated by the rhetoric of the Cold War, these conflicts have been the defining element.

But today, to call forth the ghost of a former enemy, especially when economic reforms look forward to foreign capital, especially that of the US, this is a problemttical proposition. Further, the popular overthrow of ruling communist parties from power in the East has made Cold War politics irrelevant in the scale and intensity pursued earlier. More significantly, Chinese economic reforms have set in motion a social process that has substantially changed the very nature of Chinese society from within. It is highly unlikely that the US will try to destabilise China, thus putting its huge volume of investment in peril. In fact it is the same international bourgeoisie that is at present playing a significant role in China’s economic achievements.

REDISCOVERING THE ’NATION’ IN THE TIME OF GLOBALISATION

The fall of official utopia and the loss of popular faith in Marxian-inspired visions for the future moved the CPC towards an intricate historical stage. This process that uncoupled Party ideology and contemporary Chinese social realities was in fact set in motion much earlier. With the passage of time, the change of circumstances and mortal departures of leaders, official rhetoric and popular imagination traversed in different directions. The language and categories of state socialism no longer represent or explain social realities of the period. However, successive Party congresses attempted, often in vain, to make sense of an array of socialist terminologies to get across to an indifferent populace. Then to tide over this period, where economic progress and protest movements emerged simultaneously, the CPC moved away from its hitherto identifiable discursive realm. This shift facilitated the official rehabilitation of traditional culture, and the Party tried to redifine the national self in terms of an unbroken lineage of Chinese culture from the imperial past to the republican present. After seven decades of iconoclastic criticism, the old culture was reclaimed by the heirs of a communist revolution as their cherished legacy. To quote Li Rui-huan: ’China’s national culture is long standing, well established, rich, profound and influential…. Our ancestors have bequeathed us extremely rich and precious cultural legacy which we should cherish, protect and expoore.’¹³

The 1991 school curriculum revision also points at this change. In March General Secretary Jiang Zemin instructed the State Education Commission to initiate a nationwide programme of improved education. It offered a comprehensive view of how the CPC elite defined national identity at that juncture.¹⁴ In a way it was yet another instance of central guidelines on educating students on Chinese history and culture. It was not intended to be a separate subject to be introduced in schools. Instead, this programme attempted to inculcate a new sense of belonging to the nation among Chinese students. An idea of socialist patriotism was intricately weaved into the existing curriculum. The programme is divided into six main chapters. An unusually romanticised title introduced pre-modern history, ’Five Thousand Years of Splendid Chinese History’. This is a radical departure from the Chinese communist historiography till then. The period from the Opium War to Liberation (1840-1949), which forms the content of the second chapter, is typical of this nationalistic undertone. Titled ’The Humlliation of More than a Century of Invasions, and the Struggle to Save the Country from Destruction’, it is full of the new nationalist discourse being presented. Here it is significant to note that the emphasis is more on the evils of Imperialism rather than feudalism. Chapter three is on the post-Liberation era, ’The Peoples Republic Opens up for Progress: Gigantic Changes in the Holy Fatherland for More than Four Decades’. According to Clausen, the revised programme of education defined Chinese national identity in terms of three constructs, ancient civilisation, anti-impeiialist resistance and great power status.¹⁵

Within China, nationalism as an idea and a sentiment have been expressed in different ways. Social and political groups drawing inspiration from diverse sources have been articulating a national self of their choice. Yongnian Zheng identifies Chinese nationalism at two levels, official and popular. For him, this separation is important and is critical of Western scholarship, which tends to consider both as identical expressions.¹⁶ But the powerful leitmotif in the CPC’s nationalistic rhetoric is patriotism. This new vision of patriotism as elaborated by the regime has three elements: economic development, political stability and national unification.¹⁷ Shuisheng Zhao argues that the CPC’s assertion as the paramount patriotic force and the guardian of national pride is a means to establish legitimacy to sustain its role.¹⁸ Apart from the CPC and its propagandists, the most eloquent voice of Chinese nationalism has been its intellectuals. In the nineties a whole spectrum of educated Chinese, from social scientists to technocrats, became conscious articulators of nationalism. An important question that haunted the minds of many was locating the West vis-a-vis China. Moden China’s encounter with the West has always been a problematic affair. The Liberation was followed by a tempestous anti-imperialist clamour that died down only in the late seventies. In the post-reform period two competing perspectives tried to appropriate the imagery of the West, especially that of the United States. Official propaganda portrayed the West in a pejorative way and made it out to be the hostile ’other’ of the Chinese nation. In so doing the CPC reformulated and made use of many themes from ’peaceful evolution’. The other popular perception of the West was markedly different from that of the state. According to Shuisheng Zhao, this is largely because of general disillusionment with official propaganda.¹⁹ The popular mood for the most part tended to believe just opposite to what the CPC propagandist was trying to convince them. So much so, for many Chinese the US became an object of desire rather than hate. But this Chinese Ociidentalist romance was shortlived.

In the nineties, owing to a host of factors, Chinese popular perception of the West underwent a sweeping change. It began to share and even converge with the official portrayal. Young Chinese writers of various persuasions came around to the view that generally coincided with the CPC’s anti-American grandiloquence. A number of books published by these authors become bestsellers. These writers criticised Western countries in no uncertain terms. Among them the most aggressive one in terms of tone and content was China That Can Say No, jointly written by young intellectuals, Song Qiang, Zhang Zhangzang and Qiao Bian in 1996. Modelled after the famous 1991 tract by the Japanese nationalist Shintaro Ishihara, A Japan That Can Say No, the authors of the book declare the moment right for China to stand upright in world politics. Their banal approach to and naive prescriptions for foreign policy choices in the post-Cold War era is evident from the two passages quoted below:

Since the Opium War, this ’No’ has been spoken out, but it is only up to now that this word possesses a force that cannot be ignored. China can say No. To say it now is right on time. If we don’t say it now, we will be mis- judged as speechless after [being] beaten up. If we don’t say it now, it’ll mean that we are waiting for the next beating. If we don t say it now, it means betrayal to righteousness and just [ice]. In summary, if we don’t say it now, it’ll be meaningless to say it later on. What can happen to China if we say NO?²⁰

What forces can shake and destroy a great nation which dared to build the Great Wall on top of mouttains? There is none and there could be none. After all, history has advanced to this moment, the moment that [the] Chinese cannot be humiliated or taken advantage of.²¹

For them, Beijing’s defeat in its bid for the 2000 Olympics (though it succeeded later for 2008) and the sending of US aircraft carriers to defend Taiwan were instances of the West against China. At the same time they were also pugnacious about the popular reverence to the US and lack of nationalist spirit in China. The book generated different kinds of responses from within China and abroad. New York Times’s (4 September 1996) comment, ’Anti-Western Nationalism Sweeping China’ was the characteristic response of the Western media. In China the book provoked widespread discussion on the future direction of the nation. Despite being a bestseller, it was subjected to serious criticism. A commentator, Luo Ning, dismissed China That Can Say No as a modern reprint of plain old moralism of a century ago. To quote:

What we are witnessing in this book is a resurgence of a dark side of modern Chinese psyche. If I can’t beat you with my hands, I’ll beat you with my mouth. It has nothing.to do with nationalism. It is a modern reprint of the plain old moralism a century ago. …if it was a tragic sign of the mental weakness of a dying dynasty a century ago, this time the resurgence looks just comical.²²

Since the early nineties there have been clear suggestions of a growing disenchantment of the Chinese popular mind with Western nations. Suisheng Zhao attributes this phenomenon to nationalist sentiments in the Chinese intellectual In fact this new sensibility set on fire a much wider and collective outpouring of nationalist feeling. Nevertheless, what had emerged out of these reactions was a conservative ideological construction of nation that uncritically supported state nationalism.²³

CONCLUSION

As it has been noted above, diverging perspectives have explored the interpretative possibilities of Chinese nationalism. In fact, Western scholarship has shown a special interest in the subject recently. These writings have of course enriched the China field with incisive comments and useful data. But what is most intriguing is a growing tendency to represent China as an aggressively nationllistic regime. As a result, an invented China threat theory is in great demand as well as in circulation. It appears that this view, of nationalism fuelling conflicts, originates more from the European experience of nationalist wars than from the political and economical realities of contemporary China.

In this context 3. few observations in way of an attempt to locate Chinese nationalism seems appropiiate. The process of economic reforms and globalisation have made an enormous impact on popular culture, which in turn has eroded the efficacy of official ideology. The early phase of the reforms had brought about changes in social relations and cultural practices that set off to ransack the ethos of both socialism as well as traditional culture. What animated Chinese society at that juncture was questions of wider political rights and avenues for expressing accumulated discontent than any considerations on the ’nation’ as a shared historical experience. There had also been a strong tendency to re-examine China’s destiny in terms of Western capitalist modernity.

But owing to a set of factors, all these had to change in the early nineties. The CPC sailed through the crisis that originated from the popular removal of East European regimes, mainly with extensive use of coersive agencies against dissenting voices. But the way in which public institutions crumbled and the utter anarchical helplessness that convulsed the erstwhile Soviet bloc poised a tragic question mark over the premature demise of a ruling communist party. It is in this context that popular mood in China moved closer towards an idea of stability, which underpinned the vanguard role of the CPC. This turn of course was further influenced by the promise of economic development that looked more real than ever before.

The PRC emerged as an important state in the post-Cold War international politics and economic transactions. From the periphery of Third World underdevelopment China’s march towards high-rate capitalist growth was unprecedented. It seems that an idea of the nation as a collective sense of belonging is being rediscovered at this period as a defining element of the new Chinese identity in the post-socialist era. It can be understood in terms of an emotional link with the homeland, territory, language and culture. And this nationalism, contrary to what many Western authors are trying to characterise, does not belong to the nationalism of the aggressive kind. For the party-state the language of nationalism is a rhetorical construct fine-tuned to the popular mood that will help re-establish it as the vanguard force in the country.

Notes:

1. The emergence of Chinese nationalism as a key area of China research is a recent trend spearheaded mostly by the Western scholarship. This growing body of literature provides insightful observations on the subject but at the same time advances formulations that have serious implications. Although written from diverging perspectives, these works share a larger concern about the strengthening position of China in international relations as well as the way in which the regime derives its legitimacy from within. For example, see Micheal Oksenberg, ’China’s Confident Nationalism’, Foreign Affairs, Vol. 65, N.. 3, 1987, pp. 501-3; Allen Wiiting, ’Chinese Nationalism and Foreign Policy after Deng’, The China Quatterly, No. 142, 1995, pp. 295-316; and Lucien W. Pye, ’How China’s Nationalism was Shanghiied’, The Australian Journal of Chinese Affairs, No. 29, 1993, pp. 107-33.
2. David Beetham, ’The Future of the Nations States’, in Gregor Mc Lennan, David Held and Stuart Hall (Eds.), The Idea of Modern State (Milton Keynes: Open University Press, 1993), p. 219.
3. Joseph Levenson, Confucian China and its Modern Fate (Berkeley: University of California Press, 1968).
4. Torbjorn Loden, ’Nationalism Transcending the State: Changing Conceptions of Chinese Identity’, in Stein Tonnesion and Hans Antlov (Eds.), Asian Forms of the Nation (Curzon: Richard Surry, 1996), p. 279.
5. Ibid., p. 285.
6. Sun Yat-Sen, San Min Chu I: The Three Principles of the People (translated by Frank W. Price, edited by L.T. Chen) (Chunking: Ministry of Information, 1943), p. 6.
7. John Fitzgerald, ’The Nationless State: The Search for a Nation in Modern Chinese Nationalism’, in Jonathan Unger (Ed.), Chinese Nationalism (Armonk: M.E. Sharpe, 1996), p. 57.
8. Ibid., p. 71.
9. James Townsend, ’Chinese Nationalism’, in Unger, op. cit.
10. Orville Schell, Discos and Demccracy: China in the Throes of Reform (New York: Anchor Books, 1989), p. 276.
11. See, for example, Deng Xiaoping, ’We Must Adhere to Socialism and Prevent Peaceful Evolution Towards Capitalism’, in Selected Works of Deng Xiaoping, Vol. 111 (Beijing: Foreign Languages Press, 1994), pp. 333-34.
12. Baogang He and Yingjie Guo, Nationalism, National Identity and Democratisation in China (Aldershot: Ashgate, 2000), p. 31.
13. Li Ruihuan, ’National Culture Important for Literature to Flourish’, Beijing Review, Vol. 33, No. 9, 1990, p. 13.
14. Soren Clausen, ’Party Policy and National Culture: Towards a State-Directed Cultural Nationalism in China’, in Kjeld Erik Broadsgarad and David Strand (Eds.), Reconstructing Twentieth-Century China (Oxford: Claredon Press, 1998), p. 268.
15. Ibid., p. 270.
16. Yongnian Zheng, Dsco ering Chinese Nationalism in China: Modernisation, Identity, and International Relations (Cambridge: Cambridge University Press, 1999), p. 87.
17. Ibid., p. 91.
18. Shuisheng Zhao, ’Chinese Intellectuals Quest for National Greatness Nationllistic Writings in the 1990s’, China Quatterly, No. 152, 9 December 1997, p. 725.
19. Ibid., p. 730.
20. Quoted in Luo Ning, ’Nationalism or Moralism: On “China Can Say No’’, CCF9646 (Wednesday, 25 September 1996), pp. 1-2.
21. Ibid.
22. Ibid.
23. Shuisheng Zhao, op. cit., p. 731.

By TG Suresh

(Source: CHINA REPORT 38: 1 (2002))

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For most of the twentieth century, China was an international nullity. The sordid remains of a once proud imperial court were pushed overboard by a nationalist revolution, but the result was divided warlord rule rather than a modern democratic state. Decades of conflict ensued among the murderous Japanese invaders, incompetent and corrupt nationalists led by Chiang Kai-shek, and brutal Chinese Communist Party (CCP) cadres, headed by Mao Zedong. The new regime’s international influence was limited. Mao’s bizarre economic theories and bitter political feuds convulsed party, state, and people. Once Beijing fell out with the Soviet Union, China’s foreign reach shrank even further.

But the PRC’s potential remained. The nation possessed the world’s largest population and its people were entrepreneurial successes around the world. China boasted an ancient and proud civilization which once had dominated East Asia. All that was necessary was to release China’s people from the strictures of totalitarian communism. Mao’s death more than thirty years ago began that process.

Today the PRC is a dramatically different country. Hundreds of millions of people have moved out of immiserating poverty. Private businesses have proliferated. An independent sector has arisen. Although the authorities maintain the CCP’s political monopoly, other aspects of the once totalitarian system have weakened: even religious liberty has expanded, despite continuing persecution.

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But Beijing’s growth poses a significant challenge. The economic benefits of China’s integration into the international trading system have been enormous. However, the PRC is presenting an alternative authoritarian model rather than joining the democratic West. And Beijing increasingly is asserting itself and building a military to match.

The Pentagon annually issues a report on Chinese military outlays. Although the Department of Defense has eschewed alarmism, its latest publication noted: “much uncertainty surrounds China’s future course, particularly regarding how its expanding military power might be used.” The latest National Intelligence Strategy warned that China’s “increasing natural resource-focused diplomacy and military modernization are among the facts making it a complex challenge.”

Yet however impressive the PRC’s recent military parade “involving 8,000 personnel and 151 planes” Beijing remains far behind the United States. Washington starts at a much higher base. The American armed forces are the most capable on earth. U.S. ground forces are better trained, equipped, and prepared than those of China.

Washington’s nuclear arsenal is far larger and more sophisticated. U.S. air power is without peer. America possesses eleven carrier groups compared to none for Beijing.

Nor will it be easy for China to catch up. Especially since PRC military outlays remain far behind those of America. U.S. defense spending in 2009 (the fiscal year ended September 30) ran roughly $700 billion. That’s about seven times estimated Chinese expenditures. Subtract war outlays and the U.S. government still devotes roughly five times as much to the military as does Beijing. Even if the latter accelerates its military modernization, it will take years if not decades to match America’s outlays, let alone move into the lead.

Thus, to talk about China as a security threat in the near- to mid-term verges on the bizarre. That doesn’t mean Beijing poses no challenge to the U.S. government. The PRC will soon threaten American domination of East Asia.

The real issue is America’s ability to attack the PRC. Observes former Pentagon official Chas Freeman, the Chinese “have no intentions of fighting a war in the United States, but we have done a lot of planning about fighting them on their territory.”

But possessing the ability to attack China at will is not the same as the ability to defend America against all comers. The latter is the military’s central mission. The former is convenient, not essential, and mostly benefits America’s friends and allies rather than America. As Washington’s post Cold War dominance ebbs, it will be much harder for the United States to intervene on behalf of other nations.

Today America’s security guarantees appear to offer a free lunch. Washington need merely threaten to go to war, and any potential adversary is expected to back off. But China is creating a military that can deter U.S. intervention.

Beijing doesn’t have to be able to defeat America. The former doesn’t even have to match the U.S. military. China merely need create sufficient risk to prevent Washington from using its superior forces. There has, for instance, been near hysteria in some circles about the possibility that Beijing might equip one carrier. Notes Peter Singer of the Brookings Institution: “the military dynamic in the Pacific is changing. But it is not because the Chinese may one day gain a small number of their own, far-worse aircraft carriers. It is what they are planning to do to overcome our own aircraft carriers and other traditional strengths.”

To forestall American intervention, the PRC is developing nuclear force sufficient to prevent Washington from attempting nuclear coercion, an arsenal of missiles and subs to sink U.S. carriers, and asymmetrical warfare capabilities to blind American satellites and fry American electronic systems. The ultimate result, in the words of Daniel Blumenthal of the American Enterprise Institute, will be to raise “the costs to us of accessing the region to defend our allies and help keep the peace.”

That price already is rising. For instance, Reuters reports: “American naval strategists are concerned that China may have developed an anti-ship ballistic missile, a Dongfeng 21-D, that could force U.S. aircraft carriers to keep their distance in the event of an attack on self-ruled Taiwan.” Similarly, notes the Director of National Intelligence, Dennis Blair ,”China is very aggressive in the cyber-world.” To acquire these capabilities Beijing need spend far less than Washington will have to spend to overcome China’s growing capabilities.

But a U.S. retreat need not leave America’s friends helpless. Rather, they should do much more on their own behalf. For instance, though current bilateral relations have been improving, Taiwan is the most likely target of an attempt at Chinese coercion. But Taipei need not sit naked next to its big neighbor. Taiwanese Prime Minister Wu Den-yih recently observed: “Taiwan needs to ensure it has strong defense (against China), so it is necessary to continue to procure weapons to achieve that goal.” The United States should fulfill its promises to sell Taiwan the necessary weapons.

Japan, with an economy that remains larger (on an exchange rate basis, at least) than that of the PRC, could do far more. In recent years Tokyo has been adopting a tougher stance towards Beijing. With a new party taking power, the Japanese government has a unique opportunity to reconsider Japanese foreign policy. The Democratic Party of Japan appears inclined to tilt more towards the PRC, but a shift in U.S. policy might change the DPJ’s attitude. Paul Giarra and Michael Green, of the group Global Strategies & Transformation and the Center for Strategic and International Relations, respectively, recently observed: “U.S. officials will have to lay out constructive thinking in Tokyo about how to add more capability in the U.S.-Japan alliance. The U.S. should have serious talks with its allies about gaps in strategic defenses caused by the Chinese military’s build-up.”

But these negotiations should emphasize devolution. The U.S. should suggest that Tokyo consider its options in a world in which Washington no longer maintains bases, troops, and fleets on station to fight for the security of prosperous, populous nations that have grown used to being subsidized and protected by America.

So, too, South Korea. The Republic of Korea (ROK) enjoys about forty times the GDP and twice the population of North Korea. As the ROK looks beyond the Korean peninsula, it should work with Japan and the ASEAN states to create an environment which encourages the PRC to rise peacefully, as Beijing has promised. Historically China has been cautiously assertive, not recklessly aggressive. The better armed and more willing to cooperate with their neighbors, the more likely America’s friends will be to deter conflict—without relying on the U.S.

The outcome of the twenty-first century depends much on the nature of the relationship between the globe’s superpower, the United States, and the globe’s likely next superpower, China. America’s rise transformed the international order without causing world conflict, while Germany’s ascent triggered two global conflagrations. Will the existing international order “and particularly the United States” successfully accommodate the PRC’s growing influence?

Washington has vital interests to protect, but not all of its interests are vital. Defending American territory, liberties and people at home is essential; ensuring dominant American influence half a world away is not. And doing the latter at acceptable cost will grow ever more difficult. By spending a fraction of America’s defense budget Beijing is constructing a military able to deter U.S. intervention against China. To overcome this force Washington will have to spend far more, money which it does not have. It is one thing to ask the American people to sacrifice to defend their own nation. It is quite another to demand ever higher financial exactions to protect populous and prosperous allied states. Especially since an increasingly wealthy and influential China is unlikely to retreat gracefully and accept perpetual U.S. hegemony.

With China on the move, DoD observes that “The United States continues to work with our allies and friends in the region to monitor these developments and adjust our policies accordingly.” But the resulting policy adjustment should be to reduce America’s international ambitions rather than increase America’s military spending. Even as President Obama seeks to improve Washington’s relations with the PRC, the United States should replace dominance with defense as the core of its foreign policy.

By Doug Bandow

(Source: The National Interest, 12/10/09)

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