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Economics and Finance

Trump’s reflexive impulse to reach for superlatives will doom his Iran sanctions regime

Trump’s reflexive impulse to reach for superlatives will doom his Iran sanctions regime

Trump’s inclination to invoke superlatives to demean persons he does not like and to praise himself or persons he likes is well documented. Almost all his short and long statements would include some superlatives.
His tweet announcing the start of the Iran sanctions is no exception.

The Iran sanctions have officially been cast. These are the most biting sanctions ever imposed, and in November they ratchet up to yet another level. Anyone doing business with Iran will NOT be doing business with the United States. I am asking for WORLD PEACE, nothing less!

Logically, if these are “the most biting sanctions ever imposed”, how can they be even more so in November? Logical consistency aside, let’s assume that this round of sanctions is “very biting” and the next round will make them “the most biting” sanctions ever. The stated goal of the administration is to reduce Iran’s energy export (oil and gas) to zero. Of course, reducing the sales of something the Iranian government depends on to zero will be unprecedented, and will deserve the superlative descriptor should it be achieved. However, we already know that that will not happen because three of the top energy buyers, China, India, and Turkey have stated publicly that the sanctions are outside the UNSC and as such they are unilateral, they were imposed in contravention to a deal endorsed by the UNSC and signed by the P5+1, and they encroach on national sovereignty of other nations, and as such these states will not abide by the new and re-instated US sanctions. In other words, they will continue to purchase Iranian oil and natural gas, not to do Iran a favor, but to protect their own national interests.

As to sanctions related to other services and products (auto parts, banking, and gold, etc…), that, too, may not achieve the sated goals. In fact, it may backfire.

On the day the first round of sanctions took effect, EU Foreign Policy chief Federica Mogherini, after having spoken to Iranian officials, said the following: 

“We are encouraging small and medium enterprises in particular to increase business with and in Iran as part of something that for us is a security priority.”

This is very important. Aware that US secondary sanctions (sanctioning companies that deal with Iran) would discourage large companies with complex and large operations in the US from doing business with Iran, EU leaders are willing to offer added incentives to small and midsize companies to do business with and in Iran. This means that smaller companies that do not have no economic ties to the US or have no significant operations and investments in the US would be encouraged (through economic, financial, and legal incentives) to do business in and with Iran. Moreover, the EU leaders also threatened EU companies with sanctions if they abandon deals with Iran.

Should these sanctions last longer than the current term of the US president, the EU measure could offer larger companies the loophole they need to evade US sanctions. They could sell their interests and investments in Iran to these companies, or they could spinoff some operational divisions to avoid EU sanctions. 

Iran does not seem to have any interest in the US market or in US companies. Their priorities is to remain connected to the global market. The EU legal and economic measures such as increasing small companies (and privately held ones) to do business with Iran will allow the latter to remain connected to the global market, which would allow them to focus on their more reliable partners like China, Russia, India, and the Koreas. 

As Harley-Davidson, Inc. reminded us when it announced it was moving some production out of the US and into the EU to sidestep paying high tariff, large business companies have a responsibility to their shareholders not to politicians. They are, by nature, multi-national. In other words, they will seek profit wherever they can find it and move all or some of their operations to any country that would maximize their profit. 

In this particular dispute, it would seem that the world community’s interest in global security (limiting nuclear proliferation) favors upholding the Iranian deal. Given its track record thus far, this administration is motivated, in part, by undoing the legacy of its predecessor. That is not a basis for building and preserving international alliances and credibility. None of the signatories to the deal said that the Iran Deal was perfect, as are all other negotiated multilateral deals. Some Iranian leaders, too, were not happy with some of the terms of the deal. But this US administration is victim of its own quest for superlative goals. That may be a good business strategy. But it is not a practical political strategy. 

In the end, the all-or-nothing approach to Iran may lead to the only logical result: nothing. Because in politics, the domain of compromise, the quest for superlatives is a liability, not an asset.

Ref. Iran Deal

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What qualifies financial services or products to be sharia-compliant?

What qualifies financial services or products to be sharia-compliant?

Economists specializing in the study of Islamic finance and economics have reduced Islamic laws governing financial and economic transactions to two: proscription on receiving or paying “interest” and mandating that investors and developers (lenders and borrowers) share the gains and losses of the enterprise in which they are more or less partners. This theory is widespread but it is based on a very basic, and perhaps outdated, understanding of the primary sources of classical Islamic law. Moreover, most of the works and publications advancing this perspective are built on secondary sources and rarely engage primary materials. This essay challenges the ideas and approaches behind this perspective and proposes a model that takes into consideration the need to protect the poor and the desire to make profit, which is the motivating force behind a thriving economy.
While Islamic scriptures clearly prohibit profiting from the poor, supposedly sharī’ah-compliant Islamic financial and exchange laws circumvent prohibitions and limitations on ribā, monopolism, debt, and risk while failing to address the fundamental purpose behind the prohibitions—mitigating poverty. This study provides a historical survey of the principles that shape Islamic finance and exchange laws, reviews classical and modern interpretations and practices in the banking and exchange sectors, and suggests a normative model rooted in the interpretation of Islamic sources of law reconstructed from paradigmatic cases. Financial systems that overlook the nexus between poverty and usury harm both the economy and poor and middle class consumers and investors rather than addressing the causal relationship between interest-charging models and poverty. This study shows how Islamic Financial Institutions (IFIs) have failed to meet the social requirements they were intended to address and also presents a theoretical framework for Islamic finance and exchange laws that proscribes usurious transactions involving people caught in the cycle of poverty and need.

Review of the 2016 G20 summit in China

Review of the 2016 G20 summit in China

Leaders of counties that are said to be the top 20 economies in the world met this weekend in China. We would like to summarize what happened and where each country stands–literally–relative to key global issues. It is said that a picture is more eloquent than a thousand words. In this particular case, the photo does in fact say it all. So here is our review in one thousand words:

Need help with context, consider Christopher Miller’s interpretation of the same photo:

Turkish and Russian leaders can no longer compartmentalize their relations

Turkish and Russian leaders can no longer compartmentalize their relations

by Ahmed E. Souaiaia*
Turkey’s president may have pushed the reset button of his country’s relations with Russia, but it will be a while before he can reap economic benefits.

Reason for Putin wanting gradual restoration of economic ties with Turkey: Russia cannot help rejuvenate the Turkish economy to enable the Turkish government to kill Russian soldiers (and abuse their corpses) in Syria by proxies

In 2011, the sudden protest movement popularly known as the Arab Spring triggered fundamental changes in the political and social landscapes of the Middle East—not just the Arab world as the name suggests. Turkey’s government, like many others around the world, did not know how to react at first. Erdoğan, as his country’s prime minister and then president, supported the Tunisian revolution, wavered in his support for the Egyptian president before committing to supporting the Muslim Brotherhood, and opposed NATO’s war on Libya’s Muammar Qaddafi. When peaceful protesters took the streets in some Syrian cities, Erdoğan, relying on a sectarian instinct and a nationalist impulse, offered Assad fifteen days to meet the protesters’ demands before he would cut all relations and put all his weight behind the Syrian opposition forces. A few weeks later, Turkey played a pivotal role in using Qatari and Saudi money and weapons to transition the protest movement into an armed rebellion committed to a single objective: overthrowing Bashar al-Assad. This role, to which Erdoğan committed himself, necessarily created a conflict for him with two other powerful neighbors and economic partners: Russia and Iran.
For the first four years of the Syrian crisis, the leaders of Turkey, Iran, and Russia thought that they could compartmentalize their relations. They could continue to strengthen their economic ties, while agreeing to disagree on Syria. That approach failed when it became clear that the differences between Turkey on one hand, and Russia and Iran on the other, in relation to Syria were more than disagreements. Iran and Russia have had long-standing strategic alliances with Syria for many years. In fact, two years earlier, Iran had signed a security deal with Syria that required each of them to come to the aid of the other should one be attacked. Russia has had a naval base in Syria since the days of the Soviet Union. With that being the case, it was not possible to compartmentalize, especially when all three countries were committed to preserving their interests in Syria and in the region.
So it was no surprise that all three countries were actively involved in Syria beyond what they publicly revealed. Russia and Iran first provided the Syrian government with weapons and economic assistance to help it weather the crisis, but Turkey took a direct role from the start of the conflict and allowed the free flow of weapons and fighters into Syria. By 2015, all three countries increased their involvement. Turkey provided training, control and command centers, and free flow of weapons and fighters to the opposition groups. Russia and Iran sent more military hardware and eventually fighter jets and military personnel to Syria. That escalation led to the crucial mistake on the part of the Turkish leaders.
Hoping to draw NATO deeper in the Syrian conflict, Erdoğan ordered a Russian bomber shot down. The crew ejected, but one member was killed by an armed group supported by Turkish security forces and partially staffed by Turkish citizens. This incident prompted President Putin to impose harsh economic sanctions that further stressed the slumping Turkish economy. Russia’s economic, rather than military, response to what they saw as an act of war rendered NATO useless in terms of assisting Turkey. Putin then insisted that economic sanctions would stay in place and might even be tightened unless Erdoğan formally apologized and took responsibility for downing the Russian fighter jet and killing the pilot. Erdoğan insisted that it was Putin who should apologize for violating Turkish airspace. Seven months later, with the Turkish economy in decline, Erdoğan sent a letter to Putin expressing sorrow and taking responsibility for the incident. Russian leaders welcomed the gestures and promised to ease some of the sanctions. But Erdoğan wanted more than easing the sanctions—he needed economic relations between the two countries to be restored to the pre-incident period or better. So he requested an earlier meeting with Putin than the one scheduled to happen on the sidelines of the G-20 in China in September of this year. Putin obliged and offered to meet him in Saint Petersburg on August 9.
Erdoğan’s eagerness to meet with his Russian counterpart was motivated by economic considerations, with all other interests being secondary. Russian leaders are also interested in boosting economic ties, but not in a way that will undercut their broader interests in the region. Consequently, the two sides went into the meeting with different priorities. However, it is clear that the Turkish side lacks the strategic thinking that would allow them to see the connection between the Syrian crisis and their national economic conditions. The Turkish economy’s growth was cut by almost 50% immediately after the Syrian crisis, and that correlation alone should be enough to convince Turkish leaders to address both their economic concerns and the Syrian crisis at the same time, not in isolation from one another. Failure to do so soon will undo the possible benefits of the apology.
There is a reason Erdoğan is widely popular in Turkey: since he and his party, AKP, won the first elections that allowed them to govern without the need for a coalition for nearly a decade and a half, he turned a slumping economy with a negative GDP growth rate—-5.7 in 2001—into a formidable global force. He attracted investors, rebuilt the infrastructure, and turned Turkey into a magnet for businesspersons and tourists. The results were impressive: Between 2002 and 2011, Turkey’s average GDP growth rate was 5.45.
The average GDP  in the last four years, since the start of the so-called Arab Spring (2012-2015), barely reached 3.33. The numbers for 2016 are worrisome. Turkey’s problem became tied to the Syrian crisis when Erdoğan took it upon himself to be the defender of the Syrian people against their own president: he threw his support behind violent groups allowing the flow of weapons and fighters into that country with the aim of overthrowing Assad’s government. Given the long-standing relationship between Russia and Syria, Turkish-Russian relations suffered, especially when Turkey shot down a Russian Su-24 near its border with Syria . The connections between the Syrian crisis, Turkey’s relations with Russia, and the health of the Turkish economy are compelling . Although Russia would benefit from economic ties with Turkey, Russian leaders have made the connection between long-term economic development and strategic alliances with other countries. With Russia soldiers now dying in Syria on the hands of fighters enabled, trained, and supported by Turkey, it would be reckless for Russia to fully separate economic interests and military and security matters involving Turkey. That is one of the main reasons Erdoğan returned from Russia practically empty handed, with only promises.
Russia will not shore up a Turkish economy that supports terrorists in Syria who killed Russian soldiers, abused their corpses, and threaten to kill more. For that reason, Putin insisted that the lifting of sanctions must be gradual. Russian thinking is long term: if Putin waited for seven months to receive Erdoğan’s apology, he is prepared to wait another seven months to see Turkey implement its commitments to fighting terrorism by sealing the border and stopping the flow of weapons, fighters, and stolen Syrian oil and goods.
Russians are prepared to fast-track the economic projects that are long term and delay the ones with immediate payoff for the Turkish economy until Turkey meets its obligations. Russia’s thinking was reflected in their plan to restart work on Turkish Stream pipeline, without shelving alternative projects involving other countries. The principle that Russian leaders are using to reset their relations with Turkey also favors restarting economic exchange that benefits the Russian economy and while delaying exchange that benefits the Turkish economy until Turkey changes its calculus on Syria. Russia is not conditioning its economic relations with Turkey on Syria because it cares about Assad, but because Turkey is indirectly killing Russians in Syria.
The other principle guiding Russia’s foreign policy in relation to the Syrian crisis was made clear during the press conference that Erdoğan and Putin held after their first meeting. Responding to the first question, Putin looked at his guest and declared:
“Our position is based on this enduring principle: It is impossible to achieve democratic change except through democratic means.”
Not only are these principles guiding Russia’s approach to the Syrian crisis making it difficult for Erdoğan to capitalize on his pragmatism, the consequences of his involvement in Syria are making it almost impossible to start from zero. Indeed, making amends for one jet and one pilot may cost him some political capital and about $25 million. Should Syria pursue legal action to force countries that supported military aggression and profited from looted goods and natural resources to pay reparations, Turkey could be on the hook for billions. Erdoğan was willing to apologize and normalize relations with Putin but not with not Assad because of the cost that might be associated with admission of responsibility in the destruction of Syria.
This is not to say that Turkey has no way out of its problem with Syria. Erdoğan could use Russia as intermediate partner to spend the next five years rebuilding what he helped destroy in Syria over the past five years. This indirect action could be the compromise that might actually work for all parties. The “coup” that Erdoğan wanted to launch against the Syrian government using genocidal fighters did not work, will not work, and may have inspired the failed coup against his government. He has this one opportunity that he had created when he apologized and took responsibility for downing the Russian plane; if unused, all will be for naught.
* Prof. SOUAIAIA teaches at the University of Iowa. His most recent book, Anatomy of Dissent in Islamic Societies, provides a historical and theoretical treatment of rebellious movements and ideas since the rise of Islam. Opinions are the author’s, speaking on matters of public interest; not speaking for the university or any other organization with which he is affiliated.

#IslamicSocietiesReview : Turkish-Russian relations in the context of the war in Syria and Turkish economy

#IslamicSocietiesReview : Turkish-Russian relations in the context of the war in Syria and Turkish economy

by Ahmed E. Souaiaia*
At one point last year, when the Turkish and Russian leaders had their last meeting, they had hoped that economic trade between their two countries would reach $100 billion. Turkish leaders also wanted to triple trade with Iran to $30 billion. Erdogan, the co-founder of the AKP that has governed Turkey for a decade and a half, knows the importance of economic growth for him to remain in power and shape the country’s future to his liking.

 The problem for Erdogan is that his economic agenda was in direct conflict with those two countries’ political and economic interests. Erdogan’s interests in Syria are mainly rooted in sectarianism and nationalism. So when Russia and Iran increased their military presence in Syria last September to protect their economic interests and defend religious minorities and sites, Erdogan lost his cool. He ordered his pilots to shoot down a Russian bomber claiming that it violated Turkish airspace–a claim denied by Russian military. Erdogan’s reasoning for taking aim at a Russian military asset–a first by any NATO member in more than 50 years–was difficult to decode. Perhaps he hoped that the downing of the Russian jet would force Putin to respond militarily, drawing NATO, in which Turkey is a member, deeper into the Syrian conflict. That did not happen. Instead, Putin relied on economics’ lever to punish Erdogan. Based on the final outcome, it would seem that Putin’s strategy worked.  After refusing to apologize and accept responsibility for shooting down the plane for seven months, Erdogan blinked. He did exactly what the Russian leaders wanted him to do.

The important fact is this: Russian-Turkish relations suffered because of the conflict in Syria and it can’t be amended without finding some common ground on that issue. Russia has nothing to offer since Putin’s position has been consistent all along: only Syrians can decide if Assad stays or leaves and priority should be given to combating terrorism . Erdogan, on the other hand, has insisted, as did the Saudi rulers (and Qatari rulers before them) on overthrowing Assad and his regime. The Russian position is politically and normatively correct. The Turkish and Saudi position is absurd. They argued that Assad lost legitimacy because Syrians are dying under his watch. If that is the standard for legitimacy, then how can the Turkish government that has killed more than 50,000 of its Kurdish citizens and the Saudi rulers who are killing children in Yemen (according to UN and NGO’s reports) and Syrian citizens (by arming opposition groups) dictate the fate of the leader of a sovereign nation?

Erdogan may have learned something from the Qatari ruler, Hamad: when you make an ultimatum and fail to achieve it, step aside. Erdogan will not step aside, of course. He thinks that he is exceptional. Instead, he forced out his prime minister, Ahmet Davutoğlu–the architect of zero-problem with neighbors’ doctrine. In doing so, he gave the public the illusion that any change in foreign policy will be due to the change of government. That way, he continues to take credit for positive outcomes and blame the negative outcomes on the government.

AKP’s formula for Turkey’s economic prosperity was based on the principle of “zero problem with neighbors.” Erdogan proved the efficacy of that formula when he violated it. Since he involved his country in the project of overthrowing the Syrian regime, Turkey lost all the significant neighbors: Syria, Iraq, Iran, and Russia, and that destroyed the Turkish economy. Consequently, amending ties with these neighbors requires a change in Turkey’s position on Syria. That much is clear.

Given the numbers of foreign fighters, militant groups, and weapons inserted in that country, Syria’s civil war might last for another ten years. By then, Assad will not be able to remain president as per new constitutional term limits. Can the Saudi or Qatari ruling clan promise that they will transfer power to elected governments in ten years? Erdogan, too, has risen to power thanks to his party’s reformed practices which imposed term limits on its leading members. After two terms as prime minister, he should have quit to honor that policy. Instead, he circumvented those limitations by assuming the role of an executive president without constitutional authority. He is now working backward, pushing to amend the constitution to retroactively bestow upon himself some legitimacy. While in power, he jailed critics, seized media outlets, prosecuted those who “insult” him, and killed peaceful protesters. These are not the practices of a legitimate democratic leader–they are the practices of a cruel megalomaniac. Would he appreciate a foreign leader calling for his overthrow?
* Prof. SOUAIAIA teaches at the University of Iowa. His most recent book, Anatomy of Dissent in Islamic Societies, provides a historical and theoretical treatment of rebellious movements and ideas since the rise of Islam. Opinions are the author’s, speaking on matters of public interest; not speaking for the university or any other organization with which he is affiliated.

Beyond terrorism: Sousse attack, economic development, fair trade, and dignity

Beyond terrorism: Sousse attack, economic development, fair trade, and dignity

by Ahmed E. Souaiaia*

The intent of those who planned and carried out the recent terrorist attack in Tunisia and the reactions to it, both underscore the idiosyncratic connections between economic development and terrorism. Importantly, the attack ought to remind us of the global nature and imperatives, not only of ISIL’s brand of terrorism, but also of economic development. Both problems, terrorism and lack of economic development in the Global South, must be confronted cooperatively, because European countries were indeed involved, directly and indirectly, in creating the kind of conditions that weaken their southern neighbors’ economies, which in turn have created the kind of environment most suitable for terrorism.

Zakaria Hamad

When 30 British citizens vacationing in the city of Sousse, Tunisia, were killed along with three Irish, two Germans, one Belgian, one Portuguese, and one Russian, the Foreign Office ordered all but essential travelers to leave that country immediately. Habib Essid, Tunisia’s Prime Minister, said that his government would help to evacuate approximately 3,000 Britons, but told Tunisia’s parliament that he was “dismayed by the advice from the Foreign Office.” The Tunisian government said the UK “was damaging the country’s economy,” which is heavily reliant on tourism, and may end up inadvertently fueling poverty and therefore terrorism. Oliver Miles, a former UK ambassador to Libya and Greece “found the [UK]’s response puzzling.” Other commentators and international affairs analysts contended that Britain was “wrong to bring tourists home” because it would weaken the only true emerging democracy in that part of the world.

Having just returned from Tunisia, I have had a chance to observe up-close life, the hopeful and fearful aspects of it, in that beautiful country. I have witnessed how ordinary citizens, bureaucrats and government officials, and business leaders are coping with the new reality of citizens’ mandated governance. It is clear that Tunisia deserves support from the global community for moral reasons, and deserves support from NATO countries for legal, political, and economic reasons.

The world community ought to support Tunisia because it is the only country in the region thus far that has managed to transition to representative rule without military coups, civil wars, and violent takeovers. Support for Tunisia means support for peaceful transfer of power, and serves the global community’s stake in political and economic stability.

More specifically, NATO countries have the legal obligation to stand by Tunisia because NATO, and its Gulf allies like Qatar, undermined Tunisian security when they launched the ill-planned bombing campaign against Libya. The two persons who carried out the Bardo and Sousse attacks were trained in Libya. Libyan weapons that were not secured after the fall of the Libyan government are now being used to destabilize Tunisia and other neighboring countries. In other words, NATO broke it, so NATO bought it.

Furthermore, NATO and European countries have a long history of supporting authoritarian regimes in North Africa, including the Tunisian and Libyan dictators. France sent its diplomats to show support for Ben Ali even as he was killing protesters in December 2010. Italy and other European countries paid off Gaddafi so that he could prevent African immigrants from reaching the European continent while continuing to deny his people basic political and economic rights. European countries must atone for their political and economic dealings with oppressive regimes.

European countries must also atone for decades of exploitation and unfair economic practices. Italy, for instance, used to buy Tunisian olive oil in bulk, process it in Italy, and ship it to the global markets as an Italian product. Agricultural, mineral, and other natural Tunisian resources were shipped to Europe for processing adding thousands of job opportunities to Europeans, denying them to Tunisian workers. 

Having considered these facts, let’s consider what Tunisians really want from their northern neighbors. Young Tunisian entrepreneurs and government officials want to be treated fairly and with dignity. They do not want handouts. They do not want loans. They do not want to be dependent on tourism or for European leaders to risk the lives of their citizens to shore up tourism in Tunisia. What they want is for the European leaders to encourage their powerful businesses and rich citizens who made some of their wealth through exploitation of African communities to invest in Tunisia and the Tunisian economy.

For example, in a conversation I had with Zakaria Hamad, Tunisia’s current Minister of Industry, Energy and Mining, it became clear that Tunisian leaders want the added value from their country’s products, of which it has been deprived in the past. For instance, instead of shipping raw materials to Europe for processing and sale, the new Tunisian leaders would prefer that Westerners invest in Tunisia by building factories and processing plants, creating thousands of jobs for Tunisians at home and producing quality goods for the global markets at fair prices.

If Europeans genuinely invested in the Tunisian economy, they would limit the flow of migrant workers, help stabilize their neighboring communities, undo years of past exploitative and unfair practices, and receive a healthy return on their investment. In the long run, this change in attitude and practices are the best way forward for Western countries and their southern neighbors. Military interventions, bombing campaigns, and reliance on dictatorial regimes are shortsighted, costly, callous, and destructive. Such acts are moral and legal burden on Western societies and powerful propaganda tools for genocidal terrorists.

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Watch video: Beyond Terrorism

* Prof. SOUAIAIA teaches at the University of Iowa. His most recent book, Anatomy of Dissent in Islamic Societies, provides a historical and theoretical treatment of rebellious movements and ideas since the rise of Islam. Opinions are the author’s, speaking on matters of public interest; not speaking for the university or any other organization with which he is affiliated.

Is Ukraine becoming for the West what Syria has been for Russia?

Is Ukraine becoming for the West what Syria has been for Russia?

Riding the wave of protests known as the Arab Spring, many Syrians rallied to demand more political and civil rights. Without the hesitancy that characterized their initial reaction to the protest movements in Tunisia and Egypt, Western administrations and some of the Persian Gulf regimes immediately threw their support behind the protesters. Assad’s regime belonged to the so-called non-moderate Arab governments and the protesters offered the West and its allies an opportunity to overthrow it. They formed the “Friends of Syria” group, now consisting of only eleven nations, to provide the opposition with all needed support, including deadly arms, to achieve that goal. After three years of brutal war, Syria’s economy and society are severely damaged and its allies, mainly Russia, China, and Iran have invested a huge political, economic, and military capital to help the Syrian government survive. The Friends of Syria claimed that Assad became illegitimate because he killed Syrians. Assad claimed that he was fighting armed terrorists and thugs.

Now fast-forward to 2013. 

In November of last year (2013), in Ukraine, President Yanukovych’s cabinet voted to abandon an agreement on closer trade ties with EU in favor of economic co-operation with Russia. Reacting to this decision, tens of thousands of people attended a demonstration in Kiev. In early December, protesters occupied Kiev city hall and Independence Square. 
To shore up support for Ukrainian government, Russian President Vladimir Putin offered to buy out $15 billion of Ukrainian debt. Protesters grew more violent and by the end of February 2014, more than 90 people were killed including dozens of police and security personnel. Consequently, President Yanukovych left Kiev only to be deposed by the parliament, a move he rejected as illegal. Russia, in the meantime, declared the new regime in Kiev illegitimate and moved to annex Crimea and build its troops along the border threatening to move in should Russia speaking minorities in eastern Ukraine be harmed.

Taking their cues from Crimeans, many eastern Ukranians launched their own protest movement, taking over government buildings and military installations, and demanding a new constitution that would grant them more autonomy. Kiev reacted by sending more troops. The next steps will determine if Ukraine falls into prolonged armed struggle, like Syria, or reach a political settlement. 

If all parties have learned anything from the Syrian crisis, they should know that a Syrian style conflict, which will be essentially another proxy war, will create another global humanitarian and economic crisis. The outcome of the proposed quartet (Russia, U.S. Ukraine, and the EU) meeting, should it happen, will provide more clues about the direction of this crisis.  Should they ignore the similarities between the crises in Ukraine and Syria, Ukraine will be for the West what Syria has been for Russia in the last three years: political and diplomatic vortex.

* Prof. SOUAIAIA teaches at the University of Iowa. His most recent book, Anatomy of Dissent in Islamic Societies, provides a historical and theoretical treatment of rebellious movements and ideas since the rise of Islam. Opinions are the author’s, speaking on matters of public interest; not speaking for the university or any other organization with which he is affiliated.

To compete globally, BRICS nations need reputation, not imitation

To compete globally, BRICS nations need reputation, not imitation

by Ahmed E. Souaiaia* 
BRICS nations
The economic, political, and social rise of the Western block of nations was founded on the single most enduring currency: reputation. Reputation, the source of credibility and trust, is the real asset that allows the U.S. to project its stature around the world. BRICS nations cannot rise to prominence by mimicking developed countries. They must build their reputation first. Wealth is only a byproduct of this more precious commodity, and countries who have it can squander it just as emerging economies can acquire it. For either of those results to happen in any country, circumstantial conditions and principled actions must converge.

Despite scientific advances, including ease of communication and physical mobility, many countries around the world remained untouched.. Many nations around the world mimicked the Western block of nations’ institutional structures in order to improve social and economic conditions. Consequently, regional cooperatives that grouped some countries together to increase capital and expand markets sprung up all over the world. One such cooperative is the consortium of nations dubbed BRICS. It is a curious association that warrants close examination in order to understand the forces that bind them together and the forces that push them apart.
Observers of international affairs have been intrigued by the outcome of the BRICS summit in Durban. Notably, the leaders of the five countries that constitute this group have agreed to build institutions that will foster cooperation and coordination. Specifically, they agreed to found a New Development Bank (NDB) that would invest in member states’ infrastructure as well as in that of Emerging Markets and Developing Countries (EMDCs).
The leaders agreed that each country would contribute an investment of $10 billion, bringing the initial capital of the NDB to $50 billion. The leaders also agreed to supplement this capital with an additional $100 billion in emergency reserves, establishing a Contingent Reserve Arrangement (CRA), to help member states during unforeseen crises. China will provide $41 billion of the supplemental fund and each of the other four countries will contribute $18 billion, except South Africa, which will allocate only $5 billion. The bank will start by investing in one major project: a high speed Intranet that will connect all five countries. The project is estimated to cost about $1 billion. 
The potential and challenges facing this emerging economic group are enormous, given the human, geographic, economic, and political realities that unite and separate them. What is evident, however, is that challenging the West in the name of multilateralismis not enough to create a solid block that will survive the various challenges.
First, let’s look at the potential for success. More than 45% of the world’s population lives in the countries making up the block: 1.347 billion people in China, more than 1 billion in India, nearly 194 million in Brazil, about 140 million in Russia, and almost 50 million in South Africa. Together, the five countries control 30% of the land on earth. Each of the five countries is an economic powerhouse in its own right: China’s economic input (according to data from two years ago) equaled $5.5 trillion, Brazil’s was $1 trillion, India’s and Russia’s were both $1.6 trillion, and South Africa’s equaled $285 billion. Together, the five nations are the source of about 15% of global trade. More recent data show that the economy of BRICS grew by an average of 4%, compared to 0.7% for the top seven industrial nations. Economic projections suggest that BRICS countries will contribute nearly 50% of global economic growth by the year 2020.
But unlike other economic blocks around the world, BRICS consists of five countries from four different continents with five different cultural and ethnic backgrounds. The geographic, cultural, and ethnic differences among BRICS nations are significant, but the political differences are even more pronounced. For instance, Brazil’s political culture is rooted in leadership that is derived from the authority of the Church and the power of the institution of the military. In contrast, China’s political system combines Confucius’ values with communism and the veneration of elders. India’s democracy, shaped by religious and class casts, is nothing like Russia’s authoritarianism or South Africa’s emerging representative governance. These differences are significant because political stability is also crucial in building reputation domestically and globally. Nations become stable and reputable when citizens (and businesses) know that life, property, and dignity are safeguarded under all circumstances. If these nations cannot provide political stability and smooth transfers of power at home, they certainly cannot be called upon to adjudicate political disputes abroad. For that to happen, all five nations need to do more to build robust civil society institutions.
In addition to the challenges that are dictated by difference, BRICS nations face serious conflicts of interests. China is perceived to be interested in flooding the markets of the other countries with its own goods. India is worried about China’s plans to build more dams on rivers on which India depends. Brazil, South Africa, and India have campaigned hard to have their status upgraded in the UNSC, but Russia and China did not support their efforts—which exacerbated the lack of trust amongst the veto-wielding countries and the non-permanent members.
One could argue that differences—especially cultural, political, and linguistic ones—ought to be seen as an asset, not a liability, since leaders of all five nations have emphasized the virtues of diversity and multiculturalism. That would be a sound argument if the composition of BRICS was actually built on diversity instead of economic potential. In the end, this cooperative is an intergovernmental organization. Governments are not in the business of promoting philosophical and ethical norms; they are in the business of increasing value to the power holders. 
Ultimately, the fact that BRICS are focusing on creating an investment bank instead of dealing with all the outstanding and potential issues suggests that they are relying on their shared interest in challenging Western dominance. Their first political statement on Syria and Afghanistan shows that BRICS nations need more than potential and resources to be effective on the global stage. Importantly, given the number of crises within the Islamic world, and given the potential and status of the Islamic world, BRICS could benefit from adding at least one emerging Muslim country to their exclusive club of nations.
The lingering financial crisis with which the U.S. and the EU are struggling provided other strong economies with an opportunity to break free from a unipolar world dominated by the United States and its allies. China and Russia are seen as the most likely candidates for re-establishing parity on the global stage. While Russia might be interested in reinventing itself as one of two superpowers in the post-Soviet Union era, China seems more interested in improving and preserving its economic rise. The association of BRICS was built on an idea—not on a principle—an idea that is rooted in the hope that countries with many resources and much potential can compete against the West. Competing against the Western block is unifying, purpose-wise. But competing against the Western block requires a principled approach and disciplined drive to build a reputation that these countries singularly or collectively can project around the world with confidence.
Reputation is not built in a day, by promises, or by wealth. Reputation is the outcome of a historical trend that builds trust. It cannot be bought, coerced, or manufactured. Reputation takes time to build and arrogance to destroy. BRICS nations’ leaders will be fatally mistaken if they think that the crisis of credibility of the West resulting from their recent illegal wars and violations of human rights will create an opening for them to as an alternative. BRICS countries must be consistently better in all those areas for which they fault the West for a long time for them to have a chance to compete for reputation, the most valued prize in human civilizations.
* Prof. SOUAIAIA teaches at the University of Iowa. Opinions are the author’s, speaking on matters of public interest; not speaking for the university or any other organization with which he is affiliated.

Burdening the victims: impact of US sanctions on human rights at home and abroad

Burdening the victims: impact of US sanctions on human rights at home and abroad

The case for peoples’ diplomacy

On the occasion of the start of the Persian New Year (Nowrūz), President Obama delivered a recorded video message to the Iranian people. In it, he highlighted the many ways the Iranian government denies its citizens access to information, including censoring media outlets and filtering the Internet. He declared that his administration is committed to communicating with the Iranian people despite the objections of their government “by making it easier for Iranian citizens to get the software and services they need to connect with the rest of the world through modern communications methods.”

As a candidate, Obama insisted—despite harsh criticism from other presidential candidates— that he would reach out to the Iranian leaders and talk to them in order to end the 30 year cold war. During his first year in office, President Obama offered to start a conversation with the Iranian leadership based on mutual respect. He then sent a letter, whose content was not disclosed, to the leader of the revolution, Ayatollah Seyed Ali Hosseini Khamenei. As his first term in office ends, having failed to start any significant dialogue with the Iranian regime, the President outlined a new strategy designed to bypass the Iranian government and religious leaders and talk to the Iranian people directly. Will this strategy succeed? Unlikely; and here are several compelling reasons.

Besides the fact that the video message is representative of the predictable paternalistic attitude towards people of the third world, it also underscores the casual approach to solving one of the most critical international relations problems of the century; a problem that has far reaching economic, military, and political ramifications on the entire world.

First, it is neither diplomatic nor constructive to tell citizens of another sovereign nation who their leaders ought to be. If that was the norm as a matter of foreign policy, the Obama administration ought to develop a consistent standard by which it decides how to judge foreign governments. In that case, the U.S. administration would also tell the Saudis, the Kuwaitis, and the Bahrainis and many other U.S. allies that their governments are beneath the U.S. standards.

Second, although people-to-people (or people’s diplomacy) interactions build stronger and more lasting friendships between countries, the Obama administration is instead employing a government-to-people interaction, which is a flawed and problematic approach. For peoples’ diplomacy to succeed, the administration should enable and facilitate American citizens, especially Iranian-Americans and Muslim-Americans, to engage their counterparts in Iran. This and the previous administration have failed to rely on Muslim-Americans and call on them to serve their country. Instead, the administrations’ inability to integrate Muslims alienated many of them, and diminished the U.S.’s credibility abroad.

 A recent federal case against an American charitable organization, (United States of America v. Mehrdad Yasrebi and Child Foundation, 05-CR-413 KI (Oregon)), reveals the unfortunate state of Muslim-Americans,  the potential of peoples’ diplomacy, and the legal and practical problems with economic sanctions.

Zahra, one of thousands 
sponsored by the Child Foundation.

In the mid-1990s, Dr. Yasrebi, a passionate philanthropist, read a profile of an Afghan refugee in Iran, Zahra, a girl who lost her father at a young age. Her young mother abandoned her to make a new life for herself. Zahra, then 7 years old, was living with her grandparents. Her grandmother was disabled, and her old grandfather could not find a job. He would hang around construction sites every day collecting nails, which he would straighten and resell for enough money to feed his wife and granddaughter. The three lived in a cardboard box the size of a minivan. This and similar real life stories moved Dr. Yasrebi to act.

He founded the Child Foundation (CF), a U.S.-based charitable organization dedicated to helping needy children in Iran (his ancestral home), Afghanistan, and other countries where he had reliable, trustworthy contacts. He and his wife initially ran the organization from his residence. He built the organization from nothing. First, he asked friends to donate $20 a month, all of which he promised would go to providing food, shelter, clothes, books, and healthcare to needy children. He and his wife covered the overhead cost of the organization out of their own pockets. He also placed small donation boxes in retail stores. He asked long-distance phone companies to donate a percentage of the bill for international calls placed by individuals who purchased a calling plan with the companies. He reached out to the Iranian-American community and asked them to support his cause. After a decade of hard work, the CF became a large and reputable U.S. charity providing critical services to thousands of extremely needy but talented children from Iran and several other countries. Dr. Yasrebi still recalls the joy he felt after receiving letters from the many children he helped who are now lawyers, professors, teachers, doctors, and successful laborers enjoying a dignified life.

Since he insisted that the CF remain independent, unaffiliated with any political faction or religious denomination, the CF faced difficulties operating in Iran and even collecting donations from Shiite Muslims. Dr. Yasrebi spent considerable time writing letters explaining the nature of the charity’s work and asking religious leaders to issue fatwas allowing their followers to donate part of their alms to the CF. Because it is an American organization, the Iranian government, too, subjected the CF to additional scrutiny and limitations. But none of these obstacles measure up to what the CF, some donors, and Dr. Yasrebi have faced here in the United States.

Because of the U.S. sanctions against Iran that date back to the 1980s, the CF had great difficulty transferring funding and services to children in Iran. The scrutiny intensified after 9-11, and the CF and Dr. Yasrebi were subjected to secret monitoring, wiretapping, and FBI-led profiling. Then in 2008, federal agents conducted a synchronized raid at 6:00am on Dr. Yasrebi’s residence, his workplace, the office of the CF, and the residences of several other major contributors to the organization. The harsh raid traumatized Dr. Yasrebi’s children and the negative media coverage stigmatized his family.

After nearly seven years of intense investigation, the government offered Dr. Yasrebi two options: a trial in federal court, where he—and his wife—could face 20 to 25 years in prison for a myriad of charges including “cooperating with a terrorist organization,” or a plea under which Dr. Yasrebi would admit to minor violations and no charges would be brought against his wife. On the advice of his attorney, Dr. Yasrebi, fearing for his liberty and the well-being of his family, opted to take the plea. The government’s sentencing recommendation was a 30-month prison term and a fine of $50,000.

During sentencing, the defense attorneys argued that, even after a decade-long investigation, the government had failed to prove any of the charges against the CF and Dr Yasrebi. They added that the minor infractions to which Dr Yasrebi had admitted did not warrant such a harsh punishment for a well-respected member of the community. They explained that the U.S. administrations have repeatedly stated that the sanctions were not intended to punish the Iranian people, and therefore food and medicine were exempted. The attorneys asked the judge to reject the prosecutor’s sentencing recommendation and only impose a fine of $10,000.

Responding to the defense memo, the government insisted Dr. Yasrebi be imprisoned and heavily fined. The prosecutors advanced shockingly troubling arguments to justify their sentencing guidelines. They contended that while food and other necessary goods are exempted from the sanctions, providers must not buy them inside Iran. They also contended that the Child Foundation should not operate in Iran at all because by providing for needy Iranian children, the CF is making it possible for the Iranian government to spend money on more sinister projects.

Their insistence that charities must purchase food and clothes from outside Iran and then send them to beneficiaries inside Iran rest on the idea that Iranian merchants and businesses are linked to the government (perhaps because they are paying taxes?). This line of reasoning is both fallacious and cruel. These specious arguments and flawed logic put the lives and welfare of Americans at risk and give credence to arguments used by extremists and authoritarians to justify their indiscriminate acts of violence.

On March 6, 2012, Judge Garr King found all of the government’s claims that Dr. Yasrebi’s work was a risk to national security unfounded. Reportedly, Judge King concluded that “the government hadn’t produced evidence that Yasrebi or the charity were involved in funding terrorism.” He refused to approve the prison penalty recommendation proposed by the prosecutors. While the judge’s ruling more or less vindicates Dr. Yasrebi legally, the personal, mental, and financial damage he, his family, and the community have suffered is immeasurable. The case increased Muslim-Americans’ fears, anxiety, and alienation. It also exposes the ugly impact of economic sanctions on ordinary individuals abroad and at home.

First, Dr. Yasrebi’s employer, Precision Castparts, for whom he has worked for nearly two decades, fired him. When he called a headhunter to look for another job, he was told that they cannot help him because he is an admitted felon. After waiting 14 years to make a decision regarding Dr. Yasrebi’s application for citizenship, he was told that his application will be denied because of the case against him. They failed, however, to explain the 14-year delay, which has placed Dr. Yasrebi in a precarious position. Had Dr. Yasrebi been convicted of actual crimes, he could have been deported and his American-born U.S. citizen children would have been separated either from their father or their homeland.

Second, the U.S. v. Child Foundation case perpetuates a tormenting sense of fear and alienation among Muslim-Americans. It cuts familial bonds between Americans and their relatives living in their ancestral homelands. It creates classes of citizenship, allowing naturalized U.S. citizens to be treated as second-class. It punishes Muslim-Americans for the sins of the regimes they left behind.

Third, this case proves once again that economic sanctions rarely harm regimes, but rather destroy the fabric of society by imposing more hardships on the poor, the needy, and the vulnerable. Importantly, this case has exposed the negative impact of sanctions on U.S. citizens, legal residents, and organizations.

The prosecution of Dr. Yasrebi has had chilling effects on U.S. residents and naturalized citizens, especially those with contacts in other countries. A naturalized U.S. citizen will be fearful of sending money to an ailing mother in a country that is or may in the future be under U.S sanctions. Academicians will hesitate to collaborate with colleagues in places like Iran and Cuba. Activists will be reluctant to assist political prisoners and human rights advocates in countries under sanctions. NGOs will be unwilling to engage their counterparts in places where their work on behalf of the poor and the voiceless is most needed.

The United States v. Mehrdad Yasrebi and CF case ought to be considered in light of the case of American NGO workers arrested and charged in Egypt after the revolution there. If the American government continues to prosecute its own citizens and legal residents for providing aid to needy children in a Muslim country, what claim (and credibility) could the administration have now or in the future in helping Americans targeted by less democratic regimes in Egypt, Bahrain, Yemen, Pakistan, and other Muslim countries?

In fact, the prosecution of Dr. Yasrebi on charges of violating U.S. sanctions against Iran by providing charitable work in that country pales compared to the possibility of his facing charges in Iran for being an agent of the West. After all, Dr. Yasrebi worked for nearly 20 years for a company that had significant business deals with the U.S. military. Naturally, given the U.S.’s continuing military threats, the Iranian government could argue that Dr. Yasrebi is directly providing the U.S. armed forces with the technology and the tools that will be used to attack Iran. That is a far easier case to make than the one leveled against Dr. Yasrebi by the U.S. government.

This case exemplifies the risks and pain of unintended consequences and puts human faces on the victims of the sanctions that were supposed to punish a rogue government, not its people or the people of this country. The so-called targeted sanctions presume that the other side will not adapt. The reality is different and far more complex. A bank that is not under sanctions today could be tomorrow, and that complicates their business relations. A bank under sanctions today may simply change its name to escape them. Sanctions hardly work to change governments’ behavior. Peoples’ diplomacy is the alternative to sanctions and military threats. It is effective, humane, powerful, empowering, and constructive.

President Obama’s declaration that he will use American resources to provide Iranians with access to the Internet while the U.S. government is prosecuting Iranian-Americans for providing food, clothes, medicine, clothing and educational materials to needy children flies in the face of logic and common sense. His recent overture towards the Iranian people should start here in the U.S. by empowering Iranian-Americans to speak on behalf of the people of their adopted country, to highlight its virtues, and to build bridges between peoples.

If President Obama wants Muslim-Americans to continue to speak out against brutal regimes in their ancestral homes, condemn extremist expressions in Muslim societies, and promote civil society and citizen-centered governance in the Islamic world, then he must start by making sure that Muslim-Americans are not second-class citizens, that their citizenship is not a bargaining chip, and that their loyalty will not be questioned. President Obama can begin by ordering a review of this and similar cases to make sure that the government did not break any laws or violate any civil rights while investigating and prosecuting such cases. Furthermore, the delay in Dr. Yasrebi’s application for citizenship, and the subsequent denial of that application, should be investigated to ensure that the same standard applies to all applicants, and to establish that his application was not denied because of his ethnicity, religion, or charitable work.

Unlike other indictments where terrorism charges were leveled, this particular case did not receive national media attention—possibly due to the extremely weak evidence the government presented. But the government’s treatment of the defendants, the nature of the charges, and the language used by the prosecutors in the case documents examined for this article underscore the interconnectedness of domestic and foreign policy and the impact of this connection on U.S. citizens and the country’s standing in the Islamic world. It exposes an undercurrent of mistrust and prejudice towards Iranian Muslims. It depicts instances of willful ignorance of Islamic cultures. It illustrates a stunning disregard of the civil and constitutional rights of Muslim-Americans.

* Prof. SOUAIAIA teaches at the University of Iowa. Opinions expressed herein are the author’s, speaking as a citizen on matters of public interest; not speaking for the university or any other organization with which he is affiliated.

Class warfare or economic justice?

Class warfare or economic justice?

When Romney resisted releasing his tax records unless he becomes the GOP nominee, the discussion that was started by the Occupy movement found new life. The fundamental issue is fairness in the U.S. economic system—not class warfare, as some would like to characterize it. Many in the Occupy movement believe that corporate influence in the political process unfairly disadvantages working people and rewards greed. One of the areas unfairly influenced by wealthy corporations and persons is the tax code. Many Occupiers want that system reformed.
The 1% have the means to not only influence the debate, but to buy the political leverage necessary to secure favorable outcomes. The absolute majority of the 99% want a fair system that neutralizes these influences. They don’t want giveaways from the 1% and they are not opposed to capitalism and private property ownership.
The NYT reported that Mitt Romney, for instance, “has called for keeping the current low rates for capital gains and eliminating capital gains altogether for taxpayers making less than $200,000.” Joe Scarborough, a conservative commentator and former lawmaker, defended the low 15% percent tax rate paid by Romney and other wealthy individuals by suggesting that the money taxed at the 15% rate is actually taxed twice: first it is taxed as income at a higher rate and then taxed again as investment income. That is a disingenuous and misleading characterization of the facts. Here is why:
Let’s say a hardworking Joe makes $100,000 a year. That income will be taxed at a rate closer to 35% than to 15%. After years of hard work, Joe saves $50,000, which he invests. At the end of the year, Joe receives a statement showing that he earned $2500 through capital gains, dividends, interest, etc. Only the $2500 Joe earned on top of his original investment of $50,000 will be taxed at the 15% rate; Joe is not taxed at a 15% rate on $52,500 (his original investment plus his gains). So there is no double taxation.
Now let’s look at another scenario. John is a software engineer who has worked for Microsoft since the early 1990’s. John’s yearly salary is about $67,000. But when John was hired, he took the stock option the company offered its employees, which consisted of 5000 shares priced at $5 a share. After more than five years, John was able to sell these shares for the market value of $300 per share (a gross sale value of $1,500,000). The net income (after deduction for cost and fees) is taxed only once, at the 15% rate. Furthermore, it is only taxed the year it is sold, not every year John saw gains through increase in stock prices.
Let’s look at a third example. Brinn is a programming guru. He quit school to start an Internet company. His company was so successful he valued it at $1,000,000 and made it a public company. Before the initial IPO, Brinn decided arbitrarily to fix the value of each share in his company at $1. Now Brinn’s company is available for public trade, but not before he reserved 500,001 shares for himself and 200,000 shares for his employees or his favorite charity. Brinn is now the CEO of the new public company, too. He decides that he will receive $1 a year in salary, but will receive additional compensation in the form of stock options. 
Because Brinn’s company is awesome, everyone wants in. Joe used some of his saved money to place a bid to buy some shares. Before Joe is able to fulfill his order, the price of a single share in Brinn’s company jumps to $50. Suddenly, Joe becomes the proud owner of 100 shares costing him about $5000, which drives Brinn’s wealth to over $25,000,000. 
Five years later, Joe sells his 100 shares at $100 per share (earning about $5000 on top of his original investment). Brinn, on the other hand, earns $50 million. He will pay the 15% tax rate on those earnings, because he does not have to claim it as earned salary income on his tax return. That is a best case scenario. Another equally likely scenario is this: after five years, Joe is forced to sell his shares to pay for an unexpected event. Although the price of the stock was up at some point near $100, when Joe needed to the cash however, the stock was $48 per share. Joe lost $200 in this investment. Brinn is still $47 per share ahead.
Capital venture investors use a multitude of methods to avoid paying the higher tax rate that 99% of monthly wage earners must pay. Stock options, property reclassification, tax shelters, and charitable donations are just few ways they control their wealth and avoid paying higher taxes. Business professionals have access to tools and knowledge that allow them to find the loopholes they need to pay minimum taxes.
Moreover, corporations and wealthy individuals “tax” the infrastructure, the natural resources, and environment more than the rest of us. They use heavy trucks on our highways and roads to transport their goods. CEOs travel in private jets that pollute our environment while hundreds of us travel crammed in crowded airplanes, buses, and trains. They use more energy in their huge mansions and air-conditioned offices in skyscrapers, while the 99% share fewer resources and use communal services.

In short, the 99% are not asking to take the 1%’s money, they just want a fair system that offers everyone equal access to resources, to public servants, and to the law. The 99% want true equal opportunity.

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