>> IRAQ

Iraq's Electoral System - A Misguided Strategy
By Michael Rubin
Posted: Monday, September 13, 2004
ARTICLES
Arab Reform Bulletin
Publication Date: September 1, 2004
With the conclusion of the Iraqi National Conference last month, the next milestone for Iraqi democracy will be the January 2005 elections for a 275-member Parliament. Already, the electoral system chosen for Iraq could dampen the prospects for a representative and democratic vote. On June 15, 2004, in response to a recommendation by Carina Perelli, director of the UN's Electoral Assistance Division, Coalition Provisional Authority administrator L. Paul Bremer decreed that Iraq would be a single electoral constituency, with seats allocated through proportional representation (PR) based on national lists. Perelli's decision to avoid multiple districts was colored by technical considerations. Treating all of Iraq as one district bypasses questions of internal boundaries and simplifies ballots. The entire nation would need only one ballot, rather than separate ones in each district.
Such a system is bad for Iraq. Voting is only one aspect of democracy; another is accountability. Under a PR system, parliamentarians are not tied to a specific district, but rather to a party list. Instead of being responsible to a town's voters, representatives will be loyal to party leaders. The pitfalls of such a system have led Poles to seek a constitutional amendment to replace PR with districts. While more than ninety countries use some form of PR, its application to single national districts is seldom without complication. Many Israelis complain that single-district PR allows radical small parties to hold their political system hostage. In Germany's Weimar Republic, single-district PR helped bring the Nazis to power.
In Iraq, PR will breed radicalism. It is easier to forbid women from taking certain jobs, for example, if a politician need not answer to women in his district. If elections are based on 275 different districts, then each district would have only 87,000 people. Representatives would be closer to the people. Districts already exist, although Iraqis are keen to reverse Baathist gerrymandering. Even in disputed areas like Kirkuk, Iraqis say they can reach consensus to put Kurdish, Arab, and Turkoman neighborhoods into different districts.
Failure to base elections on districts may mean that some areas have no representation. This could breed violence. Residents of Basra and Mosul accepted the former Iraqi Governing Council (IGC), for example, because IGC members hailed from their towns. Since Fallujah and Sadr City had no such political outlet, they more quickly turned to violence. Under the UN plan, if local candidates are not listed high enough on the party slate, whole towns may have no representation. Iraqis recognize the importance of geographical representation. It was geography, not personality, that led the Iraqi Governing Council to recommend Ghazi Al Yawar, a tribal leader from Mosul, over Adnan Pachachi, a former foreign minister, as its president. Any political body that did not include Iraq's second largest city had little chance of success.
While Perelli has said that a single national district would allow geographically "broken" communities to vote together, it is simplistic to assume that all religious or ethnic groups want to vote as a bloc. Such a system sets Iraq down the slippery slope toward Lebanese-style communalism. Multiple districts would still represent Iraq's diversity. Fallujah would elect Sunnis, and Najaf, Shiites. The real difference would be in protection of religious minorities. With local districts, Chaldeans would win seats in Al Qosh and Yezidis in Sinjar even if they chose not to run on a religious platform. Under a national district system, the risk of disenfranchisement would be greater. Because religious minorities divide themselves politically, they may not gain enough votes nationally.
The UN plan will also invite corruption. It is easier for outsiders to buy a party list than to channel money to 275 different candidates. When constituents know their candidates, it is harder to hide outside money.
Some specialists have argued for replicating in Iraq of what worked in Cambodia, East Timor, and Nigeria. But it is a mistake to treat Iraq as analogous. Iraqi history suggests that a system privileging party lists over independent candidates will be counterproductive. Older Iraqis blame political parties for inciting riots in the 1950s and 1960s. The younger generation associates organized politics with the abusive Baath Party. In Iraqi Kurdistan, many students say that corruption revolves around the party structure. Some polls suggest that only 3 percent of Iraqis have faith in parties. While the UN plan allows independents to run in theory, Iraqis saw how party machination and backroom deals marginalized independents at the Iraqi National Conference.
The Iraqi election commission--and not outsiders--should decide Iraq's election system. The UN choice is not the only option. After all, countries like Australia and Jordan combine multiple districts with proportional representation and bring representatives closer to the people. There is still time to listen to Iraqis.
Michael Rubin, a resident scholar at the American Enterprise Institute and editor of The Middle East Quarterly, spent seventeen months in Iraq between 2000 and 2004.
Source Notes: This article appeared in the September 2004 issue of the Arab Reform Bulletin
AEI Print Index No. 17318


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Teach Iraq to Fish
Learning to cooperate is the key to reconstruction.
BY BRENDAN MINITER
Tuesday, September 21, 2004 12:01 a.m. EDT
John Kerry has decided to make Iraq a major focus of his campaign, and today President Bush will speak to the United Nations on Iraq and the larger war on terror. But don't expect to hear too much detail on what Iraq needs until after the election. That's because one thing essential for Iraq's progress is something that doesn't fit into a sound bite very well: for its people to see the benefits of mutual cooperation. To this end Lt. Gen. Carl A. Strock, head of the U.S. Army Corps of Engineers, dropped by The Wall Street Journal's offices recently and told us about one example that has played out with disastrous results in Iraq.
During Saddam Hussein's reign, not surprisingly, Baghdad and its No. 1 resident had priority when it came to basic services. Baghdad has no power generators to speak of, so generators in outlying cities had to feed the capital, often at the expense of their local residents.
After Saddam fell, many power engineers and local politicians apparently decided they'd opt out of the national power grid. Gen. Strock thinks that more than a few attacks on power lines have been deliberate attempts to isolate cities that generate their own power from the rest of the country; residents there no longer want to send power off to Baghdad while the lights in their own homes flicker and go out.
Like the blackout that struck the American Northeast and Midwest last year, unplugging a city from the national grid results in systemwide power failures. It doesn't matter that the total amount of electric power in Iraq is now exceeding prewar levels, or that it is much more equitably distributed. Thus electricity is a metaphor for the larger problem of Iraqi reconstruction: If Iraqis don't come to believe that working together is in their own self interest, then the country may indeed plunge into chaos.
It is in this light that we should assess "Progress or Peril? Measuring Iraq's Reconstruction," a largely critical recent report from the Center for Strategic and International Studies. The study did not address the question of mutual cooperation directly, but an underlying theme is that Americans cannot simply "rebuild" Iraq and instead must make it possible for Iraqis to come together to solve their own problems. Instead of thinking and defining success in terms of "nation building," the study recommends thinking in terms of "nation jumpstarting"--getting Iraq to the point where enough people have the skills necessary to crank up functional economic, social and political institutions.
The study, based partly on interviews with hundreds of Iraqis, finds five areas in which progress is critical: security, participation in government, economic opportunity, services (electricity, sewage, etc.) and "social well-being" (access to education, healthcare etc.). "Iraqi optimism and patience have somehow endured," the study found, but they "must be harnessed because they could easily be fleeting, particularly if the Iraqi government is no more successful than the CPA [Coalition Provisional Authority] was in righting the course in Iraq."
American forces can build schools, hospitals, sewage-treatment plants and power stations, but ultimately Iraqis must run them. Iraqis need jobs, and they need elections if they are going to feel they have a stake in their country's progress. Security is the most obvious area where international help is needed, but even here there must be more than just an "Iraqi face" put on the effort. The study finds that what Iraqis want is for their own security forces "to play a leading role" and that American officials underestimated the amount of nationalism in the country. An American-led coalition removed Saddam, but Iraqis want Iraqis to come together to defeat the insurgents.
None of this will come as a disappointment to American soldiers on the ground. The Corps of Engineers hires local contractors to complete many of its projects, and often there are only a few American engineers on the ground, with additional expertise available via satellite conferencing. Indeed, Gen. Strock relayed a story of importing equipment to rebuild and run a power-generating turbine in Iraq and then leaving it there for the now trained Iraqi workers to use in rebuilding another turbine nearby--proving there is power in giving Iraqis the tools they need instead of doing everything for them.
Mr. Miniter is assistant editor of OpinionJournal.com. His column appears Tuesdays.




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Flash flood of guns left Iraqis armed and dangerous
SPECIAL TO WORLD TRIBUNE.COM
Monday, September 13, 2004
LONDON -- The Small Arms Survey said millions of firearms pillaged from the military and security forces of the Saddam Hussein regime have flooded Iraq over the last year.
The survey said the collapse of the Saddam regime precipitated one of the largest and fastest transfers of light weapons ever recorded.
The survey said at least one in every three Iraqis possesses a firearm. In all, about eight million firearms are in the hands of Iraqis, with the actual number believed to be considerably higher, Middle East Newsline reported.
Another threat raised by the survey comes from what the institute termed the proliferation of man-portable surface-to-air missile launchers.
Insurgency groups have used such weapons in efforts to knock out airliners, such as the firing of an SA-7 missile toward an Israeli passenger jet over Mombasa, Kenya in December 2002.
"Iraq now poses a regional proliferation risk," Keith Krause, the survey's program director said. "That's going to be with us for years to come," Krause said. "The consequences of the great Iraqi small arms abandonment may endanger stability in much of the Middle East for years to come," the survey said.
The annual survey, coordinated at the Graduate Institute of International Studies in Geneva and financed by Western governments, said the pool of such weapons could fuel instability throughout the Middle East.
The survey cited the dramatic rise of shooting deaths in Baghdad in 2003.
Finland, however, has the highest ratio of firearms per person.
"We do not know what proportion of these weapons are military style."
Copyright ? 2004 East West Services, Inc.

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The Volcker Oil-for-Food Commission: Is It Credible?
by Nile Gardiner, Ph.D., and James Phillips
WebMemo #569
September 20, 2004
It has been almost six months since United Nations Secretary-General Kofi Annan announced the appointment of the U.N.'s commission of inquiry, headed by Paul Volcker, into the Oil-for-Food scandal.[1] So far, few details have emerged regarding the Commission's modus operandi, its staff, or its overall effectiveness. The Commission's operations are shrouded in secrecy, with little transparency or external oversight. For a commission designed to unearth corruption and malpractice on a huge scale, it is strikingly opaque. Its spartan official website contains little information of value, not even a mailing address.[2]
The Volcker Commission is likely to issue its report in a year's time (though no firm deadline has been set). Its investigation could cost $30 million in all.[3] The Commission bears all the hallmarks of a toothless paper tiger, with no subpoena power, and is clearly open to U.N. manipulation. It bears no enforcement authority (such as contempt) to compel compliance with its requests for information and has no authority to discipline or punish any wrongdoing it discovers.[4]
Who Is Staffing the Commission?
The "Independent Inquiry Committee into the U.N. Oil-for-Food Program," as it is officially termed, is top-heavy with distinguished luminaries but short on detail regarding its actual workforce.
Former Federal Reserve Chairman Paul Volcker heads a three-person committee, which includes South African judge Richard Goldstone and Mark Pieth, a professor from the University of Basel in Switzerland. So far, the names of ten senior staff have been released, including Reid Morden, former Director of the Canadian Security Intelligence Service, and Swiss magistrate Laurent Kasper-Ansermet.[5]
However, no details have thus far been released regarding the remaining staff (currently around 40 in number, and likely to rise further) that will actually be doing the investigating and handling the huge volumes of documents. The key questions remain: How many U.N. staff and former staff are involved with the Commission? What assurances are there that U.N. officials implicated in the Oil-for-Food scandal will not interfere with or unduly influence this supposedly independent investigation? A truly independent inquiry into U.N. corruption should not be staffed by U.N. employees, former U.N. employees, or those with any significant ties to the U.N.
It is therefore surprising to discover that the official spokesman for the Commission, Anna Di Lellio, is a former United Nations official. Moreover, Ms. Di Lellio, who is Director of Communications for Paul Volcker, has publicly expressed contempt for the U.S. president. In an interview with the London newspaper The Guardian on the first anniversary of the September 11 terrorist attacks, Ms. Di Lellio launched into a vicious tirade against the U.S. and Italian governments, implicitly comparing President George W. Bush and key U.S. ally Prime Minister Silvio Berlusconi to Osama bin Laden:
What I do feel is a sense of powerlessness against the changes which are potentially lethal for our civilization. But I see the major threats coming from ourselves, rather than the east. I find deeply unsettling both the ascendance of George Bush and his puppeteers to the U.S. government, and the mix of self-serving hypocrisy and incompetence prevailing in European governments.
I don't like it that the two nations whose citizenship I hold, Italy and the U.S., have leased their institutions to a couple of families. With defenders like W and Berlusconi, largely unchecked by a sycophantic media, who needs Bin Laden to destroy culture, personal freedom, respect for other human beings, integrity, and the rule of law--all the things that make our lives worthwhile?[6]
Such extreme opinions do not sit well with the Volcker Commission's claim to impartiality and will impede the establishment of a constructive relationship between the Commission, the U.S. Congress, and the executive branch of the United States.
Anna Di Lellio's appointment brings into question the judgment of the Volcker Commission in hiring its staff. It casts a shadow of doubt over the Commission's ability to provide what Mr. Volcker refers to as "the truly definitive report on the administration of the Oil-for-Food program." Di Lellio's appointment raises serious questions regarding the role of current and former U.N. officials in an inquiry that is purported to be completely free of influence from the U.N. It also strongly suggests that the U.N. is, in effect, controlling the message being communicated by the Volcker Commission to the world media.
Volcker's Refusal to Cooperate with Congressional and Federal Investigations
In meetings on Capitol Hill on July 13, Paul Volcker "rejected requests from members of Congress for access to review documents and to interview United Nations officials being scrutinized by his panel," reports the New York Times.[7] Congressional sources have confirmed that the Volcker Commission refuses to grant access to internal reports on the Oil-for-Food program produced by the U.N.'s Office of Internal Oversight Services and is unwilling to share documentation that it holds in Baghdad. It also refuses to guarantee that it will release documents relating to the Oil-for-Food program even after it has filed its final report. This hostile approach seriously undermines the credibility of the Independent Inquiry Committee.
Four congressional entities are investigating the U.N.'s administration of the Oil-for-Food program: the Senate Subcommittee on Government Affairs (chaired by Sen. Norm Coleman), the House Subcommittee on Government Reform (chaired by Rep. Christopher Shays), the House International Relations Committee (chaired by Rep. Henry Hyde), and the House Committee on Energy and Commerce (chaired by Rep. Joe Barton). In addition, there are three federal investigations underway: by the General Accounting Office (GAO), the Department of Justice, and the U.S. Treasury.[8] The Volcker Commission has so far refused to cooperate significantly with any of these investigations.
What Congress Should Demand
Congress has a vital role to play in forcing the Volcker Commission to operate in an open, transparent manner. Moreover, it is likely that Congressional and federal investigations will be far more effective ultimately than the U.N.'s own commission of inquiry. Congressional leaders and the Bush Administration should demand:
Full access to all U.N. documents relating to Oil for Food.
There should be no monopoly over documentation held by the U.N. The U.N. should also provide a full list of documents currently in its possession that relate to Oil for Food.
Freedom to interview U.N. officials implicated in the scandal.
Federal and Congressional investigators should be able to question U.N. officials under investigation by the Volcker Commission.
A complete list of names of all staff working on the Volcker Commission.
The Volcker Commission should be completely independent of the U.N., and there should be no conflicts of interest involving its staff.
External oversight of the workings of the Volcker Commission.
The Commission should be open to public scrutiny and should include third-party representatives seconded from bodies such as the FBI and Interpol.
Monthly progress reports from the Volcker Commission to Security Council members.
All members of the U.N. Security Council should be furnished with regular updates on the investigation.
A firm date for publication of the Volcker Report.
The final date of publication must not be open to political manipulation by the U.N. in an attempt to limit potential damage.
Conclusion
The Volcker Commission's refusal to share documentation with congressional investigators demonstrates not only breathtaking arrogance but also complete disrespect for Congress and the American public that helps fund the Commission through the United Nations. If it is to be treated seriously and respected as something other than an elaborate but costly whitewash exercise, the Commission will need to implement major changes, both in its operations and in its approach. Above all, transparency and accountability will be needed if the Independent Commission is to avoid becoming yet another example of mutual back scratching at the U.N.
Nile Gardiner, Ph.D., is Fellow in Anglo-American Security Policy, and James A. Phillips is Research Fellow in Middle Eastern Affairs, at The Heritage Foundation.
[1] For background on the Oil for Food issue, see Nile Gardiner Ph.D., James A. Phillips, and James Dean, "The Oil for Food Scandal: Next Steps for Congress," Heritage Foundation Backgrounder no. 1772, June 30, 2004, at http://www.heritage.org/Research/
InternationalOrganizations/bg1772.cfm.
[2]http://www.iic-offp.org/index.html
[3] Susan Sachs and Judith Miller, "Under Eye of UN, Billions for Hussein in Oil for Food Plan," The New York Times, August 13, 2004.
[4] The authors are grateful to Paul Rosenzweig, Senior Legal Research Fellow at the Heritage Foundation, for his observations on the legal powers of the Commission.
[5] Paul A. Volcker, "A Road Map for our Inquiry," The Wall Street Journal, July 7, 2004.
[6] The Guardian, "Interview with Anna Di Lellio," September 11, 2002, at http://www.guardian.co.uk/september11
/oneyearon/interview/0,12385,787426,00.html.
[7] Judith Miller, "UN and Congress in Dispute Over Iraq Oil for Food Inquiries," The New York Times, July 28, 2004.
[8] For further detail, see Thomas Caton, "Investigators Crawl Over Iraq's Oil Billions," Financial Times, July 6, 2004.
? 1995 - 2004 The Heritage Foundation
All Rights Reserved.

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The Oil-for-Food Scandal: Next Steps for Congress
by Nile Gardiner, Ph.D., James Phillips, and James Dean
Backgrounder #1772
June 30, 2004
The Oil-for-Food fraud is potentially the biggest scandal in the history of the United Nations and one of the greatest financial scandals of modern times.1 Set up in the mid-1990s as a means of providing humanitarian aid to the Iraqi people, the U.N.-run Oil-for-Food program was subverted and manipulated by Saddam Hussein's regime--allegedly with the complicity of U.N. officials--to help prop up the Iraqi dictator.
Saddam's dictatorship was able to siphon off an estimated $10 billion from the program through oil smuggling and systematic thievery, by demanding illegal payments from companies buying Iraqi oil, and through kickbacks from those selling goods to Iraq--all under the noses of U.N. bureaucrats.
Members of the U.N. staff that administered the program have been accused of gross incompetence, mismanagement, and possible complicity with the Iraqi regime. Benon Sevan, former executive director of the Oil-for-Food program, appeared on an Iraqi Oil Ministry list of 270 individuals, political entities, and companies from across the world that allegedly received oil vouchers as bribes from Saddam Hussein's regime.2
The U.S. General Accounting Office estimates that the Saddam Hussein regime generated $10.1 billion in illegal revenues by exploiting the Oil-for-Food program. This figure includes $5.7 billion from oil smuggling and $4.4 billion in "illicit surcharges on oil sales and after-sales charges on suppliers."3
Under intense pressure from Congress, the United Nations established its own "independent" commission of inquiry into the U.N.'s handling of the Oil-for-Food program, headed by former U.S. Federal Reserve Chairman Paul Volcker, South African judge Richard Goldstone, and Swiss lawyer Mark Pieth. The U.N. inquiry bears all the hallmarks of an elaborate paper tiger. The commission lacks subpoena power and cannot force the cooperation of U.N. member states. It has also been dogged by allegations of interference by U.N. officials, and serious doubts exist as to whether the inquiry will deliver substantial results.
The Role of Congress
Congress is playing a vital role in ensuring that the Oil-for-Food fraud is thoroughly investigated and that U.N. officials who are guilty of criminal behavior or illicit profiteering are brought to justice. The U.N. decision to set up a commission of inquiry is a direct result of pressure from Congress.
Secretary General Kofi Annan has made some incidental concessions in response to moves by Congress but has yet to demonstrate a full commitment to get to the bottom of the issue. Congress should therefore maintain pressure to:
Strengthen the position of Paul Volcker and his commission of inquiry.
Ensure that the Iraqi interim government and congressional investigators are able to conduct an effective and exhaustive investigation into Oil-for-Food documents in Baghdad.
Push the Bush Administration to ensure that the Oil-for-Food scandal is thoroughly investigated.
Keep the international spotlight on Oil for Food, encouraging foreign governments to launch their own investigations into misdeeds that may involve their nationals.
Increase the likelihood of serious reform at the U.N., including significant safeguards to prevent repetition of its failures.
Limit the role of the United Nations in shaping the future of Iraq.
Withhold U.S. Funds from the U.N.
The Oil-for-Food fraud has become an issue of well-founded, serious concern on Capitol Hill. Three congressional committees--the Senate Foreign Relations Committee, the House International Relations Committee, and the House Subcommittee on National Security--have already held hearings into the Oil-for-Food scandal.
The most effective way to ensure that the United Nations fully cooperates with its own commission of inquiry, and with investigators in Washington and Baghdad, is to threaten to reduce U.S. funding for the U.N., specifically the United States' assessed contribution. In particular, the U.S. should target funds going to the U.N. Secretariat, the political arm of the U.N. system, that had responsibility for overseeing the Oil-for-Food program.
Congress should threaten to withhold a portion of U.S. funds for the U.N. unless it is completely satisfied that the U.N. is fully cooperating with the various Oil-for-Food inquiries and is undertaking effective measures to reform itself. Senator John Ensign (R-NV) and Representative Jeff Flake (R-AZ) have introduced bills (S. 2389 and H.R. 4284, respectively) that would move in the right direction and enjoy bipartisan support.4
Adoption of Senate Amendment 3440 (sponsored by Senator Ensign) to the National Defense Authorization Act for FY 2005 (S. 2400) was another important step. Specifically, Amendment 3440:
Requires key departments within the Administration to take steps to ensure that all documents needed to conduct investigations are collected and safely secured;
Requires the Department of Defense to secure documents in the hands of the (now-dissolved) Coalition Provisional Authority (CPA);
Requires heads of U.S. executive agencies to provide prompt access to documents and information to congressional committees with relevant jurisdiction;
Directs the Secretary of State to use American power at the U.N. to provide the U.S. with audits and vital documents related to the Oil-for-Food program; and
Requires the Comptroller General to review U.S. oversight of the Oil-for-Food program and underscores that the Comptroller General should have full and complete access to U.N. documents and financial data.
Senate Amendment 3440 was adopted unanimously following bipartisan consultations and modifications. It is critical that the conference committee, which will reconcile the House and Senate versions of the National Defense Authorization Act, include it in the conference report that will come back to the House and Senate for final approval.
Senator Ensign, Representative Flake, and the other Members of Congress who have contributed to the effort to get to the bottom of the U.N. Oil-for-Food scandal should be commended for their efforts to date and encouraged to continue to apply pressure on both the U.N. and the Administration.
In light of the congressional hearings that have already been held concerning Oil for Food, the Senate Foreign Relations Committee and the House International Relations Committee should report the bills for debate and action by the full Senate and House. In addition, similar language should be included in the Senate and House annual appropriations legislation that provides funding for the United Nations.
Oil for Food and the U.N. Role in Iraq
The U.N.'s dismal and allegedly corrupt handling of the Oil-for-Food program should lay to rest any notion that the organization can be entrusted with shaping the future of the Iraqi people. Many Iraqis regard the U.N. with suspicion and as lacking both legitimacy and credibility. Iraqis have bitter memories of Secretary General Annan's February 1998 statement to reporters: "Can I trust Saddam Hussein? I think I can do business with him."
The Bush Administration's decision to give the U.N. a key role in picking the Iraqi interim government should not be a precedent for the post-June 28 era. While agreeing to a technical role for the U.N. in assisting the electoral process in Iraq, the United States should oppose a major administrative or military role for the U.N. in the country. The U.N. should not be given any say over U.S. military operations in Iraq, nor should it be allowed to turn Iraq into a glorified U.N. protectorate on the model of Kosovo.
Further Areas for Congressional Investigation
There are several key areas that Congress should investigate:
The lack of power given to the Volcker Commission of Inquiry,
Leaked U.N. documents and Kofi Annan's role,
The Benon Sevan letters,
The role of the Coalition Provisional Authority,
Security Council debates over the removal of Saddam Hussein,
Oil for Food and terrorism, and
United Nations reform.
The U.N. Commission of Inquiry
The U.N. commission of inquiry is already underway, although it is not required to report by a set deadline. There are serious doubts emerging as to whether the commission can do its job effectively. It is operating amid a cloud of secrecy and confusion.
Congress should be seriously concerned about the commission's lack of subpoena power. In addition, it is unclear whether the U.N. is setting aside sufficient funds for the investigation and who will be staffing it. The commission's independence is also in doubt because of questions about whether it will be open to interference from the U.N. Secretariat and Secretary General Annan. Finally, the lack of transparency in the commission's operation is disturbing.
Leaked U.N. Documents and Kofi Annan's Role
Evidence was recently leaked that the U.N. Office of Internal Oversight Services conducted a detailed audit of the U.N.'s administration of the Oil-for-Food program in 2003, before the liberation of Iraq.5 The report was damning in its conclusions and highly critical of the U.N.'s dealings with the Swiss company Cotecna Inspection SA, which had won a $4.8 million contract to oversee the operations of the Oil-for-Food program. Kofi Annan's son Kojo worked for the company in the mid-1990s and was a consultant to the company until shortly before it won the Oil-for-Food contract. Bizarrely, Cotecna was awarded another contract, worth $9.8 million, almost immediately after the report's publication.
The leaked report is reportedly just one of 55 internal U.N. audits of the Oil-for-Food program. Its existence suggests that Secretary General Annan would have known about the rampant structural problems within the program's administration. At the very least, the leaked report indirectly suggests gross negligence on the part of the U.N.'s top official.
Congress should demand the immediate release of all 55 internal reports and should investigate the extent to which Secretary General Annan deliberately ignored their findings. Congress should also investigate whether Annan's decision to hire Cotecna was influenced by his son's affiliation with the company.
The Benon Sevan Letters
There is also some evidence that Benon Sevan, the former director of the Oil-for-Food program, interfered with congressional investigations. Specifically, Sevan wrote letters on official U.N. stationery warning some of the companies implicated in the scandal that they must first seek U.N. approval before releasing documents to investigators.6
Congress should both demand a full accounting from the U.N. Secretariat of the Sevan letters and express its concern that Sevan may be seeking to block efforts by Congress to establish the truth.
The Former Coalition Provisional Authority
The recently dissolved Iraqi Governing Council (IGC) appointed its own investigation into the U.N.'s handling of the Oil-for-Food program, headed by Claude Hankes-Drielsma, a highly respected British businessman and political adviser, and the leading international accounting firm KPMG. However, the CPA refused to fund the IGC investigation and launched its own inquiry, using the Ernst & Young accounting firm. As a result, the Oil-for-Food investigations in Baghdad are in a state of confusion, wasting precious time and resources, and there are growing concerns that vital documents may be lost or destroyed.7
On his return to Washington, Congress should ask former Ambassador Paul Bremer to clarify his actions in impeding Oil-for-Food investigations in Baghdad. Specifically, Congress should ask why the CPA refused to fund the IGC investigation and then launched its own investigation. The resulting confusion may seriously harm efforts in Iraq to establish the truth regarding Saddam Hussein's abuse of the Oil-for-Food program.
Congressional investigators should also examine whether the United Nations or Lakhdar Brahimi, the U.N. envoy to Iraq, have unduly influenced the Oil-for-Food investigations in Baghdad.
Security Council Debates over the Removal of Saddam Hussein
The heated U.N. Security Council debates before the U.S.-led war to liberate Iraq cannot remain separated from the Oil-for-Food program and the fact that influential politicians, major companies, and political parties from key Security Council member countries may have benefited financially from the program.
The Al Mada list of 270 individuals, political entities, and businesses across the world that allegedly received oil vouchers from Saddam Hussein's regime included no fewer than 46 Russian and 11 French names. The Russian government alone allegedly received an astonishing $1.36 billion in oil vouchers.
The list of Russian entities accused of accepting bribes from Saddam goes to the heart of the Russian financial and political establishment and includes the Russian Foreign Ministry, the Russian Communist Party, Lukoil, Yukos, Gasprom, the Russian Orthodox Church, and the chief of the President's Bureau. The list of French names includes former Interior Minister Charles Pasqua.
The close ties between Russian and French politicians and the Iraqi regime may have been an important factor in influencing their governments' decision to oppose Hussein's removal from power. They also highlight the close triangular working relationships among Paris, Moscow, and Baghdad and the huge French and Russian financial interests in pre-liberation Iraq. Prior to the regime change in April 2003, French and Russian oil companies possessed oil contracts with the Saddam Hussein regime that covered roughly 40 percent of the country's oil wealth.8
Without a shred of evidence, European and domestic critics have frequently derided the Bush Administration's decision to go to war in Iraq as an "oil grab" driven by U.S. corporations such as Halliburton. They ignore the reality that the leading opponents of war at the U.N. Security Council--Russia and France--had vast oil interests in Iraq, protected by the Saddam Hussein regime. The Oil-for-Food program and its elaborate system of kickbacks and bribery was also a major source of revenue for many European politicians and business concerns, especially in Moscow.
Congressional hearings on the financial, political, and military links among Moscow, Paris, and Baghdad will help to shed light on the tempestuous Security Council debates that preceded the war with Iraq and on the motives of key Security Council members in opposing regime change in Baghdad. The full disclosure of the Russian and French roles in trying to prevent Saddam Hussein's removal from power will have major implications for the future of U.S.-Russian and U.S.-French relations and should result in a more informed assessment of the long-term viability of political, intelligence, and military cooperation with the two countries.
Hearings would also shed light on the extent of strategic cooperation between Paris and Moscow in the Security Council and the long-term threat that the emergence of a Franco-Russian-German axis at the United Nations could pose to U.S. interests.
Oil for Food and Terrorism
In addition to propping up Saddam's regime and buying influence abroad, some Oil-for-Food revenues may have been diverted to funding terrorism. At least two shadowy entities--Asat Trust and al-Taqwa, which have been linked to al-Qaeda, Hamas, and other Islamic extremist organizations--profited from the Oil-for-Food program.9 Asat Trust, a firm that the U.S. and the U.N. later designated as a financial collaborator of al-Qaeda, was the legal representative of the Galp International Trading Establishment, a Liechtenstein-based subsidiary of Portugal's major oil company and one of Iraq's trading partners under the Oil-for-Food program after 1997.
Al-Taqwa (awe of God) was a group of financial institutions set up in the 1980s by prominent members of the Muslim Brotherhood, an anti-Western Islamic organization founded in Egypt in 1928. According to a White House press release, al-Taqwa and its affiliates "raise, manage, invest, and distribute funds for al-Qaeda; provide terrorist supporters with internet service and secure telephone communications; and arrange for the shipment of weapons."10 A former FBI counterterrorism specialist also charges that al-Taqwa was used by the Palestinian terrorist group Hamas and several North African terrorist groups affiliated with al-Qaeda.11 According to a senior government official, "Al-Taqwa was the recipient of illicit funds from Iraq's Oil for Food program," and the money flowed "through al-Taqwa to al-Qaeda."12
Another reported recipient of Oil-for-Food largesse was Delta Services, a now-defunct subsidiary of Delta Oil, a Saudi oil company that had close relations with the Taliban regime in Afghanistan. Delta Oil was one of the prime movers pushing for the building of a pipeline from oil-rich Central Asia across Afghanistan to Pakistan. This scheme collapsed after al-Qaeda bombed two U.S. embassies in East Africa in August 1998, provoking an American cruise missile strike on al-Qaeda training camps in Afghanistan.
Another target of retaliation for the embassy bombings was the Al Shifa pharmaceutical plant in Khartoum, Sudan. Osama Bin Laden was suspected of owning at least part of the plant, although this has never been proven. However, according to Clinton Administration officials, the plant manager lived in a villa owned by bin Laden, and U.S. intelligence intercepted phone calls from the plant to the Iraqi official who ran Saddam Hussein's chemical weapons program. Before being destroyed, the Al Shifa plant also received a contract for $199,000 under the Oil-for-Food program.13
Although much remains unknown about the precise flow of money from the Oil-for-Food program, there is a disturbing pattern emerging that connects the U.N.-administered program to a number of entities that are known to support or are suspected of supporting terrorism.
United Nations Reform
A congressional investigation into the Oil-for-Food scandal should seek fundamental and lasting reform of the United Nations. No other issue has as much power to shape the future of the United Nations in such a positive way. The Oil-for-Food investigations should not be interpreted as a campaign to damage the reputation of the U.N., but as a concerted effort to ensure that the U.N. is made more accountable, transparent, and effective.
The Oil-for-Food scandal reinforces the need for the Security Council to impose a code of conduct on U.N. employees. The pervasive "anything goes" approach at the U.N. is unacceptable and should not be tolerated. A thorough external audit of the U.N. is needed. The U.N. must provide accountability, transparency, and value for money to the U.S. taxpayer.14
What the U.S. Should Do
To respond effectively to this growing scandal, the U.S. can and should pursue several courses of action. Specifically:
Conference Committee Action. The conference committee for the National Defense Authorization Act should ensure that the Ensign Amendment is included in the committee's conference report.
Volcker Commission of Inquiry. The Bush Administration and Congress should press the U.N. Security Council to give real teeth to its own commission of inquiry. As it currently stands, the Volcker commission lacks real power and credibility. The Bush Administration should press for a Security Council-appointed investigation, with subpoena power and a team of special investigators drawn from the FBI, the U.S. Department of Justice, and international bodies such as Interpol. The investigation should be completely independent of the United Nations and staffed with non-U.N. employees. Congress should continue to pressure the United Nations to cooperate fully with investigators in New York, Washington, and Baghdad and should call for Paul Volcker to give a firm date for the release of his report into Oil for Food.
Further Congressional Hearings. Further hearings are necessary to address growing allegations of U.N. interference with Oil-for-Food investigations and charges that the CPA impeded investigations in Baghdad. Hearings should also examine Kofi Annan's role in the scandal and how the Oil-for-Food program may have influenced Security Council debates over U.S. plans to liberate Iraq. Congress should also reassess the future U.N. role in Iraq in light of the U.N.'s administrative failure in the Oil-for-Food program.
U.S. Funding of the U.N. Future U.S. funding of the United Nations or U.N. specialized agencies should depend on substantial, not cosmetic, reform of the world body. Failure to prosecute U.N. officials implicated in wrongdoing should also result in reduced U.S. funding, particularly for the Secretariat, which had responsibility for overseeing the Oil-for-Food program. Withheld funds should be placed in an escrow account with the provision that they will be released only after firm evidence of major U.N. reform has emerged.
Securing Documents in Baghdad. The U.S. government should make every effort to ensure that key documents relating to Oil for Food in Baghdad and New York and around the world are preserved. In cooperation with the interim Iraqi government, copies of key documents should be sent to congressional investigators in Washington.
European and Arab Governments. The Bush Administration should urge European and Arab governments to launch their own probes of any citizens who are accused of accepting bribes from Saddam Hussein. British Prime Minister Tony Blair should be strongly encouraged to investigate the allegedly close relationship between former Labour MP George Galloway and Saddam Hussein. Similarly, the French government should be urged to investigate the allegations against politicians such as Charles Pasqua.
Kofi Annan. Overall responsibility for the U.N.'s management of Oil for Food lies with Secretary General Annan. If it is established that he ignored the damning findings of internal U.N. audits of the Oil-for-Food program, he should resign.
Prosecution of U.N. Officials in Iraqi Courts. Iraqi courts would be the appropriate venue for trying and sentencing individuals implicated in criminal wrongdoing by a Security Council-appointed investigation. The United States should press the Security Council to recommend waiving diplomatic immunity for U.N. employees implicated in crimes relating to the Oil-for-Food program. The U.S. should also encourage individual governments to extradite to Iraq anyone indicted for allegedly committing crimes relating to the Oil-for-Food program, to the same extent they would extradite citizens for any other serious crime.
U.N. Role in Iraq. The United Nations' failure to support removing Saddam Hussein from power, combined with its shameful record on Oil for Food, should exclude it from any leading role in crafting a democratic, free Iraq.
Conclusion
The abuse of the Oil-for-Food program was the result of a staggering management failure by the U.N. and raises troubling questions regarding the U.N.'s credibility and competence. Congress has played a crucial role in bringing the Oil-for-Food scandal to international attention by casting a bright spotlight on an issue the U.N. would prefer to forget. Congress needs to maintain relentless pressure on the U.N. to hold its own officials accountable for both their actions and their inactions.
The Bush Administration should play a bigger role in pressing for an effective, truly independent Security Council investigation. President George W. Bush should take the lead in condemning the abuse of the Oil-for-Food program and calling for U.N. officials and member states to cooperate fully with Security Council, congressional, and Iraqi investigations. The White House should make it clear that it fully supports congressional efforts to investigate the Oil-for-Food scandal and that effective reform of the United Nations is a priority issue for the United States.
Nile Gardiner, Ph.D., is Fellow in Anglo-American Security Policy and James Phillips is Research Fellow in Middle Eastern Studies in the Kathryn and Shelby Cullom Davis Institute for International Studies, and James Dean is Deputy Director of Government Relations, at The Heritage Foundation. The authors are grateful to Paul Rosenzweig, Senior Legal Research Fellow in the Center for Legal and Judicial Studies at The Heritage Foundation, for his advice and recommendations.
1. For further background, see Nile Gardiner, Ph.D., and James Phillips, "Investigate the United Nations Oil-for-Food Fraud," Heritage Foundation Backgrounder No. 1748, April 21, 2004, at new.heritage.org/Research/InternationalOrganizations/bg1748.cfm.
2. The list of names was originally published in January in the Arabic Iraqi newspaper Al Mada. For a translation, see Nimrod Raphaeli, "The Saddam Oil Vouchers Affair," Middle East Media Research Institute, February 20, 2004, at memri.org/bin/articles.cgi?Page=archives&Area=ia&ID=IA16404 (June 21, 2004).
3. Joseph A. Christoff and Davi M. D'Agostino, "Recovering Iraq's Assets: Preliminary Observations on U.S. Efforts and Challenges," testimony before the Subcommittee on Oversight and Investigations, Committee on Financial Services, U.S. House of Representatives, GAO-04-579T, March 18, 2004, at financialservices.house.gov/media/pdf/031804gao.pdf (June 21, 2004).
4. The bills call for a 10 percent reduction in the U.S. contribution to the United Nations unless the President certifies that the U.N. is fully cooperating with all investigations.
5. The report was leaked to Mineweb, an international publication focusing on mining finance and corporate news. See United Nations, Internal Audit Division, Office of Internal Oversight Services, "Management of the Contract for Provision of Independent Inspection Agents in Iraq," OIOS Audit No. AF2002/32/1, April 8, 2003, posted by Mineweb, at www.mineweb.net/download_files/sections/AuditOIOS_AF2002_23_1.pdf (June 21, 2004). For analysis of the U.N. report, see Tim Wood, "Leaked UN Audit Proves Oil for Food Shambles," Mineweb.net, May 19, 2004, at www.mineweb.net/sections/energy/oilshambles.htm (June 21, 2004), and Fox News, "UN Audit Found Early `Oil-for-Food' Problems," May 20, 2004, at www.foxnews.com/story/0,2933,120391,00.html (June 23, 2004).
6. For analysis of the Sevan letters, see Claudia Rosett, "`We Have Other Priorities': Why Won't the UN Answer Questions About Its Iraq Scandal?" The Wall Street Journal, May 5, 2004, and Editorial, "The Volcker Excuse," The Wall Street Journal, May 5, 2004.
7. See Claude Hankes-Drielsma, testimony before the Subcommittee on National Security, Emerging Threats, and International Relations, Committee on Government Reform, U.S. House of Representatives, April 21, 2004, at reform.house.gov/UploadedFiles/Oil-for-Food%20Hankes%20Drielsma%20Testimony.pdf (June 21, 2004). For further background on the CPA's role in slowing the Oil-for-Food investigations in Baghdad, see Robin Gedye, "Bremer Office `Hampering Oil for Food Corruption Inquiry,'" The Daily Telegraph, May 17, 2004, at www.telegraph.co.uk/news/main.jhtml?xml=/news/2004/05/17/woil17.xml&sSheet=/news/2004/05/17/ixnewstop.html (June 21, 2004); Claudia Rosett, "Cover-Up Culture: When Will the Real Oil for Food Investigations Begin?" National Review Online, May 27, 2004, at www.nationalreview.com/rosett/rosett200405262134.asp (June 21, 2004); and Editorial, "Bigfooted in Baghdad," The Wall Street Journal, May 19, 2004.
8. See Carrie Satterlee, "Facts on Who Benefits from Keeping Saddam Hussein in Power," Heritage Foundation WebMemo No. 217, February 28, 2003, at www.heritage.org/Research/MiddleEast/wm217.cfm.
9. See Marc Perelman, "Oil for Food Sales Seen as Iraq Tie to Al Qaeda," Forward, June 20, 2003, at www.forward.com/issues/2003/03.06.20/news2.html (June 21, 2004). See also Claudia Rosett, "Oil for Terror?" National Review Online, April 18, 2003, at www.nationalreview.com/comment/rosett200404182336.asp (June 21, 2004).
10. The White House, "Terrorist Financial Network Fact Sheet: Shutting Down the Terrorist Financial Network," November 7, 2001, at www.whitehouse.gov/news/releases/2001/11/20011107-6.html (June 21, 2004).
11. Matthew Levitt, "Combating Terrorist Financing: Where the War on Terrorism Intersects the Roadmap," Jerusalem Issue Brief, Vol. 3, No. 4 (August 2003), p. 3.
12. Scott Wheeler, "The Link Between Iraq and Al-Qaeda," Insight, October 14, 2003, at www.insightmag.com/global_user_elements/printpage.cfm?storyid=477622 (June 21, 2004).
13. Stephen Hayes, "The Clinton View of Iraqi-Al Qaeda Ties," The Weekly Standard, December 29, 2003.
14. For further discussion of United Nations reform, see Nile Gardiner, Ph.D., and Baker Spring, "Reform the United Nations," Heritage Foundation Backgrounder No. 1700, October 27, 2003, at new.heritage.org/Research/InternationalOrganizations/BG-1700.cfm.
? 1995 - 2004 The Heritage Foundation
All Rights Reserved.


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>> IRAN

UN group defers to Iran, rejects U.S. deadline
SPECIAL TO WORLD TRIBUNE.COM
Monday, September 20, 2004
LONDON - The International Atomic Energy Agency has rejected a U.S. effort to set a deadline for an end to Iran's uranium enrichment program.
Instead, the IAEA expressed concern over Iran's intention to introduce 37 tons of yellowcake, a milled uranium oxide regarded as the first element in the enriched uranium process. But the resolution did not threaten any measures against Teheran, Middle East Newsline reported.
The United States protested the decision.
"To wait until the IAEA finds the nuclear weapons is to wait until it is too late," U.S. chief delegate Jackie Sanders told the IAEA board.
"With every passing week, Iran moves that much closer to reaching the point where neither we, nor any other international body, will be able to prevent it from achieving nuclear weapons capacity."
The resolution set a Nov. 25 deadline for a review of Iran's nuclear program and called for the suspension of Teheran's uranium enrichment activities.
The resolution regarding Iran, a signatory to the Nuclear Non-Proliferation Treaty, was passed unanimously by the agency's 35-nation board of governors.
The resolution on Saturday called on IAEA director-general Mohammed El Baradei to submit a report in advance of the November board meeting regarding Iranian compliance. The El Baradei report would also address previous resolutions that called for a "full suspension of all [Iranian] enrichment-related and reprocessing activities."
"It [IAEA at November meeting] will decide whether or not further steps are appropriate in relation to Iran's obligations under its NPT Safeguards Agreement," the resolution said.
The latest resolution, which marked the end to the agency's board of governors meeting in Vienna, called for a halt to a range of Iranian nuclear activities.
"...Iran [should] immediately suspend all enrichment-related activities, including the manufacture or import of centrifuge components, the assembly and testing of centrifuges," the resolution said. "[The resolution] calls again on Iran, as a further confidence-building measure, voluntarily to reconsider its decision to start construction of a research reactor moderated by heavy water."
At the same time, the resolution failed to set an automatic trigger that would send the Iranian nuclear issue to the United Nations Security Council for possible sanctions. The agency, over U.S. objections, also insisted that the resolution contain a clause that reiterated Iran's right to administer a civilian nuclear program.
Iran has pledged to continue its nuclear program as well as uranium enrichment. But Iranian officials said Teheran would decide over the next week whether to temporarily suspend uranium enrichment.
For his part, El Baradei said inspectors have not found evidence that Iran was producing nuclear weapons. But the IAEA's latest report said inspectors required further study of Iran's nuclear program, including such issues as enriched uranium contamination, the scope of the P-2 centrifuge program and the timeframe of Iran's plutonium separation experiments.
U.S. officials said the resolution could mark a turning point in diplomatic efforts to halt Iran's nuclear weapons program. They said the agency was being ordered to end nearly two years of investigation by determining whether Teheran has been in compliance with the NPT.
Copyright ? 2004 East West Services, Inc.

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Iranian Tales
An evil regime.
As our leaders, hypnotized by the cobra's fatal dance and entranced by the fakir's music, stand immobile while the mullahs complete their nuclear program, it may be useful for the rest of us to maintain a clear-eyed understanding of the nature of the most formidable terror regime in the world. Would that our oxymoronic intelligence community and the feckless foreign service paid attention, but that would be more difficult than liberating Iran itself. Two recent events provide the basic profile.
First is the story of Sheikh Rasini of Tehran, a religious leader of middling importance who attracted the attention of some of the more sober officials of the Revolutionary Guard in the mid-Nineties. It seems Rasini was spending a lot of time in the intimacy of young boys, and showed other signs of corruption. The Guardians of the Revolution objected, and took their complaints to the Ayatollah Milani, who duly issued a fatwa authorizing a violent death for the sheikh. But Rasini turned the tables on his accusers and had them thrown into the nightmarish Evin Prison in Tehran, where Milani and the others were killed.
Rasini continued his active support of gay marriage until, a couple of months ago, he was surprised en flagrante and hauled before an Islamic tribunal for his conjugal activities with one Amir. The situation looked grave for the sheikh until the mullahs came up with an imaginative solution. Amir was "converted" to the opposite sex by some of Tehran's finest surgeons, thereby removing -- quite literally -- the basis for the accusation.
Amir is now Zohreh, and she and her sheikh may well live happily for the foreseeable future.
Then comes the story of Mehdi Derayati, also of Tehran, whose midadventures were reported a couple of days ago by ILNA, the Islamic Labor News Agency. Mehdi Derayati is a young Iranian who worked for a while with some internet news sites that apparently published some stuff that offended the mullahcracy. Like hundreds of young Iranians who enrage the mullahs, Mehdi was summarily rounded up and carted off...who knows where. It's a very common occurrence in the country that our Deputy Secretary of State, Richard Armitage, calls a "democracy," and it would hardly be worth mentioning were it not for Mehdi's lineage. For he is the son of Mustafa Derayati, the personal adviser on clerical affairs to President Khatami.
Mustafa Derayati was so upset at the mistreatment of his boy that he gave a public interview. "All we have had is a few phone calls from him, we know he has been arrested but no law-enforcement authority is telling us where he is. They just say we have acted in accordance with our duties."
To which my pen pal Potkin Azarmehr neatly adds, "Well there you go. So much for Khatami's "Civil Society" which fooled so many gullible anti-Americans in Europe. Here is an example of an Islamic Civil Society where the president's adviser is unable to find out where his son is incarcerated. What hope for the ordinary Iranian parents searching for their abducted sons or daughters?"
When people ask me why the Iranian people so hate the regime, I begin telling them stories like these, because no list of adjectives, no amount of statistics on social misery, child prostitution, unemployment, corruption of the elite, or drug addiction can convey the horror of this murderous tyranny. If a mullah is caught committing an act that would automatically lead to the death penalty for an ordinary citizen, the problem is "fixed" by a sex-change operation on his partner. But even the son of a counselor to the president can be "vanished" without any accountability.
Can you imagine these creatures with atomic bombs? And yet the U.N. issues yet another "deadline" for the end of November, the European Union preens itself on its avoidance of conflict, even with evil, the president speaks bravely but does nothing to support freedom in Iran, and his challenger lets it be known that, if elected, he will offer the mullahs the same misguided nuclear deal that has already failed in North Korea.
Pfui.
-- Michael Ledeen, an NRO contributing editor, is most recently the author of The War Against the Terror Masters. Ledeen is Resident Scholar in the Freedom Chair at the American Enterprise Institute.
http://www.nationalreview.com/ledeen/ledeen200409200836.asp

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>> RUSSIA

Russia: Our Partner in the War on Terror?
By John Radzilowski
FrontPageMagazine.com | September 20, 2004
The horrific mass murder of schoolchildren and their families in Beslan, Russia, by Chechen terrorists has brought widespread sympathy from Americans for the victims and for the Russian people. Many Americans have also felt encouraged by the mass rallies in Moscow against terrorism and by Russian President Vladimir Putin's vow to take unilateral action anywhere in the world against terrorists. The hope has risen that, after opposing the U.S. in Iraq, Russia is now "on side" in the fight against militant Islam.
But the reality is far more complicated.
Russian foreign policy has long been opposed to fundamental American interests--before and after 9/11--despite official statements from the Putin government and the beliefs of many Russia experts in American academia and policy circles. And there is little indication that Russia's policies will change for the better. Even if they did, Russia has a poor record in waging low-intensity conflicts and any action it may take could easily backfire.
Russia has long been a key supporter of rogue states in the Middle East, even building a nuclear reactor for the atomic ayatollahs in Tehran. Only with Russian assistance has Iran been able to sustain its nuclear weapons program.
Russia played a crucial role in rearming Saddam Hussein after the First Gulf War. Russian contractors from companies with close links to the Russian military were meeting with Saddam and his inner circle almost until the very end of that corrupt and brutal regime. Russia not only provided basic weapons but also more sophisticated items, such as night vision equipment. Belarus, whose megalomaniac dictator is closely tied to Russia, was helping to rebuild Saddam's air defense system and providing a wide range of other weapons to the Iraqi dictator (many shipped through Syria). It is unlikely the Belarusans would have done this without tacit Russian approval.
In return, money from Saddam's oil for food program greased the wheels for Russian officials, both inside the government and in the semi-official channels where real power is distributed in Russia. Documents found in Baghdad after the fall of Saddam revealed that the largest number of payoffs went to Russian recipients, most of them of them governmental or quasi-governmental.
There is no indication that the massacre in Belsan will result in any change in a Russian policy that has paid such dividends for Russia's leaders. There may be tough talk and an increase in military activity along Russia's southern border, but real change is highly unlikely. Ordinary Russians, like those slaughtered in Beslan, will be the losers. (Though to be accurate, most of the victims of the school massacre were ethnic Ossetians.)
In a normal society, the government acts to protect its citizens. In America, 9/11 not only led to widespread outrage and anger, it forced our government to make major changes in an effort to prevent further attack. In Russia, the government simply does not care about its people. There, the people exist to serve the state, not the state the people. So while Russian leaders will use the murder of children in Beslan to further their own goals, fundamental change is unlikely.
The Russian leadership has traditionally seen its own people as expendable. During World War II, NVKD troops forced masses of raw recruits to charge at gunpoint across Nazi minefields to clear the way for Soviet tanks. This attitude was best summed up by seventeenth century Russian leaders who, after their massive army was wiped out in an attempted invasion of Poland, responded: "We have a lot of people."
Russian "help" in the fight against Islamic extremism is likely to hurt the U.S. and its allies. Russia's effort to suppress rebellious Chechnya has featured indiscriminate bombing of towns and cities, mass execution of civilians, torture, and countless other abuses. Furthermore, if history is any guide, Russia is likely to target moderate Chechens that can be easily located and shot rather than the hardcore fanatics responsible for the school massacre.
Chechyna today is a lawless wasteland where the innocent are punished because the guilty have fled to the hills with guns and it is too much trouble to root them out. Russian tactics have not only proven totally ineffective--demonstrating that they learned little from the Afghan fiasco in the 1980s--but have hardened Chechen resistance. Contrast this with the U.S. approach in both Afghanistan and Iraq: careful use of precision weapons, surgical ground strikes led by special forces, an emphasis on gathering local intelligence, quickly restoring civilian infrastructure, and training a cadre of local allies who have a stake in stabilizing the country.
Russia's fundamental interests include reducing American power and influence, and re-establishing control over neighboring countries that gained independence in the early 1990s. These goals have been open secrets for years and often politely ignored by American policymakers and their academic fellow travelers. Russia's pursuit of these interests can only increase regional instability and, if pursued aggressively enough, provide new breeding grounds for terror. It could also poison America's effort to bring some measure of stability to countries like Afghanistan.
Americans must be very careful about listening to government statements from Russian officials; they sound good but have little substance. As in France and Germany, such officials know how to play the American media like a fine violin, realizing it is the key to shaping American opinion. They must also be careful about the mainstream media's favorite Russia experts, many of whom are recycled Sovietologists whose ability to accurately assess events in Russia is infamously poor.
The internal discourse in Russia is quite different than what appears in official statements directed toward the West. The foreign policy and military establishment remains committed to re-establishing an empire, not combating terrorism. Many aspects of the Beslan massacre and the military's miscues during the rescue have been covered up to present a sanitized version of elite special forces doing their best to save the trapped children. The Russian public, however, is deeply skeptical of the official version of events. While outraged by the massacre, few believe their government has told them the whole truth. Russians are hardly uniting behind the Putin regime as Americans did behind George Bush in the wake of 9/11.
Under such circumstances, America must be very cautious in accepting Russia as a bone fide partner in the global war on terror. Naturally, real Russian help would be welcome, but while Russia continues its aid for Iran's nuclear ambitions and its opposition to America's effort to rebuild a stable Iraq, this is one "ally" we cannot afford to trust.
John Radzilowski, Ph.D., is a senior fellow at the Piast Institute, Detroit, and is the author or co-author of 11 books and numerous articles. He can be contacted at jradzilow@aol.com.

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Kerry's Flip-Flopping on Russia
By Vance Serchuk
Posted: Friday, September 17, 2004
ARTICLES
The Daily Standard
Publication Date: September 16, 2004
In reaction to Russian President Vladimir Putin's announcement this week of plans to curtail democratic institutions in Russia and assert increased political control over the country from Moscow, Democratic presidential nominee Senator John Kerry criticized President Bush for having "taken his eye off the ball--ignoring America's interest in seeing democracy advance in Russia," and promised that, under his administration, "The fate of freedom and democracy in Russia will once again be priorities of American foreign policy."
Fair enough--but for the fact that Kerry told the Washington Post in May that, as president, he "would play down the promotion of democracy in dealing with . . . Russia." Instead, the Senator pledged to focus "on other objectives . . . more central to the United States' security." He also rejected the idea--put forward last January by then-rival, now-running mate John Edwards--that Russia's membership in the G-8 should be linked to democratic reforms.
It seems that whatever the issue--be it Iraq, the war on terror, or now Russia--Senator Kerry has a hard time knowing his own mind.
Vance Serchuk a research associate, in defense and security policy studies at the American Enterprise Institute.

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No Peter the Great
Vladimir Putin is in the Andropov mold.
By Ion Mihai Pacepa
Vladimir Putin looks more and more like a heavy-handed imitation of Yuri Andropov -- does anyone still remember him? Andropov was that other KGB chairman who rose all the way up to the Kremlin throne, and who was also once my de facto boss. Considering that Putin has inherited upwards of 6,000 suspected strategic nuclear weapons, this is frightening news.
Former KGB officers are now running Russia's government, just as they did during Andropov's reign, and the Kremlin's image -- another Andropov specialty -- continues to be more important than people's real lives in that still-inscrutable country. The government's recent catastrophic Beslan operation was a reenactment of the effort to "rescue" 2,000 people from Moscow's Dubrovka Theater, where the "new" KGB flooded the hall with fentanyl gas and caused the death of 129 hostages. No wonder Putin ordered Andropov's statue -- which had been removed after the Soviet Union's collapse in 1991 -- reinstalled at the Lubyanka.
In the West, if Andropov is remembered at all, it is for his brutal suppression of political dissidence at home and for his role in planning the 1968 invasion of Czechoslovakia. By contrast, the leaders of the former Warsaw Pact intelligence community, when I was one of them, looked up to Andropov as the man who substituted the KGB for the Communist party in governing the Soviet Union, and who was the godfather of Russia's new era of deception operations aimed at improving the badly damaged image of Soviet rulers in the West.
In early 2000, President Putin divided Russia into seven "super" districts, each headed by a "presidential representative," and he gave five of these seven new posts to former KGB officers. Soon, his KGB colleagues occupied nearly 50 percent of the top government positions in Moscow. In a brief interview with Ted Koppel on Nightline, Putin admitted that he had stuffed the Kremlin with former KGB officers, but he said it was because he wanted to root out graft. "I have known them for many years and I trust them. It has nothing to do with ideology. It's simply a matter of their professional qualities and personal relationship."
THE NATIONAL POLITICAL PASTIME
In reality, it's an old Russian tradition to fill the most important governmental positions with undercover intelligence officers. The czarist Okhrana security service planted its agents everywhere: in the central and local government, and in political parties, labor unions, churches, and newspapers. Until 1913, Pravda itself was edited by one of them, Roman Malinovsky, who rose to become Lenin's deputy for Russia and the chairman of the Bolshevik faction in the Duma.
Andropov Sovietized that Russian tradition and extended its application nationwide. It was something similar to militarizing the government in wartime, but it was accomplished by the KGB. In 1972, when he launched this new offensive, KGB Chairman Andropov told me that this would help eliminate the current plague of theft and bureaucratic chaos and would combat the growing sympathy for American jazz, films, and blue jeans obsessing the younger Soviet generation. Andropov's new undercover officers were secretly remunerated with tax-free salary supplements and job promotions. In exchange, Andropov explained, they would secretly have to obey "our" military regulations, practice "our" military discipline and carry out "our" tasks, if they wanted to keep their jobs. Of course, the KGB had long been using diplomatic cover slots for its officers assigned abroad, but Andropov's new approach was designed to influence the Soviet Union itself.
The lines separating the leadership of the country from the intelligence apparatus had blurred in the Soviet satellites as well. After I was granted political asylum in the United States in July 1978, the Western media reported that my defection had unleashed the greatest political purge in the history of Communist Romania. Ceausescu had demoted politburo members, fired one-third of his cabinet, and replaced ambassadors. All were undercover intelligence officers whose military documents and pay vouchers I had regularly signed off on.
THE MAKING OF A DICTATOR
General Aleksandr Sakharovsky, the Soviet gauleiter of Romania who rose to head the Soviet foreign intelligence service for an unprecedented 15 years, used to predict to me that KGB Chairman Andropov would soon have the whole Soviet bloc in his vest pocket, and that he would surely end up in the Kremlin. Andropov would have to wait ten years until Brezhnev died, but on November 12, 1982, he did take up the country's reins. Once settled in the Kremlin, Andropov surrounded himself with KGB officers, who immediately went on a propaganda offensive to introduce him to the West as a "moderate" Communist and a sensitive, warm, Western-oriented man who allegedly enjoyed an occasional drink of Scotch, liked to read English novels, and loved listening to American jazz and the music of Beethoven. In actual fact, Andropov did not drink, as he was already terminally ill from a kidney disorder, and the rest of the portrayal was equally false.
In 1999, when Putin became prime minister, he also surrounded himself with KGB officers, who began describing him as a "Europeanized" leader -- capitalizing, ironically, on the fact that he had been a KGB spy abroad. Yet Putin's only foreign experience had been in East Germany, on Moscow's side of the Berlin Wall. Soon after that I visited the Stasi headquarters in Leipzig and Dresden to see where Putin had spent his "Europeanizing" years. Local representatives of the Gauck Commission -- a special post-Communism German panel researching the Stasi files -- said that the "Soviet-German 'friendship house'" Putin headed for six years was actually a KGB front with operational offices at the Leipzig and Dresden Stasi headquarters. Putin's real task was to recruit East German engineers as KGB agents and send them to the West to steal American technologies.
I visited those offices and found that they looked just like the offices of my own midlevel case officers in regional Securitate directorates in Romania. Yet Moscow claims Putin had held an important job in East Germany and was decorated by the East German government. The Gauck Commission confirmed that Putin was decorated in 1988 "for his KGB work in the East German cities of Dresden and Leipzig." According to the West German magazine Der Spiegel, he received a bronze medal from the East German Stasi as a "typical representative of second-rank agents." There, in those prison-like buildings, cut off even from real East German life by Stasi guards with machine guns and police dogs, Lieutenant Colonel Putin could not possibly have become the modern-day, Western-oriented Peter the Great that the Kremlin's propaganda machine is so energetically spinning.
Indeed, on December 20, 1999, Russia's newly appointed prime minister visited the Lubyanka to deliver a speech on this "memorable day," commemorating Lenin's founding of the first Soviet political police, the Cheka. "Several years ago we fell prey to the illusion that we have no enemies," Putin told a meeting of top security officials. "We have paid dearly for this. Russia has its own national interests, and we have to defend them." The following day, December 21, 1999, another "memorable day" in Soviet history -- Stalin's 120th birthday -- Putin organized a closed-door reception in his Kremlin office reported as being for the politicians who had won seats in the Duma. There he raised a glass to good old Iosif Vissarionovich Dzhugashvili (Stalin, meaning "man of steel," was the dictator's nom de guerre).
Days later, in a 14-page article entitled "Russia on the Threshold of a New Millennium," Putin defined Russia's new "democratic" future: "The state must be where and as needed; freedom must be where and as required." The Chechens' effort to regain their independence was mere "terrorism," and he pledged to eradicate it: "We'll get them anywhere -- if we find terrorists sitting in the outhouse, then we will piss on them there. The matter is settled." It is not.
SCAPEGOATING AND CONSOLIDATING
On September 9, 2004, Chechen nationalists announced a $20 million prize on the head of the "war criminal" Vladimir Putin, whom they accuse of "murdering hundreds of thousands of peaceful civilians on the territory of Chechnya, including tens of thousands of children."
For his part, President Putin tried to divert the outrage over the horrific Breslan catastrophe away from his KGB colleagues who had caused it, and to direct public anger toward the KGB's archenemy, the U.S. Citing meetings of mid-level U.S. officials with Chechen leaders, Putin accused Washington of having a double standard when dealing with terrorism. "Why don't you meet Osama bin Laden, invite him to Brussels or to the White House and engage in talks, ask him what he wants and give it to him so he leaves you in peace?" Putin told reporters in Moscow.
Then Putin blamed the collapse of the Soviet Union for what he called a "full scale" terrorist war against Russia and started taking Soviet-style steps to strengthen the Kremlin's power. On September 13, he announced measures to eliminate the election of the country's governors, who should now be appointed by the Kremlin, and to allow only "certified" people -- that is, former KGB officers -- to run for the parliament.
When the Soviet Union collapsed, its people had a unique opportunity to cast out their political police, a peculiarly Russian instrument of power that has for centuries isolated their country from the real world and in the end left them ill-equipped to deal with the complexities of modern society. Unfortunately, up until then most Russians had never owned property, had never experienced a free-market economy, and had never made decisions for themselves. Under Communism they were taught to despise Western democracy and everything they believed to be connected with capitalism, e.g., free enterprise, decision-making, hard work, risk-taking, and social inequality. Moreover, the Russians had also had minimal experience with real political parties, since their country has been a police state since the 16th century. To them, it seemed easier to continue the tradition of the political police state than to take the risk of starting everything anew.
But the times have changed dramatically. My native country, which borders Russia, is a good example. At first, Romania's post-Communism rulers, for whom managing the country with the help of the political police was the only form of government they had ever known, bent over backwards to preserve the KGB-created Securitate, a criminal organization that became the symbol of Communist tyranny in the West. Article 27 of Romania's 1990 law for organizing the new intelligence services stated that only former Securitate officers "who have been found guilty of crimes against fundamental human rights and against freedom" could not be employed in the "new" intelligence services. In other words, only Ceausescu would not have been eligible for employment there. Today, Romania still has the same president as in 1990, but his country is now a member of NATO and is helping the U.S. to rid the world of Cold War-style dictators and the terrorism they generated.
Russia can also break with its Communist past and join our fight against despots and terrorists. We can help them do it, but first we should have a clear understanding of what is now going on behind the veil of secrecy that still surrounds the Kremlin.
-- Ion Mihai Pacepa, a former two-star general, is the highest-ranking intelligence officer to have defected from the Soviet bloc. His book Red Horizons has been republished in 27 countries.
http://www.nationalreview.com/comment/pacepa200409200814.asp

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>> IAEA

U.N. nuclear agency asleep at the switch
By Bill Gertz
THE WASHINGTON TIMES
The United States stood by for years as supposed allies helped its enemies obtain the world's most dangerous weapons, reveals Bill Gertz, defense and national security reporter for The Washington Times, in the new book "Treachery" (Crown Forum).

Last of three excerpts
Hoshyar Zebari, Iraq's new foreign minister, delivered a memorable address to the United Nations Security Council in New York on Dec. 16, 2003.
Zebari, an Iraqi Kurd, began his remarks by noting the historic capture, three days earlier, of Saddam Hussein. Then, after laying out a plan for Iraq to become a democracy, the foreign minister lowered the boom on the assembled diplomats.
"One year ago," Zebari said, "this Security Council was divided between those who wanted to appease Saddam Hussein and those who wantedto hold him accountable. The United Nations as an organization failed to help rescue the Iraqi people from a murderous tyranny that lasted over 35 years, and today, we are unearthing thousands of victims in horrifying testament to that failure.
"The United Nations must not fail the Iraqi people again," he said.
It was clear to whom Zebari was referring: France, Germany, Russia and China, among others in the world body, fought U.S.-led efforts to end Saddam's bloody dictatorship.
But the organization's failure was far more significant than failing the Iraqi people. The United Nations had failed in its founding purpose: to preserve peace and international security.
It appeased Saddam for years before the United States called for decisive action.
And Saddam's Iraq is just one of many rogue regimes that the United Nations has failed to keep in check. Again and again, dangerous states have built up their militaries and weapons programs right under the world body's nose, despite sanctions and anti-proliferation agreements.
Sleeping watchdog
Three times, the United Nations' nuclear watchdog agency missed the covert nuclear-arms programs of rogue regimes, allowing those states to build deadly weapons capability under the guise of generating nuclear power.
Disclosures of the nuclear progress of North Korea, Libya and Iran came in rapid succession, within the space of about a year. If the International Atomic Energy Agency (IAEA) did not detect these programs, one must wonder what purpose the U.N. branch serves.
The United Nations established the IAEA in 1957 to help countries build nuclear facilities for generating electricity. Its initial program, Atoms for Peace, quickly became "Atoms for Bombs." And not much has changed in the past five decades, except the size of the program.
Today, the IAEA has about 2,200 staff members at its headquarters in Vienna, Austria, and at four regional offices in Geneva, New York, Toronto and Tokyo. Its budget for 2004 was $268.5 million.
The IAEA's statutory purpose is to assist in transferring expertise and equipment for the "peaceful" use of nuclear power. The international agency also is charged with making sure that nations do not divert equipment or material for nuclear-energy development into weapons programs.
Specifically, Section 5 of the empowering statute directs the IAEA to "establish and administer safeguards designed to ensure that special fissionable and other materials, services, equipment, facilities and information made available by the agency or at its request or under its supervision or control are not used in such a way as to further any military purpose."
But the IAEA has not administered appropriate safeguards. And as a result, it has been fooled again and again by states such as North Korea, Iran, Libya, Syria and Iraq.
The centerpiece of the IAEA's work has been the Treaty on the Nonproliferation of Nuclear Weapons, or NPT, which went into effect on March 5, 1970.
Korean threat
Rogue states generally sign international agreements only if doing so is expedient. Nothing better illustrates this point than North Korea.
The NPT provided cover for North Korea's secret nuclear-weapons programs, allowing Pyongyang to purchase equipment, train technicians and build reactors.
North Korea was one of the agreement's 188 signatories when, in the fall of 2002, the communist regime of Kim Jong-il revealed that it secretly had been developing nuclear weapons.
The IAEA failed to anticipate or uncover North Korea's nuclear-weapons program. The agency admitted as much last year, when it reported: "The agency has never had the complete picture regarding [North Korean] nuclear activities."
Pyongyang froze plutonium production as part of a 1994 pact with the United States known as the Agreed Framework. But the CIA noted in 1995, in a classified Special National Intelligence Estimate: "Based on North Korea's past behavior, the [intelligence] community agrees it would dismantle its known program [only] if it had covertly developed another source of fissile material."
Sure enough, North Korea's disclosure in October 2002 of its uranium-enrichment activity confirmed that Pyongyang was trying to build nuclear bombs. In essence, Kim and the North Koreans were announcing that membership in the NPT had been a ruse all along.
Still, the IAEA did not take a hard line with Kim. It responded to the disclosure by sending faxes requesting "clarification." The North Koreans ignored the request.
Saber-rattling
The IAEA adopted a resolution calling on Pyongyang to cooperate. The North Koreans responded with a letter saying that they rejected the U.N. agency's unfair and unilateral approach.
The director of North Korea's nuclear program, Ri Je-son, stated in a letter dated Dec. 4, 2002, that Pyongyang would resume nuclear work if the United States did not resume oil shipments to North Korea.
Then, on Jan. 10, 2003, North Korea unceremoniously abandoned its partners in the NPT. In a broadcast on Kim's state radio, government commentator Jong Pong-kil said the decision to pull out was a defensive measure:
"The United States trampled on the NPT and the [North Korean]-U.S. Agreed Framework and is trying to crush us by all means," Jong declared. "By even mobilizing the IAEA, the United States is compelling us to give up the right of self-defense. Under such conditions, it is clear to everyone that we cannot let the country's security and the nation's dignity be infringed upon by remaining in the NPT treaty."
Jong then added a threat: "If the U.S. imperialists and their following forces challenge our republic's withdrawal from the NPT with new pressure and sanctions, we will respond with a stronger self-defensive measure."
In other words, the North Koreans, who already had shown that their membership in the NPT was a ruse, were announcing that they would keep building nuclear arms.
The IAEA's response to Jong's announcement was tantamount to appeasement. Director-General Mohamed ElBaradei, an Egyptian, said North Korea must return to the NPT.
Then, during a meeting with U.S. senators, ElBaradei said: "If North Korea were to show good behavior, they need to get some assurance as to what to expect in return for good behavior, and I think that's very important in articulation of what to expect in case of compliance."
It did not matter that the North Koreans openly admitted defying the IAEA for years; ElBaradei sent the message that the international arms-control agency would impose no penalty.
The matter was sent to the U.N. Security Council, but that body did little more than express "deep concern" for the violations. The United States picked up its diplomatic approach, which produced no results. North Korea continues its drive for nuclear arms.
Iran and Libya
The United Nations also failed to confront the nuclear threat from Iran, which, like North Korea, used the NPT to acquire equipment and materials to make nuclear bombs.
When Iran's weapons work was discovered, showing that the Iranians knowingly ignored obligations to their treaty partners, the IAEA essentially ignored the violations. The agency sought only an additional "protocol" from Iran as a new safeguard.
"This is a good day for peace, multilateralism and nonproliferation," ElBaradei declared after Iran signed the protocol. "A good day for peace because the [IAEA] board decided to continue to make every effort to use verification and diplomacy to resolve questions about Iran's nuclear program."
But "verification and diplomacy" failed to stop Iran from developing nuclear arms in the first place. Despite pressure from security officials within the Bush administration, ElBaradei refused to cite Iran for breaking its obligations.
Moreover, the IAEA did not keep careful watch over Libya's nuclear-weapons program, which was further along than both U.S. intelligence or the U.N. agency had known.
When Libyan dictator Moammar Gadhafi publicly disclosed his weapons program in December 2003, the IAEA knew nothing about it. The agency said Libya should have reported its activities to the IAEA.
The IAEA was happy to report Tripoli's decision to eliminate "materials, equipment and programs which lead to the production of internationally proscribed weapons."
But the agency tried to minimize its failure to discover the program. It noted that a Libyan official characterized his nation's uranium-enrichment program as "at an early stage of development" and that "no industrial-scale facility had been built, nor any enriched uranium produced."
Algeria long since had launched its own nuclear-arms program in response to the military buildup by neighbor Libya, with which it had tense relations, reflecting how weapons proliferation only breeds further proliferation.
U.S. intelligence agencies in the spring of 1991 detected the first signs that Algeria was developing nuclear weapons with the assistance of China.
'New urgency'
The ultimate threat to peace is nuclear weapons in the hands of international terrorists.
There is a real danger that terrorists could use nuclear materials in radiological attacks, or "dirty bombs." Worse, terrorists would use them in a nuclear blast that could kill thousands or even hundreds of thousands.
To his credit, the IAEA's ElBaradei has begun to worry about this threat.
"[Nuclear] source security has taken on a new urgency since 9/11," the U.N. arms agency's director general said in a speech last year. "There are millions of radiological sources used throughout the world. Most are very weak. What we are focusing on is preventing the theft or loss of control of the powerful radiological sources."
The fact is, al Qaeda and the world's other most lethal terrorist organizations are trying to acquire nuclear arms.
The United Nations' record of failure to detect and halt nuclear threats posed by rogue states, however, casts doubt on its ability to grapple with such arms in the grip of shadowy terrorist groups.

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>> NORTH KOREA

Envoy Hopes to Lift Lid on North Korean Human Rights Situation
By Patrick Goodenough
CNSNews.com Pacific Rim Bureau Chief
September 17, 2004
Pacific Rim Bureau (CNSNews.com) - The newly-appointed U.N. special rapporteur (investigator) on North Korean human rights has expressed the hope that the authorities in the reclusive communist state will allow him to visit.
Vitit Muntarbhorn, a Thai law professor, is visiting South Korea where U.N. human rights officials have been participating in an international conference.
Muntarbhorn was appointed by the U.N. Commission on Human Rights in July, in line with a resolution taken by the 53-nation body censuring Pyongyang for human rights abuses.
The resolution urged the country to allow independent access to provide for an accurate and independent picture of the situation.
It cited reports of widespread abuses, "including torture, public executions, extrajudicial and arbitrary detention, imposition of the death penalty for political reasons, the existence of a large number of prison camps and the extensive use of forced labor; all-pervasive and severe restrictions on the freedoms of thought, conscience, religion, opinion and expression, peaceful assembly and association; and continued violation of the human rights and fundamental freedoms of women."
North Korea denounced the resolution, calling it a "U.S.-orchestrated plot," and threatened to withdraw from the UNCHR in protest.
Speaking in Seoul, Muntarbhorn said he planned later this month to formally ask North Korea, through its diplomats in Geneva, to allow him direct access to the country to carry out what he said would be a fair and independent probe into conditions there.
He is expected to report back at the UNCHR's next annual session, in March 2005.
Human rights campaigners have long been pressing for the international community to take a firmer line with North Korea. Activists have pressed the U.S. government to include discussions on human rights when meeting North Korean officials for talks about Pyongyang's nuclear weapons programs.
In what may be a positive sign, the first British government minister to visit North Korea said this week that his hosts had admitted not giving human rights high priority in their policy making.
Junior Foreign Office minister Bill Rammell said in an article published in London Thursday that North Korean officials had also confessed the existence of labor camps for political prisoners.
It's believed to be the first time North Korea has admitted the existence of the dozen or so notorious camps, where researchers allege horrific abuses including torture, forced abortions, infanticide and even the testing of chemicals on inmates.
Hundreds of thousands of political prisoners and criminals are believed to be held in the camps, in remote parts of North Korea, and malnutrition, forced labor, and beatings are reportedly commonplace.
Last October, the U.S. Committee for Human Rights in North Korea, a non-governmental organization (NGO), released a comprehensive report on North Korea's prison camp system, including satellite photographs and eyewitness accounts by defectors.
Among those sent to prison camps are defectors who managed to escape into neighboring China in the hope of eventually getting asylum in South Korea or another country, but were caught and repatriated by a fellow communist regime that does not recognize the North Koreans as refugees.
U.N. human rights commissioner Louise Arbour, who participated in this week's conference in Seoul, indicated at a press conference Thursday that Beijing should protect North Korean refugees rather than send them home.
Asked about China's policy of repatriating North Korean defectors, Arbour replied that "countries that ratified the 1951 convention on refugees have an obligation to protect persons who are in a vulnerable position."
The 1951 U.N. convention, to which China is a signatory, requires member countries to "not forcibly return asylum seekers who face persecution at home."
Human rights groups have in the past roundly criticized the U.N. refugee agency UNHCR for not pressing China sufficiently on this issue.
In its annual report on religious freedom worldwide, released this week, the State Department again named North Korea as a "country of particular concern" in this area.
The report said the state of human rights in the country was "deplorable," citing the repression of unauthorized religious groups and reports of the killing of members of underground Christian churches.
Ambassador John Hanford, head of the State Department's religious freedom office, told a press conference in Washington Wednesday that North Korea may well have "the largest religious prisoner population in the world."
The department said there were around 10,000 Protestants, 4,000 Catholics and 10,000 Buddhists in North Korea, a country of 22 million people.
South Korean NGOs believe the actual number is considerably higher.
--------------------------------------------------------------------------------

>> PORK

Pork: The Other Security Threat
09/17/04 11:10 AM Congress is finally trying to "distribut[e] antiterrorism money on the basis of threat and risk, not pork-barrel politics." James Carafano has warned against using homeland security money "to put states on another federal dole," and a bill proposed by Christopher Cox (R-CA) would reduce the minimum portion of a $2.2 billion federal fund guaranteed each state from 0.75 percent to 0.25 percent. As Carafano notes, the current formula "translates to $5.03 per capita in California and $37.94 per capita in Wyoming...40 percent of funds are immediately tied up, leaving only 60 percent for discretionary allocations." Problems in the distribution of the Urban Area Security Initiative grants remain to be addressed. Intended for "high-risk areas," the fund's "formula seriously undervalues actual intelligence and known targets" according to Carafano and its monies are scheduled to be disbursed (and dispersed) among some 80 cities rather than the original seven.
? 1995 - 2004 The Heritage Foundation
All Rights Reserved.

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>> EU?


Arbitrary and Capricious
The Precautionary Principle in the European Union Courts
Posted: Friday, September 17, 2004
PRESS RELEASES
AEI Online (Washington)
Publication Date: September 17, 2004
Arbitrary and Capricious: The Precautionary Principle in the European Courts
By Gary E. Marchant and Kenneth L. Mossman
Killer cranberry juice? The government of Denmark thinks so. Using a new legal concept, "the precautionary principle," which is based on the idea that it is better to be safe than sorry, the Danish government has prohibited the marketing of Ocean Spray cranberry juice on the grounds that the added vitamin C could conceivably harm some individuals.
The same principle is now being used by the European Union (EU) to create restrictions on U.S.-grown beef, genetically modified foods, chemicals, and various other products. This new concept goes beyond the usual application of precaution that traditionally underlies all health, safety, and environmental regulations. Initially characterized as a general policy or guideline, it has now evolved into a binding legal rule in every jurisdiction in which it has been adopted.
Furthermore, because of its inherent ambiguity and arbitrariness, the precautionary principle can be used to justify unreasonable or protectionist measures.
In Arbitrary and Capricious: The Precautionary Principle in the European Courts (AEI Press, August 20, 2004), Gary E. Marchant and Kenneth L. Mossman, experts from the Arizona State University's Center for the Study of Law, Science, and Technology, provide factual support for the U.S. challenge to the European Union in the World Trade Organization.
Through a comprehensive empirical analysis of sixty court decisions in the EU, the authors demonstrate that the EU courts have failed to provide a consistent and clear definition of the precautionary principle. Instead, the precautionary principle is being applied in an erratic manner that appears to be based solely on the political and economic interests of the decision-maker.
Some of the specific findings of this study include:
Despite the fact that the precautionary principle is being used to decide regulatory issues of enormous consequence, neither the EU regulators nor the EU courts have defined or provided any specific formulation for it. The concept therefore remains ambiguous, which permits it to be applied (or not) depending on the particular decision-maker.
The precautionary principle is being used to justify absurd and unjustified regulations in the EU. For example, individual EU countries have invoked the precautionary principle to ban products such as Kellogg's Corn Flakes, caffeinated energy drinks, and fruit juice drinks. Only a few of these decisions have been overturned by the courts.
The precautionary principle is applied inconsistently by the EU courts. In some cases, the precautionary principle is applied as a draconian sledgehammer that results in overturning longstanding due-process principles. It is also used to ban products with no evidence of risk. When applied in this manner, the precautionary principle could result in the banning of any product to which it is applied. In other cases, the precautionary principle is given no weight at all by the EU courts, having no effect on the pre-existing regulatory criteria and regulatory outcomes.
In several cases, the precautionary principle has been applied by the courts and has resulted in direct conflicts with the recommendations of the EU's own official scientific advisory bodies.
The precautionary principle is now used in more than twenty international treaties and in more than twenty countries. In Arbitrary and Capricious: The Precautionary Principle in the European Courts, Marchant and Mossman confirm many of the fears that the amorphous precautionary principle has been applied in an arbitrary and unreasonable manner that can be used to support protectionist and other inappropriate measures. Through their comprehensive empirical analysis, they warn against one of the most significant and controversial innovations in international environmental, health, and safety policy over the past quarter century.

Media inquiries: V?ronique Rodman
202.862.4871 (vrodman@aei.org)
Orders: 800.343.4499
www.aei.org/books
--------------------------------------------------------------------------------
>> POLICY


Using Social Security Personal Retirement Accounts to Create Family Nest Eggs
by David C. John
Backgrounder #1785
http://www.heritage.org/Research/SocialSecurity/bg1785.cfm
September 10, 2004
A modernized Social Security could do much more than just provide stable retirement benefits. Low-income and moderate-income workers could use Social Security to create family nest eggs that could either enhance their own retirements or be passed on to their heirs under a system of Social Security personal retirement accounts (PRAs). Because this money would stay within the community, PRAs could become a significant source of capital for businesses in low-income communities. A new Center for Data Analysis (CDA) report1 shows that if the nest egg is passed on to the worker's heirs, it could help the family to break the intergenerational cycle of poverty and keep money in the heirs' own communities.
In each of the 12 examples or case studies, every worker was able to build a nest egg through a PRA, even after using a part of the PRA to finance some of his or her monthly Social Security retirement benefits. (The government would finance the rest of the monthly retirement benefit.) The sizes of the nest eggs ranged from about three months' pay for low-income single workers to literally hundreds of thousands of dollars for moderate-income married couples.
The benefits of a PRA system that allows workers to create nest eggs include:
Inheritances would increase for all income levels. The modernized Social Security system would allow every worker at every income level the opportunity to leave a nest egg to his or her family. Currently, less than 13 percent of all households with annual incomes of less than $20,000 receive inheritances.2 Most of these workers never had the chance to build savings. Only among families with annual incomes over $100,000 does the frequency of inheritance exceed 25 percent. However, Social Security reform would not limit inheritances to the rich. People of all incomes could use their PRAs to build a cash nest egg, which they could leave to their heirs.
The system would be flexible and allow workers to control their retirement. Under the current Social Security program, workers receive only a lifetime annuity. Under a modernized Social Security program, workers could use their entire PRA for a monthly income or use only a portion of it for income and keep the rest in a family nest egg that they could use for emergencies or leave to their heirs.
Money would stay in the community and strengthen its economic base. Because the PRA is the worker's property, any money left over goes to the family. It remains in the community and is available to help it grow because the savings in those accounts could form the capital needed for new businesses. Under today's Social Security, any remaining money stays in Washington.
The reformed system assures a higher benefit than today's retirees receive under the current Social Security system. Today's system pays new retirees about $10,968 per year, while the reformed system would guarantee at least $17,960.
Workers would own their Social Security benefits. Rather than be at the mercy of politicians (who could change Social Security benefits at will), workers would own the money in their PRAs. Families could inherit that money if the worker dies before retirement or if additional funds are left over after retirement.
Workers would have a choice. No one is forced to invest in a PRA. Every worker can decide whether to have a PRA or to remain in the traditional Social Security system.
A well-designed retirement system includes three elements: regular monthly retirement income, dependent's insurance, and the ability to save. Today's Social Security system provides a stable level of retirement income and provides benefits for dependents, but it does not allow workers to accumulate cash savings to fulfill their retirement goals or pass on to their heirs. Workers should be able to use Social Security to build a cash nest egg that can be used to increase their retirement income or to build a better economic future for their families.
Inheritances should not be effectively limited to upper-income families. Moderate-income and lower-income families should be allowed to use Social Security to build a nest egg that they could leave to future generations.
Today's Workers Could Build a Nest Egg with a PRA
Today's workers would be able to develop a significant nest egg under Social Security in every case studied. For instance, a low-income single female could retire with a nest egg equal to over one year's pay, while a married double-income couple--with one earning an average income and the other one earning a low income--could retire with a nest egg that exceeds $50,000. In each case, if the money remains invested, the retirees could leave well over twice their retirement nest egg to their heirs. Appendix 1 provides details of these and other workers studied.
The study assumes that none of today's workers would have a PRA for their entire career because they would already be employed when the program is started. The oldest would be 43 when the hypothetical PRA program is established, while the youngest would be 27. This would especially limit older workers' ability to build significant nest eggs in addition to accumulating enough in their PRAs to finance a portion of their Social Security benefits.
Married couples, including those with only a single income, could build larger nest eggs than the single workers of either gender. The one exception was a single worker who dies at the age of 55 and leaves his entire PRA to heirs before using any of it to finance his retirement benefits. However, even among single workers, the nest egg is significant in virtually every case when compared to the worker's annual income. Even the worker with the lowest nest egg, an average-income single woman, manages to save an amount equal to about three months' pay. Both she and the other worker with the smallest nest egg are among the oldest workers studied. Both are 43 at the time PRAs first become available.
Workers who are already in the workforce when PRAs are established would find building a nest egg more difficult because they have less time to invest. The fact that all of the examples in the CDA study succeed in building a nest egg shows the program's immediate value.
Even Better Results for the Third Generation
Results get even better if workers have a PRA for their entire working lives. In most cases, workers in the 12 case studies build a significantly larger PRA than those who have a PRA for only part of their working lives. They reach even larger amounts when the workers' own contributions are supplemented by sums inherited from other family members.
The results show that workers at all income levels can create significant nest eggs through a PRA, even after using part of their PRAs to finance a portion of their monthly retirement benefits. While the study assumes that today's workers will participate in the PRA program for only part of their working lives (because they would already be employed when PRAs are established), their grandchildren would have these accounts from the first day that they enter the workforce. The results are especially good for those third-generation workers who invest their inheritances from their grandparents. The results are also quite good at almost all income levels for workers who build their PRAs from only their own savings. The money remaining at retirement (after financing their Social Security benefit) could be used to improve their retirement incomes, start a small business, help a grandchild to pay for college, or achieve a number of options--including just holding the amount until it is needed.
Again, PRAs work especially well in producing a significant nest egg for married couples. The only third-generation workers who do not produce significant amounts are single low-income workers who do not invest any of their inheritances. These workers' nest eggs at retirement are mostly under $10,000. However, even then, the nest eggs amount to between three and six months salary and are partially explained by the extremely low earnings levels used in this study.3 Furthermore, these workers always have a choice. They can choose to remain in the traditional Social Security system.
Real world experience shows that many, if not most, retirees are interested in both their own standard of living and in leaving a sum for their heirs. However, the state of their finances combined with the structure of today's Social Security may not allow them to leave an inheritance. The CDA study assumes that the first-generation workers will leave any remaining money in their PRAs to their grandchildren.4
Ideally, the grandchildren who inherit money would invest the entire amount and let it grow over time to an even greater sum. However, Appendix 2 shows results for both (1) investing the entire amount until retirement; and (2) spending the entire inheritance and funding retirement benefits from only their own PRAs. While the grandchildren have substantially more for retirement if they invest their full inheritances, the importance of a PRA that allows workers to build an inheritable nest egg is equally evident if the grandchildren spend their entire inheritances.
The Value of Building Nest Eggs
Family nest eggs can do far more than just help to fix Social Security. A growing body of research shows that they would also:
Allow moderate and low-income workers to leave a bequest to their families;
Help equalize assets between upper-income and lower-income families; and
Change the way that lower-income families view themselves and their connection to society.
Reform plans that allow workers the option of accepting a smaller monthly income and leaving a portion of their savings available for other uses are likely to be more popular than a plan that requires them to spend everything on an annuity. Several studies, both in the United States and elsewhere, show that retirees value plans that allow them to leave money to their families and keep assets available in case of an emergency over plans that provide a guaranteed lifetime income. One study found that retirees avoided purchasing annuities because they wanted to leave money to their families and have savings for emergencies.5 They also felt that annuities cost too much.
Similarly, another study found that only about 40 percent of Chilean workers choose a lifetime annuity when they retire.6 Originally, Chile's personal accounts system allowed retirees to choose either an annuity or a phased withdrawal plan. However, earlier this year the government announced that the system would also offer an annuity that allows workers to receive a slightly lower monthly payment in return for the ability to leave money to their families.7 As long as retirees under such a plan receive enough monthly income to live without government aid, there is no reason why an American Social Security reform plan should not include similar flexibility.
In addition to providing retirees with more control over their savings, family nest eggs could also reduce the gap between the assets owned by upper-income and lower-income families. Edward Wolff of New York University and the Levy Economics Institute found that even modest bequests from one generation to another tend to equalize the distribution of family assets. "Though wealth inequality has risen in the United States between 1983 and 1998, the increase may have been even greater were it not for the mitigating effects of inheritances and gifts."8 Over time, a Social Security reform that makes it easier to leave money to one's family would result in an even greater reduction in the gap between rich and poor families.
Research has also shown that that money left from one generation to another can result in important behavioral changes. Research indicates that people with even modest assets may be more future-oriented, prudent, confident about their prospects, and connected with their communities.9 Clearly, a Social Security system that gives workers the flexibility to leave bequests to their families can have much greater benefits than just reducing Social Security's financial woes. The long-term benefits of this improvement could encourage a much greater change in the way that their families approach the future and their role in society.
Today's Social Security Discourages Workers from Building Nest Eggs
Today's Social Security system has done a fine job of providing retirees with a stable level of retirement income. In addition, it also provides a level of protection against poverty caused by disability or the premature death of a parent. Unfortunately, it not only fails to provide workers with any way to build a family nest egg, it actually discourages savings by absorbing a large proportion of earnings that moderate-income and low-income workers could otherwise save for retirement or use for other purposes. According to the Congressional Budget Office, approximately 80 percent of Americans pay more in payroll taxes than they do in federal income taxes.10
Despite the presence of private methods to invest for retirement, in 2000, approximately one-third of retirees on Social Security received at least 90 percent of their income from Social Security. Almost two-thirds of them depended on Social Security for at least 50 percent of their retirement income.
Today's Social Security faces four major problems that threaten its ability to provide future retirees with the same type of retirement security that was available to their parents and grandparents. These are:
Massive future deficits. In 2018, Social Security's retirement program will begin to spend more in benefits every year than it receives in taxes. A few years after deficits begin, this amount will exceed $100 billion per year and will continue to grow. Social Security has a drawer full of government bonds labeled the "trust fund," but these are nothing more than a pledge to use ever-larger amounts of general revenue taxes to pay benefits. When it repays these bonds, the federal government will have to reduce spending on other government programs, increase income or taxes, or increase government borrowing. Sadly, in 2042, the drawer of paper promises will be empty, and from that point forward, promised benefits will be cut as required by law--first by 27 percent and then by ever greater amounts as Social Security's deficits grow larger.
A poor rate of return on their payroll taxes. Younger and lower-income workers receive relatively little in benefits for their Social Security taxes because they will pay substantially higher taxes than older workers do. A 25-year-old average-income male is predicted to receive a -0.82 percent rate of return on his Social Security taxes. In other words, he will pay more into the system in taxes than he will receive back in benefits. The situation is even worse for low-income workers. A 25-year-old male living in a low-income section of New York City will receive an estimated -4.46 percent rate of return on his Social Security taxes.11
No property rights to their benefits. This is a key flaw. Even if Social Security was reformed to allow workers to build a family nest egg, without property rights the government could reclaim that money at any time. Two Supreme Court cases dealing with Social Security confirm this lack of property rights.12 In both cases, the decision explicitly stated that workers have no level of ownership of their Social Security benefits.
No choice in how their benefits are paid. Under the current inflexible system, all workers receive a monthly payment that starts when they retire and ends when either they die or their spouse dies. This one-size-fits-all approach especially hurts the one-fifth of white males and one-third of African-American males who die between the ages of 50 and 70.13 These workers face the prospect of paying a lifetime of Social Security taxes in return for little or no benefits. A more flexible system would allow them the comfort of knowing that at least a proportion of their taxes will go to their families in the form of a nest egg.
Changing Social Security to Allow Workers
to Build Nest Eggs
In order to study how PRAs could allow workers to build nest eggs (in addition to providing for their retirement benefits), the CDA developed a composite plan that incorporates key features from a number of existing reform plans, as well as other ideas that have not been included in any specific plan.14 The plan is designed to illustrate how all workers, especially lower-income workers, could create a family nest egg and provide a reasonable level of retirement income for all future retirees.
The study assumes that workers under age 55 as of January 1, 2003, would have the choice of either investing some of their existing Social Security taxes in a PRA or remaining in the current system. The amount invested in a worker's PRA would depend on his or her income, ranging from 7 percent of income for the lowest-income workers to 2.5 percent of income for the highest-income workers. This progressive contributions structure is designed both to reduce administrative costs and to allow lower-income workers (who are less likely to have access to other savings vehicles) to build their accounts faster.
For the purposes of this study, the PRAs would be invested in a conservative portfolio of 50 percent stock index funds and 50 percent super-safe government bonds. Investments would be handled through a centralized investment manager similar to the existing Thrift Savings Plan, which serves federal employees. This account structure would earn an estimated 4.7 percent annually after inflation and annual administrative costs equal to 0.3 percent of the account.
For a worker with a PRA, the monthly retirement benefit would be a combination of a government payment and an amount financed from the worker's PRA. A person without minor children who has reached full retirement age would receive substantially higher benefits than workers who retire today. The sample plan would guarantee that single workers receive at least $17,960 annually and couples would receive at least $24,240. In 2002, the current system paid average benefits of only $10,968 to new retirees.
Once a worker purchases an annuity that pays for his or her share of Social Security retirement benefits, the worker could withdraw all or part of any remaining money in the PRA or leave it in the account and allow it to grow. Upon the worker's death, the remaining money could be left to a surviving spouse, grandchild, or any other beneficiary.
Conclusion
Failing to utilize Social Security PRAs' full potential cheats future generations. Social Security reform should be about much more than just reducing the system's coming financial problems. Giving workers additional control over their retirement future and ensuring that the system is flexible enough to meet their individual needs will pay major dividends for families and society. Money in those nest eggs would remain in the community and would provide new opportunities for local people. Rather than depending on Washington and its priorities, PRA nest eggs would allow local people to improve their lives and those of their neighbors. The ability to create a nest egg should not be limited to the wealthy. Every American deserves the choice of building a family nest egg that could be used to improve retirement or enable his or her family to break out of poverty.
David C. John is Research Fellow in Social Security and Financial Institutions in the Thomas A. Roe Institute for Economic Policy Studies at The Heritage Foundation. Heritage Foundation intern Kyle Nasser compiled the appendices.

Appendix 1
How Today's Workers Could Build a Nest Egg with a PRA

Today's moderate-income and low-income workers could build a nest egg under Social Security reform according to the CDA report. The 12 case studies listed in Table 1 cover workers born between 1960 and 1976, who would already be working when a system of PRAs is hypothetically established in 2003. Workers who are already in the workforce when PRAs are established would find building a nest egg more difficult because they would have less time to invest. The fact that all of the examples in the CDA study succeed in building a nest egg shows the program's immediate value. These benefits will only grow larger for workers who have PRAs for their entire careers.
Each case study shows two examples of the nest egg that the worker or couple could produce. The first number is the amount that workers would have remaining after using a portion of their PRA to finance a part of their monthly Social Security benefits. This is money that would be immediately available to them for whatever purpose they wish. The second number is the amount they could leave to their heirs at their death if they leave the remainder invested. The second number is usually significantly larger because the money remains invested for an additional decade or more. The study assumes that this gross amount will be divided equally among three heirs.
All amounts are expressed in constant dollars that eliminate artificial growth due to inflation.



Appendix 2
Results for the Third Generation
Social Security PRAs would provide workers with an even larger family nest egg once the accounts are available for an entire career. They reach even larger amounts when the workers' own contributions are supplemented by sums inherited from other family members. The 12 case studies listed in Table 2 examine the grandchildren of the first-generation examples listed in Table 1. These cases mirror those of the first generation with one key change: All of these examples chose to open a Social Security PRA on the day they entered the workforce. Otherwise, each worker has the same income level--and the same employment gaps for raising children at home--as the example of the same number from the first-generation cases. Each case also has the same life expectancy as the first-generation case, with the exception of the two first-generation males who die at age 55 before they can retire. In both cases, their third-generation heirs live a full life and reach retirement age.
Each of the third-generation workers is assumed to inherit one-third of the amount that his or her grandparents had remaining in their family nest egg at the time of their deaths. Table 2 shows the effect on the grandchild's PRA if the worker: (1) invests 100 percent of the inheritance in his or her PRA; or (2) spends the entire inheritance.


1. William W. Beach et al., "Peace of Mind in Retirement: Making Future Generations Better Off by Fixing Social Security," Heritage Foundation Center for Data Analysis Report No. CDA04-06, August 11, 2004.
2. Calculated by The Heritage Foundation's Center for Data Analysis using data from The Board of Governors of the Federal Reserve System, "2001 Survey of Consumer Finances," at federalreserve.gov/pubs/oss/oss2/2001/scf2001home.html (August 2, 2004). In this analysis, any major inheritance, gift, or bequest is considered an inheritance. Income figures represent adjusted gross income.
3. For the purposes of this study, low income is defined as annual earnings of $9,280 (in 2004 dollars), while moderate income is defined as annual earnings of $25,417.
4. For workers who never marry, their PRAs are left to grandnieces or grandnephews. Of course, the money could just as easily be left to the workers' children as to grandchildren, but they would likely be at the middle of their working lives (or later) when they received the money. Assuming that the grandchildren inherit money in a PRA, the CDA study shows the maximum amount that a combination of inherited money and the worker's own PRA could reach.
5. James M. Poterba, "Annuity Markets and Retirement Security," presentation at the Third Annual Conference of the Retirement Research Consortium, May 17, 2001, at www.mrrc.isr.umich.edu/conferences/cp/cp01_poterba.pdf (January 26, 2004).
6. Olivia S. Mitchell, "Developments in Decumulation: The Role of Annuity Products in Financing Retirement," Pension Institute Discussion Paper PI-0110, June 2001, p. 26, at www.bbk.ac.uk/res/pi/wp/wp0110.pdf (January 26, 2004).
7. Social Security Administration, "Chile: Chile's Recent Pension Reform, Passed in February, Changes the Way Retirement Annuities Are Sold, Creates a New Type of Annuity, and Makes It Harder to Retire Early," International Update: Recent Developments in Foreign Public and Private Pensions, March 2004, pp. 2-3, at ssa.gov/policy/docs/progdesc/intl_update/2004-03/2004-03.pdf (August 2, 2004).
8. Edward N. Wolff, "Inheritances and Wealth Inequality, 1989-1998," The American Economic Review, Vol. 92, No. 2 (May 2002), p. 263.
9. Gautam N. Yadama and Michael Sherraden, "Effects of Assets on Attitudes and Behaviors: Advance Test of a Social Policy Proposal," Washington University Center for Social Development Working Paper No. 95-2, 1995, p. 8, at gwbweb.wustl.edu/csd/Publications/1995/wp95-2.pdf (January 26, 2004). As measures of personal behavior, Yadama and Sherraden used indices for prudence, efficacy, horizons, connectedness, and effort (based on longitudinal surveys developed by the Survey Research Center of the University of Michigan). They apply regression analysis to test three hypotheses: (a) More asset holding causes increases in the indices; (b) more income causes increases in the indices; and (c) higher values of the indices cause more asset holding. They find that the data best support the first hypothesis (pp. 11-13).
10. Congressional Budget Office, "Economic Stimulus: Evaluating Proposed Changes in Tax Policy," January 2002, p. 12, footnote 7, at ftp.cbo.gov/32xx/doc3251/FiscalStimulus.pdf (January 26, 2004). "Economic theory and empirical evidence suggest that workers bear much of the employer's portion of the payroll tax through lower wages and reduced fringe benefits. If the employer-paid portion of payroll tax receipts is counted as the contribution of the worker, roughly 80 percent of taxpayers pay more in payroll taxes than in income taxes." The 80 percent figure includes payroll taxes for the other two main programs of Social Security--Disability Insurance and Hospital Insurance.
11. Calculations by Center for Data Analysis at The Heritage Foundation using the Social Security Calculator, located at www.heritage.org/research/features/socialsecurity (July 20, 2004).
12. The two cases are Helvering v. Davis (1937) and Flemming v. Nestor (1960).
13. Stephen C. Goss, "Problems with `Social Security's Rate of Return: A Report of the Heritage Foundation Center for Data Analysis,'" Social Security Administration Memorandum, February 4, 1998.
14. This plan is intended to illustrate how a PRA reform plan could create nest eggs and is not an endorsement by either the authors or The Heritage Foundation of any particular approach to establishing PRAs.
? 1995 - 2004 The Heritage Foundation
All Rights Reserved.

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Health, Inequality, and the Scholars
By Nicholas Eberstadt, Sally Satel, M.D.
Posted: Monday, September 20, 2004
ARTICLES
The Public Interest
Publication Date: September 1, 2004
Few would take exception to the idea that an improvement in the material well-being of the poor would enhance not only their living standard but their health levels as well. A number of influential recent studies, however, purport to show that inequality in income--not poverty per se--has detrimental health consequences. This "inequality hypothesis" is meant to apply to everyone, regardless of wealth or social standing, and predicts that the risk of illness depends upon whether one lives in a society that is stratified or egalitarian. Thus, according to this hypothesis, while the poor may suffer the most from inequality, the better off and even the rich suffer as well.
This is a dramatic claim--and one with potentially far-reaching implications. It extends far beyond the current paradigms upon which contemporary Western social welfare policy is premised. Current welfare policy, after all, posits that overall national health can be improved by transferring resources from society's more affluent members to its poorest and most vulnerable groups. The inequality thesis, by contrast, would seem to suggest that simply taking wealth away from the rich--and thereby reducing measured economic inequality--should in itself produce an improvement in national health. Indeed, the inequality thesis suggests that, all other things being equal, a cutback in the income of the well-to-do could be expected to improve the health status of the poor, and possibly the rich themselves--even if society were left with a lower average income level as a result of those cutbacks.
It is hard to overstate how quickly and thoroughly the inequality hypothesis has become conventional wisdom among many medical sociologists and public health scholars. It is not confined to the radical left. In Unhealthy Societies, for example, Richard G. Wilkinson of Nottingham University Medical School argues that income inequality is "one of the most powerful determinants of health" and "the most important limitation of the quality of life in modern societies." The academic world is by no means immune to fads, but the sudden popularity of the inequality hypothesis--in schools of public health, scholarly journals like the American Journal of Public Health, institutions such as the American Public Health Association, and health philanthropies like the Robert Wood Johnson Foundation--is quite extraordinary.
Additionally, the notion that income inequality is bad for health has recently surfaced in political discussions, taxpayer-funded policy research forums, and the popular media. British Prime Minister Tony Blair has stated, "There is no doubt that the published statistics show a link between inequality and health." The World Bank has dedicated an entire web page to the inequality hypothesis. In the United States, the National Institutes of Health, Centers for Disease Control and Prevention, and reporters for the New York Times and Washington Post, among others, have given favorable coverage to the subject. The hypothesis has become accepted wisdom among public health researchers and epidemiologists.
But the enthusiasm of many researchers and observers goes well beyond what might be warranted by the weight of the evidence alone. A very persuasive, if less publicly heralded, body of scholarship that challenges the inequality hypothesis is currently emerging. To get a better sense of this important debate, it is useful to examine both sides of it--the evidence adduced to support, refute, and qualify the inequality hypothesis. In addition, it is necessary to evaluate the study methodologies and data interpretation, as well as policy recommendations, of both sides. Against this background, it appears that the evidence and arguments for the inequality hypothesis are wanting in many respects, and that a number of influential scholars have jumped to policy conclusions on the basis of ideologically appealing, but technically dubious, findings.
Origins of the Hypothesis
The income inequality hypothesis originated as an ad hoc explanation for the repeated observation that income inequality (the extent to which wealth is concentrated or dispersed over a population) is associated with mortality levels: The greater the degree of inequality, the higher the mortality levels in that population. From correlation was assumed causation. Antecedents of this line of academic thinking can be traced back at least to the 1970s, when income inequality emerged on the margins of the public health literature in the form of neo-Marxist jeremiads.
This line of argumentation was particularly associated with Johns Hopkins Professor Vicente Navarro and the publication he edited, the International Journal of Health Services. Navarro and his colleagues maintained that the capitalist system necessarily generated both economic inequality and ill health, and that it did so in rich and poor countries alike. This initial neo-Marxist thesis linking capitalism, inequality, and disease, however, was fundamentally nonquantitative, and it relied more on assertion and Marxist scripture than careful data analysis to bolster its case. It would take almost two decades for some of Navarro's tenets to be tested in a more quantifiable manner by more mainstream scholars.
One of the earliest studies arguing for a causal link between health and income inequality appeared in the British Medical Journal in 1992. In "Income Distribution and Life Expectancy," Richard Wilkinson of the University of Nottingham Medical School compared nine Western industrialized countries and reported that those with less income inequality had populations with longer life expectancies. Wilkinson has been the most vocal proponent of the so-called social-production theory of health. Since the appearance of his seminal article, well over two dozen research studies and commentaries confirming the income inequality hypothesis have been published.
Wilkinson and other supporters of the hypothesis argue that health is one of the most sensitive indicators of the social costs of income inequality. Beyond a relatively modest level of economic development, they argue, further advances in standard of living do not seem to matter much, and the linear relationship between life expectancy and income breaks down. This observation prompted Wilkinson to ask the following question: How can one country "be more than twice as rich as another without being any healthier," particularly when it comes to life expectancy?
The many lines of exploration that have been pursued to answer this question assume two main types: aggregate data studies and individual-level analyses. (A third type of study exists--observational examinations of human and animal social hierarchies--but this is not the place to discuss these.) These studies, which help establish patterns of disease and health status in relation to social position, form the basis for speculation about the mechanisms by which environmental factors create stress or lead to behaviors that produce adverse health consequences.
Aggregate Data Studies
This first type of study examines correlations between aggregate levels of health (that is, the mortality of a specified population) and income inequality. These aggregate data studies purport to offer evidence that inequality affects all members of a group, not just the poorest ones. One of the earliest studies of this phenomenon was "Income and Inequality and Determinants of Mortality," conducted in 1979 by G.B. Rodgers of the International Labour Organization. Rodgers examined income dispersion applying the Gini coefficient, a measure of income distribution, to data from 56 rich and poor countries in the context of three health measures: life expectancy at birth, life expectancy at age five, and infant mortality rate (deaths in the first year of life per 1,000 live births). He concluded that the "difference in average life expectancy between a relatively egalitarian and a relatively inegalitarian country is likely to be as much as five to ten years." In the 1980s, a handful of studies used the Gini coefficient in analyzing the relationship between health measures and found similar results.
It is important to note that Rodgers posited at first only a correlation, not a causal relationship, between health and income. But in his 1992 study, Wilkinson suggested a causal relationship. He examined Organization for Economic Cooperation and Development member countries using data from the Luxembourg Income Study and found a high correlation between life expectancy and the proportion of income earned by the bottom 70 percent of the population.
Wilkinson concluded that differences in per capita gross national product (GNP) alone could not explain more than 10 percent of the variance in life expectancy. He noted further that mortality rates are not related to per-capita economic output but rather to the scale of economic inequality in each society. The association was unaffected by adjustments made for average absolute income level and remained evident across a range of decile shares of income distribution. Subsequent to Wilkinson's report, a series of crossnational studies have demonstrated that the more even the distribution of income, the higher the life expectancy.
Robert J. Waldmann of Columbia University complemented these findings by using another measure of inequality. In a 1992 article for the Quarterly Journal of Economics he examined pairs of countries in which the poor (defined as the lower 20 percent of household income distribution) had equal real incomes but where the rich (defined as the top 5 percent of the household income distribution) in one country were much wealthier than in the other. He found that the infant mortality rate was higher in the half of the pair in which the rich households were wealthier. He tested for explanations other than income, including the degree of urbanization of the households, the literacy of the mothers, and access to medical services. Yet he found that none adequately accounted for the positive association, likely causal in his view, between the incomes of the rich and infant mortality.
In their book Is Inequality Bad for Our Health? Harvard researchers Norman Daniels, Bruce Kennedy, and Ichiro Kawachi provided further evidence in support of the inequality hypothesis. The authors highlight seeming paradoxes such as the fact that equally poor countries such as Cuba and Iraq do not have similar life expectancies--Cuba's reportedly exceeded that of Iraq by about 17 years. Conversely, low GDP-per-capita Costa Rica and the high GDP-per-capita United States were said to have similar life expectancies. And comparably wealthy countries with more equal income distributions, such as Sweden and Japan, had higher life expectancies (by two to five years) than the United States. The authors conclude that "the health of a population depends not just on the size of the economic pie but on how the pie is shared," adding that "the degree of relative deprivation within a society also matters."
Numerous studies of the U.S. population have examined the association between income inequality and aggregate health measures at the state level. Daniels, Kennedy, and Kawachi found that, in the United States between 1980 and 1990, states with the highest income inequality showed slower rates of improvement in average life expectancy than did states with more equitable income distributions. They concluded that "the more unequal a society is in economic terms, the more unequal it is in health terms." George Kaplan of the University of Michigan and his colleagues in a recent study found a strong correlation between inequality and death rates. In particular, the authors discovered that income inequality was significantly associated with a higher incidence of age-specific mortality, low birth weight, homicide, violent crime, work disability, welfare receipt, smoking, expenditures on medical care, unemployment, and low educational attainment. What is more, all these measures worsened with increased income dispersion.
Individual-Level Analyses and Questions of Causation
The second type of analysis measures the effect of income inequality on health after controlling for the effects of individual income. These individual-level analyses ask the following question: Can the observed correlation between inequality and health be explained by the intervention of other variables, or is there truly a causal relationship between the two? When this type of analysis is considered, the association between income inequality and health outcomes does not appear as secure as its proponents suggest.
Questions remain about the extent to which statistical artifact has been mistaken for real effect. In his 1998 article in the British Medical Journal, Hugh Gravelle of the University of York asserts that there may be a very simple explanation for some, or all, of the reported associations between inequality of income and population health used to support the relative income hypothesis. "A positive correlation between population mortality and income inequality can arise at the aggregate level even if inequality has no effect on the individual risk of mortality," he stated. "Thus, we do not need the relative income hypothesis to explain the observed associations between population health and income inequality--the absolute income hypothesis will serve."
International comparisons show that health improvements become smaller and smaller with increasing wealth. Thus the relationship between per-capita income and national health--however it is measured--should not be expected to be linear. To the contrary, as Jennifer Mellor of the College of William and Mary and Jeffrey Milyo of the University of Chicago argue, the function is one in which we would expect to see "diminishing returns" to average income. Furthermore, they continue, health levels should depend not only on average income levels but also on income distribution. This is because information on income distribution serves as a proxy for the number of persons at lower levels of income. Consequently, Mellor and Milyo conclude, aggregated studies do not offer convincing evidence on this matter. Harold Pollack of the University of Michigan puts it another way:
Money matters near the bottom of the distribution and may not matter at all for many outcomes when one exceeds the median. Controlling for the median income, then, any income dispersion measure is highly correlated with the percentage of the population that is under the poverty line.
The influence of particular variables is significant as well. For example, when individual characteristics replace aggregate-level mortality in the analyses, and when different years are examined, the relationship between health and income inequality often disappears. When the strong regional patterns in health outcomes that exist across the United States are ignored, spurious associations between inequality and health may result. Some, like Pollack, question the validity of one of the aggregated econometric measures used in most analyses: "Cross-sectional regressions that use inequality measures such as Gini are virtually uninterpretable."
There are some glaring exceptions to the health and income inequality pattern. In Denmark, for example, where per-capita income is similar to that of the United States, but where income dispersion is lower, life expectancy is also slightly lower than in the United States. Thus the important but unanswered question remains: If an underlying relationship between deprivation and poor health does indeed exist, is reported annual dispersion of a society's income the most appropriate index for describing inequality in that population?
Milyo and Mellor have questioned whether the correlation between inequality and health is in fact not causal but spurious. There are three possible interpretations of a correlation between variables A and B: either A causes B, B causes A, or A and B are independent of one another but both related to a third variable. Taking into account the well-established relationship between health and material well-being and social status, Milyo and Mellor point out obvious advantages that come with wealth: Well-off people can afford better health insurance and higher-quality care; they can demand better work environments, afford safer cars, and live in less polluted and less crime-ridden neighborhoods. In this way, being richer can make one healthier.
Yet consider the reverse dynamic: Being healthy can also make one better off. Poor physical or mental health can influence an individual's ability to work for long hours or at all, thus limiting his income. This is known as the "healthy worker effect." What follows could lead to further health impairment because the worker has less money with which to purchase health-enhancing goods and protections. The cumulative wear and tear on such individuals, coupled with whatever psychic stress they experience as a result of deprivation of social status, may be considerable.
Additionally, so-called third factors can account for the habits and limited opportunities that often lead to poorer health. Sedentary lifestyle, obesity, high-fat diets, aversion to medical care, and risky behavior, which typically underlie many of the differences in health status between the less wealthy and the better off, may well be the product of educational level. Better-informed people know about the importance of exercise, screening tests for cancer, and a healthy diet. They are more confident when interacting with physicians and better at negotiating bureaucracies (for example, HMOs). Personal characteristics that tend to be associated with greater life success, such as prudence, perseverance, and an ability to delay gratification, are also likely predictors of good health or competence in managing illness. Indeed, the substantial association of health with certain measures of human agency raises the question of whether income inequality itself has any appreciable direct effect on mortality. The association may instead reflect the effects of other factors--education in particular--that are also related to mortality.
Indeed, in a recent study in the British Medical Journal Andreas Muller of the University of Arkansas tested whether the relationship between income inequality and mortality in the United States is a consequence of different levels of formal education. He conducted state-by-state analyses of age-adjusted mortality from all causes and three independent variables: the Gini coefficient on income in 1989 and 1990, per-capita income from those years, and the percentage of people older than 18 who did not complete high school. An income inequality effect was found, but it disappeared when the percentage of people without a high school diploma was added to the regression analysis. Muller concluded that the lack of a high school education accounts for the income inequality effect and is a powerful predictor of mortality variation across states. He writes, "The physical and social conditions associated with low levels of education may be sufficient for interpretation of the relationship between income inequality and mortality." These conditions likely include the risk of occupational injury, the inability to attain protective goods and services, and cigarette smoking.
Ecological Bias (in Theory)
From a methodological standpoint, most quantitative research purporting to support the inequality thesis is potentially compromised by a problem statisticians designate as "ecological bias." Ecological bias arises when "ecological correlations"--that is to say, correlations witnessed in aggregated data--differ from the underlying correlations that would be observed if one were examining individual data.
Ecological bias is a particular risk in studies of the inequality thesis for a very simple reason: The relationship between income and mortality is highly unlikely to be linear. In general, an individual's health will not be doubled by a doubling of income--and multiplying his or her income by a factor of 10 will not correspondingly reduce mortality odds or health risks by an order of magnitude. To the contrary, the relationship between income and mortality in almost all populations seems to be curvilinear. That is to say, additional increments in income correspond to further improvements, albeit steadily diminishing improvements. Recent international data, indeed, suggest that a doubling of a country's per capita income is associated with an absolute increase in life expectancy at birth of just about six years.
Consider what this curvilinear correspondence between income and mortality means for aggregated data--and for measurements to test the inequality hypothesis. Even if increased income dispersion has no negative impact whatever upon health, the society with the higher level of income inequality will, all things being equal, appear to have an "unexpectedly" short life expectancy.
A simple hypothetical example illustrates the problem. Suppose we invent a country called "Equalia," with a population of 100,000. Every person in Equalia earns the national median income of $50,000 a year, and every person lives exactly 75 years. In this country, then, life expectancy is 75, average per capita income is $50,000, and the Gini coefficient of income inequality is exactly zero (on a possible scale of 0 to 100 percent).
Now suppose an invented individual--call him "Bill Gates"--suddenly moves to Equalia. Bill's income is $5 billion a year, and his life expectancy (thanks in part to the superb medical treatment he is able to afford) is exactly 100 years. Suppose further that Bill's immigration leaves everyone else's income and health totally unaffected.
What will the aggregated data show? Before Bill came to Equalia, life expectancy was 75 years; after he moved in, it was ever so slightly higher. Before he moved in, average income per household was $50,000; after he arrived, average income was virtually twice as high--essentially, $100,000 per household. And whereas the Gini coefficient for Equalia's income distribution was zero before Bill's arrival, post-Bill Equalia would have a Gini coefficient of nearly 50. In other words, half of the country's income would be in Bill's hands, and the rest would be evenly distributed among everyone else.
By the sort of analysis the inequality-thesis school favors, post-Bill Equalia would be placed on a scatter plot along with other populations and compared in terms of mortality (or life expectancy), income, and income distribution measures. Of course, life expectancy in the country would be almost identical before and after Bill's move. But post-Bill Equalia's income level would be far higher than that of pre-Bill Equalia, and the country's income distribution would be more uneven. The correspondence between life expectancy and income in post-Bill Equalia would look much less favorable than in pre-Bill Equalia. Indeed, once the statistics are crunched, post-Bill Equalia might be seen as "suffering" from a national life expectancy fully six years lower than might have been expected on the basis of its income level alone. Further use of regression analysis could produce results that would demonstrate that income inequality in post-Bill Equalia had cost the nation years of lost life expectancy (against levels otherwise predicted). Yet in our hypothetical example, not a single household in Equalia had its health or income affected by Bill's entry into the country. The adverse relationship between inequality and health suggested by nation-level data in post-Bill Equalia is entirely spurious--a consequence of ecological bias, pure and simple.
Ecological Bias (in Practice)
It is not only in the hypothetical case of Equalia that "ecological correlation" may misrepresent the true correspondence between health risks and economic stratification. Ecological fallacy may also undermine conclusions from previous studies supporting the income inequality hypothesis. It is therefore important to control for confounding at the individual level.
To that end, in a 1997 study appearing in the British Medical Journal, Kevin Fiscella and Peter Franks of the University of Rochester examined whether the relationship between income inequality and mortality observed at the population level may simply represent inadequately measured rates of income differences at the individual level. Fiscella and Franks used demographic and mortality data from 1971 and 1987 from the first National Health and Nutrition Examination Survey and related follow-up surveys. To measure income inequality, the researchers used an index that estimates the proportion of total income earned by the poorer half of the population in an area. The authors found that aggregated data replicated earlier findings that supported the income inequality hypothesis. After they adjusted for individual household income, however, no significant relation between income inequality and mortality was evident. They concluded that "income, as a measure of access to resources, and not relative inequality, better explains the relation between income and mortality."
The fact is, few studies explicitly test whether inequality has a more pronounced effect on the health of the poor. In those that do, the results are mixed at best. Ellen Meara of Harvard University examined the relationship between various measures of household income inequality on infant mortality and low birth weight. She estimated the effects of inequality with and without state-specific effects--that is to say, taking into account the possibility that particular states might have especially good, or poor, health outcomes due to some special circumstance. After controlling for household income and other maternal characteristics, Meara found no significant correlation between income inequality and adverse birth outcomes among poorer women.
Mellor and Milyo also explicitly examined whether inequality has a particularly strong effect on poorer individuals. They controlled for the possibility that particular regions of the country might have characteristically better or worse health than other regions--possibly due to such factors as local dietary or behavioral habits that could be spuriously correlated with income inequality-- and explored whether the relationship between health and income inequality is robust across geographical units. They found that statistical association between income inequality and health outcomes is greatly attenuated once controls are added for individual income. In fact, when Mellor and Milyo controlled for variables such as education and race, they found a weak inverse relationship--that is, the more dispersed a state's income, the less healthy the individuals.
Little research is explicitly devoted to testing the theory that perception of relative deprivation leads to illness or foreshortened lifespan. Angus Deaton and Christina Paxson of Princeton University attempted to do this by measuring inequality within birth cohorts rather than across geographical regions. The authors reasoned that people may be more likely to appraise their social status differently if they compare themselves to others at the same stage of life rather than with their neighbors. They found no robust association between inequality and mortality when inequality is measured within birth cohort. In fact, in some specifications, the association was the opposite of what the income inequality hypothesis would predict.
Social Capital As a Causal Mechanism?
Because a clear causal relationship between economic inequality and health cannot be identified, much of the inequality thesis literature to date is devoted to determining a possible intermediary factor that links the two. The main intermediate variable is surmised to be "social capital," a concept that describes the pattern and intensity of networks among people with shared values. It gauges civil cohesion through a consideration of citizenship, neighborliness, trust, community involvement, social networks, and political participation (among other factors). Proponents of the hypothesis claim that inequality causes people to perceive their neighbors as more alien or less trustworthy than would be the case in an egalitarian society. As a result, citizens are less concerned about the welfare of their neighbors, and a decline in public health results.
Measuring social capital, however, is exceedingly difficult. Alternative indexes can produce contrasting or even contradictory readings for a given society. For this reason, the claim that social capital is the mechanism by which economic inequality adversely affects human health is problematic.
It is true that some data suggest a relationship on the individual level between health and civic cohesion. Numerous epidemiological studies have shown that people who are socially isolated die at two to three times the rate of well-connected individuals. But what about entire, socially isolated communities? If populations are not well integrated socially, as reflected in a hierarchical structure that highlights real or perceived differences in interests across individuals, what effect might this have on the health of the group?
Daniels, Kennedy, and Kawachi were among the first to address this question. They conducted a cross-sectional study of 39 states in which they examined the relationship between social capital and mortality. The aim was to estimate state variations in group membership and levels of trust.
They quantified social capital by considering the per-capita number of groups and associations to which residents of each state belonged. They also weighted responses to several items on the General Social Survey conducted by the National Opinion Research Center. The first survey item was a measure of "perceived lack of fairness," which was measured by responses to the following question: "Do you think most people would try to take advantage of you if they had the chance, or would they try to be fair?" The second item concerned "social mistrust" and was measured by responses to the question, "Generally speaking, would you say that most people can be trusted or that you can't be too careful in dealing with people?" So was the third: "Would you say that most of the time people try to be helpful, or are they mostly looking out for themselves?"
For each state, the authors calculated the percentage of respondents who agreed with the first part of each statement and found an association between social capital and mortality. (The authors acknowledge that their model did not consider the full range of factors that might influence income inequality and social capital, and also recognize the inability to discern the direction of causality.)
Based on their findings, Kawachi and his colleagues propose that income inequality affects health by inhibiting the formation of social capital, which in turn undermines civil society. It erodes social cohesion, as indicated by higher levels of measured social mistrust, and reduced participation in civic organizations. Lack of social cohesion, they argue, leads to a decline in engagement in activities and institutions such as voting, serving in local government, or volunteering for political campaigns. Low levels of engagement, in turn, undermine the responsiveness of government when addressing the needs of the worse-off. The authors conclude: "States with the highest income inequality, and thus the lowest levels of social capital and political participation, are less likely to invest in human capital and provide far less generous safety nets."
But even if there proves to be a correspondence between health and social capital, it does not necessarily follow that economic inequality per se has a direct bearing on health prospects. If that were true, a causal relationship would have to exist between inequality and social capital formation. Available evidence, however, suggests that the statistical association between economic inequality and social capital is quite tenuous.
This problem is indicated in Francis Fukuyama's 1995 study Trust: The Social Virtues and the Creation of Prosperity. In the course of that work, Fukuyama describes and contrasts countries and areas that he designates as "high trust" and "low trust" societies. In Fukuyama's estimate, Germany, Japan, and the United States are countries with high levels of social capital, while France, Italy, Hong Kong, and Taiwan are settings where the endowment of social capital is noticeably lower.
As official economic statistics illustrate, however, no obvious correspondence exists between income inequality and social trust among Fukuyama's exemplars. It is true that economic inequality (as measured by the Gini coefficient) is on average somewhat higher in the "low trust" than the "high trust" societies identified. But income inequality would also seem to be greater in "high trust" Germany than in "low trust" Italy. Income distribution would appear to be distinctly more skewed in "high trust" America than in either "low trust" France or "low trust" Taiwan. And within the "low trust" group, Italy's measured level of income inequality is barely half that of Hong Kong. Indeed, according to World Bank data, outside of Scandinavia and the former Soviet bloc, no country in the world today reports a more even distribution of national income than does "low trust" Italy. Given the weak empirical foundations for any argument linking inequality and social capital, the hypothetical mechanism by which inequality would have an impact on health would seem to remain just that--merely hypothetical.
Nonreproducible Results
The inequality hypothesis has become an increasingly influential school of thought within public health literature. But when exploring the claims its proponents advance, the evidence they cite in their favor, and the methodologies underlying their arguments, it becomes clear that this is a theory built on stilts. How has a notion with such questionable empirical documentation--research relying far too often on limited or unrepresentative data sets, hazily expounded causality, and elementary econometric fallacies--acquired so much respect within the academy and so much authority in policy circles?
This troubling question becomes even starker when one considers that some of the important studies adduced in support of the inequality hypothesis appear to be difficult to replicate with different but analogous sets of data. The essence of the scientific method is to frame and operationalize a hypothesis whose predictions comport with observable results in a consistent manner. If the hypothesis is valid and testable, its result should be generally reproducible, rather than unique to a particular experiment. But key facets of the evidentiary foundation for the inequality hypothesis fail this basic test.
Robert Waldmann's influential 1992 study on international infant mortality rates and economic inequality is a case in point. Although Waldmann himself has not been an exponent of the inequality thesis, his econometric analysis has become staple fare for those who argue that inequality has adverse effects on public health. Using World Bank per-capita income and income distribution data from the 1960s and 1970s for a sample of 57 countries, 41 of which he categorized as "developing," Waldmann concluded that "infant mortality appears to be positively related to the incomes of the rich (the upper 5 percent of the income distribution) when the incomes of the poor (the lowest 20 percent) are equalized among countries." He took this result to be so robust that he described it as a "striking empirical regularity."
If this is indeed as striking an empirical regularity as he claims, it would be reasonable to expect a similar result using larger and more recent World Bank data. Because such data are presently available, we thought it would be interesting to repeat Waldmann's analysis using these new data and the same regression equations that generated his striking and thought-provoking conclusions. As it turns out, the "striking empirical regularity" that Waldmann found in 1992 is by no means evident in international data from the mid 1990s.
For the sample of all countries, rich and poor, recent data affirm Waldmann's finding of a strong and statistically significant relationship between infant mortality and the per-capita income levels of the middle-income grouping. This is hardly a surprising result, insofar as this middle group accounts for the overwhelming majority of each country's population, and also presumably the greatest share of every country's births and infant deaths. But where Waldmann uncovered a powerful and significant positive relationship between infant mortality and the share of income accruing to the top income grouping, our analysis finds a negligible association--less than one hundredth the scale of Waldman's. This association, moreover, could be either positive or negative, given the weak statistical relationship itself and the large margins of error involved.
Some of our other results appear even more incongruent with Waldmann's. When just the income level of the poor and the income share of the rich are used to predict infant mortality, Waldmann found a strong and positive association between inequality (so measured) and the infant mortality rate. But for the mid 1990s, using a substantially larger data set, that relationship is weak and the coefficient is negative. This is true for a sample including both rich and poor countries, and for the developing countries by themselves. What does that mean? Plainly put, this purportedly "striking empirical regularity" of the supposedly perverse relationship between income concentration and infant mortality is rather less "striking"--or "regular"--than proponents of the inequality hypothesis themselves apparently understand. Based on these larger, more recent data samples, the notion that a country's infant mortality rate is directly influenced by its economic elite's share of total income is a proposition that plainly cannot be generally substantiated.
Faith Factor
Considering the empirically questionable nature of the data and methodology used to support the inequality hypothesis, its widespread popularity must therefore be explained in other, nonempirical terms. One reason the hypothesis may have proved so compelling in academia, as well as in the policy world, is that it points toward a social reform long favored by radical egalitarians: the redistribution of wealth. In view of the new and now well-documented activist mission of many schools of public health--that is, to promote "social justice"--it is not surprising that public health circles might react enthusiastically to a thesis that would seem to support their own preferences for an expansive social and economic policy agenda.
It seems there is a profound, almost elemental appeal to the basic premises of the hypothesis, and, most especially, to its implicit practical corollary--namely, that by restructuring society and reducing inequality, the health chances and life prospects can be improved for all. This elemental theme, however, is hardly new to social or political discourse. In an important sense, the theme is as old as the concept of modernity itself. In one form or another, versions of the same romantic, utopian call have been heard ever since writers first began to imagine that we could improve humanity by purposely refashioning the sort of society that human beings inhabited. Like the Marxist and neo-Marxist ideologies to which it is related, the inequality hypothesis is best understood as a creed or faith. To describe it as a scientific hypothesis is a misnomer; it is more accurately a doctrine in search of data.
Nicholas Eberstadt is the Henry Wendt Scholar and Sally Satel is a resident scholar at AEI.

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A Prescription for Health-Care Reform
By R. Glenn Hubbard
Posted: Thursday, September 16, 2004
ARTICLES
Business Week
Publication Date: September 20, 2004
An "Ownership Society'' agenda has taken center stage in President George W. Bush's agenda for a second term, with proposals for Personal Accounts in Social Security, expanded incentives to save for retirement, and Personal Reemployment Accounts to aid workers in finding a new job. But a central plank of this agenda, and one that can be enhanced to improve markets for health care, is already law: the Health Savings Accounts (HSAs) passed in the recent Medicare reform.
HSAs, which let individuals set up tax-preferred accounts to pay for health care--so long as they buy high-deductible health insurance--allow citizens, as the President says, to "own their own health care.'' Under current law, people can use pretax dollars to fund a deductible of at least $2,000 for a family and insurance pays expenses above that amount. HSAs can also shore up troubled Medicare and mimic the economic advantage of the Social Security Personal Accounts.
HSAs help make health-care markets work better by removing the tax bias toward third-party payments.
Patient-centered health care is a hard concept to implement when direct patient payments make up only $1 out of every $6 of expenditures. With insurers paying for even routine care, consumers lack incentives to shop for low-cost, high-value care. Middle-income families receive a huge tax discount by buying employer-sponsored insurance: A household earning $50,000 gets a subsidy equal to its combined marginal income and payroll tax rate of about 40%.
In the short run, markets cope with this situation by shifting and managing costs. Small employers will probably drop coverage. In the long run, the problems will lead to calls for more government intervention--bringing price controls and a system responding slowly to innovation.
But a simple change can improve HSAs as a tool of health policy and the Ownership Society: Let all Americans deduct expenditures on insurance and out-of-pocket expenses as long as they purchase at least insurance against catastrophes. That is, people already covered by employer plans could deduct out-of-pocket expenses. The self-employed with insurance may deduct out-of-pocket expenses. Those now without coverage may deduct both insurance premiums and out-of-pocket expenses if they purchase an individual plan.
The change would level the playing field between medical care through employer insurance and direct out-of-pocket outlays. Acquiring insurance would be encouraged since the tax break is available only with insurance. Importantly, the tax-code bias for high-cost, low-deductible insurance would be removed, allowing for deductibility of out-of-pocket expenses. The tax change reduces the bias against buying insurance on your own, either through your employer or individually.
Such an enhancement of HSAs raises two policy questions. First, as expanded HSAs make individual coverage more attractive, would employer-based insurance unravel? No. Expanded HSAs just remove much of the difference between buying insurance through one's employer or on one's own.
Second, by making more out-of-pocket outlays deductible, wouldn't an enhanced HSA raise costs? No. People will shift to plans with higher deductibles and co-insurance, reducing health-care utilization. John F. Cogan, Daniel P. Kessler, and I have estimated the net decline in spending at more than $65 billion a year. That drop is achievable without price controls.
But resources no longer spent on health would flow to other, taxable activities: Wages will climb by the amount of the decline in employer premium payments. Besides putting cash in workers' pockets, new income and payroll tax collections will rise enough to cover much of the revenue loss from tax deductibility. HSAs also offer a vehicle through which health assistance to low-income households could be distributed, helping families buy insurance in private markets and save for old-age medical expenses.
Finally, HSAs, and the ownership agenda they represent, are a stark contrast to the vision offered by John F. Kerry. The Kerry plan would spend $1 trillion over 10 years, expanding government's role in health care. This requires more than the tax increase on high-income earners that Kerry has outlined. And carrying the debate to shoring up Medicare, the Senator's "solve it with tax increases'' theme bodes ill for growth, and does little to put the consumer in the driver's seat.
To the patient and voter: Read the prescriptions carefully.
R. Glenn Hubbard is a visiting scholar at AEI.

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>> ARGENTINA

Argentina Must Implement IMF's Reforms If Recovery Is to Continue
Letter to the Editor
By Desmond Lachman
Posted: Monday, September 20, 2004
ARTICLES
Financial Times (London)
Publication Date: September 16, 2004
After all of Argentina's economic pain, one can understand Mr. Prat-Gay, Argentina's central bank governor, taking satisfaction from the stronger than expected bounce in the Argentine economy over the past two years. (How Argentina defied the analysts, September 14) However, one must wonder whether he does his country a service by insinuating that it can sustain that recovery without implementing the economic reforms being prescribed by the IMF and without normalizing its relationship with its external private creditors.
While noting Argentina's strong economic growth since 2002, Mr. Prat-Gay overlooks the many transitory factors that have supported that growth. These factors have included near record international grain prices, an undervalued exchange rate, a substantial domestic output gap, and record low international interest rates. Yet despite these favorable factors, the Argentine economy is yet to regain its pre-crisis 1998 level.
Mr. Prat-Gay also suggests that the Argentine financial system is on the mend as indicated by the rapid shrinking of non-performing loans and by a 40 percent increase in private credit. However, he does not remind us that private bank credit in Argentina is presently around 7 percent of GDP, or barely 40 percent of its pre-crisis level. Nor does he mention the remaining vulnerabilities of Argentina's banks or the far from completed IMF banking system reform agenda.
As Argentina uses up the economy's existing slack, maintaining satisfactory economic growth will require sustained investment and improved productivity performance. As the IMF does not tire of reminding us, this will require normalizing relations with international creditors, placing the public debt on a sustainable path, restoring a sound financial system and resolving the problems inhibiting investment by Argentina's utility companies. Rising to this challenge may not be quite as easy for Argentina as Mr. Prat-Gay seems to suggest.
Desmond Lachman is a resident fellow at the American Enterprise Institute.